Jill Overmyer

More than 20 percent of auto insurance claims in New York City are fraudulent, according to a study by the Insurance Research Council. An additional 14 percent of claims in the area involve overbilling (medical practitioners overcharging insurance companies). Outside New York City, however, the numbers are much lower -- only 4 percent of claims in the rest of the Empire State showed signs of fraud.

No-fault insurance and insurance fraud

Some blame the state's no-fault auto insurance system for the high percentage of fraud cases. With no-fault insurance, each policyholder involved in a crash is reimbursed for medical expenses and lost wages by his own insurance company, regardless of which driver is at fault. These costs are paid by the policyholder's Personal Injury Protection (PIP) coverage. Only in certain circumstances are victims allowed to sue the other driver for damages.

According to the Insurance Research Council study, auto insurance providers in New York City paid nearly twice as much in PIP claims in 2010 as New York auto insurance companies in the rest of the state did. Moreover, New York City residents were more likely to rack up medical bills (and PIP claims) by visiting numerous doctors.

Although no-fault insurance was designed to reduce litigation and speed up medical and lost-wage payments, it is more susceptible to insurance fraud. There are several reasons for this:

  • No-fault laws require insurers to pay medical claims quickly, usually within 30 to 90 days. This reduces the amount of time insurance companies have to investigate claims, according to the Coalition Against Insurance Fraud.
  • PIP limits are in place in most states, and some no-fault states allow the injured motorist to sue the other driver or even the insurance company once limits are exhausted. According to the Coalition Against Insurance Fraud, many insurance companies might opt to settle claims rather than go to court.
  • Bogus injuries are difficult to dispute, especially when doctors and medical clinics are in on the scam.

Common insurance scams

Insurance scams can involve both fraudsters and unsuspecting drivers. Some of the most common scams include:

  • Bumper cars. In this scam, scammers purposely crash into unwitting drivers. The scammers and their passengers then pretend to be hurt and visit a clinic where doctors and office managers submit false claims to insurance companies.
  • Doctor/patient scams. With this scam, fraudsters persuade real accident victims to visit certain doctors. These crooked doctors then diagnose the patients with hard-to-prove injuries and bill their auto insurance companies for the treatment.