FOR IMMEDIATE RELEASE: January 17, 2004
Schumer Reveals: NY Auto Insurance Fraud Capital Of US – Most New Yorkers Will Have Higher Car Insurance Bills In 2004
Million-dollar fraud ring bust in Queens this week just latest example of how insurance fraud costs NYers $1 billion each year – nearly $200 per driver
On the heels of a million-dollar auto insurance fraud bust in Queens this week, US Senator Chuck Schumer today released data showing that insurance fraud costs the New Yorkers $1 billion a year – nearly $200 per driver. Schumer said that despite some progress in breaking up fraud rings, car insurance bills will still go up in 2004 because insurers are afraid of new cases of insurance fraud. Schumer today urged the US Department of Justice to create a Federal-State-Local task force to fight auto insurance fraud in New York, and provide $25 million for prosecutors to take on crooks who try to take advantage of New Yorkers, and proposed new legislation to create new tough criminal and civil penalties for auto insurance fraud.
“If insurance fraud were a legitimate business, it would lead the Dow Jones Industrial Average,” Schumer said. “Auto fraud hurts everyone whose car insurance bill goes up even though their car goes down in value. Fraud hurts every small business that can afford to buy more delivery vans but can't afford the extra insurance costs. Fraud hurts vacationers and business travelers to New York who don't understand why car rental insurance rates are so much higher here than in other cities and states. Fraud hurts us all, and it’s time to strike back."
"I very much applaud Senator Schumer's initiative," said Queens District Attorney Richard A. Brown. "It will significantly enhance the ability of local prosecutors like myself to conduct the long-term investigations necessary to prosecute those who defraud insurance companies and drive up insurance rates by staging accidents, filing false claims and providing unneeded treatment. Those who engage in insurance fraud must know that they will be sought out -- and that they will be vigorously prosecuted and subjected to substantial penalties."
On Wednesday, a two-year investigation dubbed "Operation Sideswipe" resulted in 33 indictments and the arrests of 20 people in a million-dollar scheme to defraud no-fault auto insurance companies. The operation used two Queens medical centers, a law firm and an ambulette transportation company to stage accidents, obtain fake police reports, file false claims, and provide unneeded medical treatment. Two lawyers are among those charged and the two medical centers have been shut down. In August, prosecutors and law enforcement in New York City and Suffolk County cracked an insurance-fraud ring that staged thousands of car accidents and then employed its own network of doctors, acupuncture therapists and fake medical clinics to bilk an insurance company out of $48 million. The ring was the largest of its kind ever broken in New York State. A grand jury on Long Island issued 567 indictments, including ones for doctors, psychiatrists, chiropractors, dentists and the operators of 20 bogus health-care clinics that were set up as part of the scheme. The ring used "runners" and "crash dummies" in cars that would cut in front of other cars, slam on the brakes, and cause a crash. According to published reports, the scheme was masterminded by Russian organized crime figures in Brooklyn.
Schumer noted that while there has been some progress over the last year, it has not yet resulted in better insurance rates for most New York drivers. Insurance claim costs in New York State fell nearly 13% during the first three quarters of 2003, and, according to the Insurance Information Institute, average injury-claim payouts in New York dropped 12.9% to $7,514 during the year that ended June 30, 2003.
But so far only one New York insurer has cut rates for New Yorkers. In November, the State Farm Mutual Insurance Company announced an overall rate reduction of 5% on their private passenger automobile rates for New York's drivers. No other insurance company has announced across-the-board rate cuts in New York. The New York State Insurance Department received on average more than one request from insurance carriers to increase rates every week in 2003, with 52 requests logged by December 1.
Schumer today released data showing that insurance costs for most New Yorkers instead continue to climb. According to an Insurance Information Institute survey in Crain's New York Business earlier this month, the average New York driver paid $1,186 for car insurance including personal injury coverage in 2003, second only to New Jersey. The study predicts that number could increase to $1,257 in 2004, which is a jump of 6%.
Schumer said that insurance industry representatives have not lowered rates in part because they are not convinced that these one-year gains against fraud will not be offset by future growth in auto insurance fraud. Despite improvements over the last year, fraud reports are still up over the last decade. New York State’s Insurance Fraud Bureau received 14,852 no-fault auto insurance fraud reports in 2002, a slight decrease from the 15,219 received in 2001 but still significantly more than the 5,214 in 1996 and only 489 in 1992. According to a study by the Insurance Research Council, one in four personal injury protection claims appeared to involve some kind of fraud. Under New York's no-fault insurance, all parties are entitled to payment of lost wages and medical expenses of up to $50,000.
Auto insurance fraud cost New Yorkers an average of $177 per driver, according to a September 2003 New York State Insurance Department statement. In total, auto insurance fraud costs New Yorkers upwards of $1 billion per year, and costs Americans over $23 billion per year. Schumer noted that between 1988 and 1996, auto insurance rates in New York rose a whopping 46% – twice the national average – in large part due to the added cost of auto insurance fraud. And the Insurance Information Institute said that the cost of auto insurance fraud to New York Insurers rose 28.5% in 2001, compared to an average of 3.8% across the nation.
When Schumer was a member of the House of Representatives, he wrote one of the few federal laws on the books dealing with auto fraud. The law required every auto part to have a serial number, so police could help trace stolen cars and parts and bust rings of car thieves and chop shops. To provide the coordinated, intensive response that could help bring down insurance rates, Schumer today called on the US Department of Justice to create new task forces to fight auto fraud and proposed new legislation – the Cheaper Car Insurance Act of 2004 to set up tough new penalties for auto insurance fraud. Specifically, Schumer would:
• Set up a Federal-State-Local Task Forces to break up and prosecute auto insurance fraud rings, and investigate fraudulent chop shops and salvage yards. These units – which could be established by the Department of Justice administratively without legislation – will be staffed by top prosecutors who will do nothing but investigate, root out, and prosecute auto insurance fraud. Schumer said that the Department of Homeland Security should work with this task force so to deport any illegal aliens who are committing these crimes. Schumer said that since so many auto insurance scams cross state lines, bringing in the resources of federal law enforcement may be the only way to effectively deal with the problem.
• Provide $25 million to give the Task Forces the resources they need to chase auto insurance fraud rings.
• Give harsh federal penalties so the Task Forces have the legal tools they need to lock up auto insurance fraud rings for good. Schumer's act creates a three-tiered penalty system for auto insurance fraud, with criminal penalties of five years in prison for first time offenders, ten years in prison for second time offenders, and fifteen years in prison for third time offenders. The bill also imposes fines, decided by a judge, of up to $100,000. If the cost of the fraud exceeds $100,000, the fines can cover the fraud’s total cost.
Schumer also detailed the five most common ways auto insurance fraud is committed, including:
• Staged Auto Accidents: An auto accident is staged, usually in some kind of conspiracy between the owner of the car, doctors and lawyers to falsify a claim and collect from the insurance company.
• False Parts Claims: Auto parts are removed, hidden and then reported stolen. After the insurance is paid, the parts are reinstalled; • Owner Dumping: A car is falsely reported stolen. The owner then collects a claim payment from the insurance company while the car parts are sold to salvage yards and auto shops;
• Abandoned Vehicles: A car is left on the street or in a parking lot in the hopes it will be stolen or destroyed. The owner then reports the vehicle stolen to the police and collects from the insurance company; and
• Salvage Switches: The vehicle identification number tag is taken from a junked car and switched to a similar make and model that an owner has fraudulently reported stolen. With the false number in place, the car is then re-registered in another state and sold.
“This bill sends a very simple, very strong and very clear message to anyone even thinking of committing auto insurance fraud: expect to be arrested, expected to be tried in federal court by federal prosecutors, and don’t make any plans for the next five to fifteen years,” Schumer said. "Auto insurance fraud is serious business, and until we get serious with it, insurance rates won't go down much."
Schumer was joined today by Queens County District Attorney Richard A. Brown, whose office masterminded the auto fraud ring bust this week and T.J. Derella, CEO of the Kingstar Insurance Company and President of the Professional Insurance Agents of New York State.