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No-Fault Auto Insurance Fraud in New York State Trends, Challenges & Costs. Hearing on No-Fault Auto Insurance New York State Senate Insurance Committee April 26, 2011. Robert P. Hartwig, Ph.D., CPCU, President & Economist - PowerPoint PPT Presentation
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No-Fault Auto Insurance Fraud in New York State
Trends, Challenges & Costs
Hearing on No-Fault Auto InsuranceNew York State Senate Insurance Committee
April 26, 2011Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
2
New York’s No-Fault Fraud Tax: Estimated Aggregate Annual Cost, 2005-2010 ($ Millions)
$203.6
$231.0
$192.9
$116.3
$67.8
$1.4$0
$50
$100
$150
$200
$250
2005 2006 2007 2008 2009 2010
Fra
ud
Ta
x (
$ M
illio
ns
)
*2010 figure is based on data through Q4:2010.Source: Insurance Information Institute calculations and research from ISO/PCI data.
No-Fault Fraud Is Costing Honest New York State Drivers Hundreds of Millions of Dollars
The total fraud tax levied on New York vehicle owners exceeded more than $200
million in 2010 for the second straight year.
NY’s no fault fraud tax burden soared by 241% between 2006 and 2009
Figure 1.
3
New York’s No-Fault Fraud Tax: Estimated Cumulative Cost, 2005-2010 ($ Millions)
$812.9
$609.3
$378.4
$185.5
$69.2$1.4
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2005 2006 2007 2008 2009 2010
Cu
mu
lta
ive
Fra
ud
Ta
x (
$ M
illio
ns
)
*2010 figure is based on data through Q4:2010Source: Insurance Information Institute calculations and research from ISO/PCI data.
The cumulative no-fault fraud tax burden on New
York vehicle owners exceeded $813 million from
2005 through 2010
No-Fault Fraud Is Costing Honest New York State Drivers Hundreds of Millions of Dollars
Figure 2.
4
Estimated Per Claim Cost of No-Fault Fraud in New York State, 2005-2010
$1,311
$1,581
$1,379
$848
$489
$9$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2005 2006 2007 2008 2009 2010
Fra
ud
Ta
x P
er
Cla
im
*2010 figure is based on data through Q4:2010.Source: Insurance Information Institute calculations and research from ISO/PCI data.
Fraud and Abuse Are Raising the Costs of Insurance in New York State
The estimated per claim cost of no-fault fraud (a.k.a. Fraud
Tax) was $1,311 in 2010NY’s no-fault fraud
tax of $1,311 accounted for 15.1% of the average claim
cost of $8,664 in 2010
Figure 3.
5
NY No-Fault (PIP) Claim Severity Has Trended Up Sharply Upward, 2005-2010*
$8,664
$5,873$6,129
$6,853
$7,492
$8,269
$8,692
$5,000
$5,500
$6,000
$6,500
$7,000
$7,500
$8,000
$8,500
$9,000
2004 2005 2006 2007 2008 2009 2010
Source: ISO/PCI Fast Track data; Insurance Information Institute
The Average Cost of New York No-Fault Claims Rose Rapidly in Recent Years
No-Fault claim severity (average cost per claim) is up 47.5%
($2,791) in 2010 compared to 2004
Figure 4.
6
New York State No-Fault Claim Severity, 1997–2010:Q4
Sources: ISO/PCI Fast Track data; Insurance Information Institute.
$5,6
75 $6,0
63$6
,699
$8,3
47$8
,327
$7,8
88$7
,507
$8,2
34$9
,235
$8,7
27$8
,577
$7,7
73$7
,311
$6,9
58$6
,870
$6,1
56$6
,052
$5,8
20$5
,991
$5,6
15$6
,094
$5,9
14 $6,2
50$6
,269 $6
,530
$6,6
06$7
,063 $7
,323
$7,3
78$7
,297 $7
,670
$7,7
40$8
,443
$8,1
77 $8,5
07$8
,025
$8,5
63$8
,726
$8,6
46$8
,830
$8,6
46 $8,9
90$8
,647
$8,4
07
$5,000
$5,500
$6,000
$6,500
$7,000
$7,500
$8,000
$8,500
$9,000
$9,500
1997
1998
1999
2000
1:01
1:02
1:03
1:04
2:01
2:02
2:03
2:04
3:01
3:02
3:03
3:04
4:01
4:02
4:03
4:04
5:01
5:02
5:03
5:04
6:01
6:02
6:03
6:04
7:01
7:02
7:03
7:04
8:01
8:02
8:03
8:04
9:01
9:02
9:03
9:04
10:0
110
:02
10:0
310
:04
No
-Fa
ult
Cla
im S
ev
eri
ty
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
No
-Fa
ult C
laim
Fre
qu
en
cy
Avg. Claim Severity
Frequency
About 15% of No-Fault Claim Costs in 2010 Were Attributable to Fraud and Abuse
No-Fault Claim Severity
Claim Severity nearly reached a record high
in 2010:Q2: $8,990
Avg. Claim Severity Rose 63% in 5 years
after 1997 Presbyterian
Decision
Avg. Claim Severity is up 50% since 2004:Q4 though 2010:Q4
Claim Frequency is up 22% since
2008:Q3
Figure 5.
7
Average No-Fault Claim Severity, 2010*
$1
6,3
97
$8
,66
4
$8
,13
7
$5
,04
9
$4
,27
1
$3
,04
6
$2
,15
1
$1
,78
1
$3
6,2
45
$7
,13
6
$5
,51
7
$5
,48
0
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
MI NJ NY FL MN ND KY HI PA KS UT MA
Several States Have Severe and Growing Problems With Rampant Fraud and Abuse in their No-Fault Systems. Claim Severities Are Up Sharply.
*Average of the four quarters ending 2010:Q4.Source: ISO/PCI Fast Track data; Insurance Information Institute.
MI, NJ, NY and FL currently are the largest states that have the most severe
problems in their no-fault system
NY has the 3rd highest auto no-fault average claim cost (severity) in the US
Figure 6.
8
New York No-Fault (PIP) Claim Frequency Is Trending Sharply Upward*
1.51
1.571.61
1.55
1.62
1.74
1.48 1.49
1.43
1.55 1.571.52
1.20
1.30
1.40
1.50
1.60
1.70
1.80
08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4
*Claim frequency is defined as the number of claims per 100 earned car years.Source: ISO/PCI Fast Track data; Insurance Information Institute
2008:Q1 through 2010:Q4
The Number and Average Cost of NY No-Fault Claims Have Been Generally Rising Since 2004
No-Fault claim frequency jumped by 21.7% between
Q3 2008 and Q4 2010
Figure 7.
Medical Cost Inflation Has Outpaced Overall Inflation Over 50 Years
719.81
1589.80
0
300
600
900
1200
1500
1800
61 66 71 76 81 86 91 96 01 06 11*
Ind
ex V
alu
e (1
961=
100)
All ItemsMedical Care
*Based on change from Feb. 2010 to Feb. 2011. Source: Department of Labor (Bureau of Labor Statistics)
A medical expense that cost $1,000 in 1961 would cost nearly $16,000 based on medical cost inflation trends over
the past 50 years.
Figure 8.
13
Average Expenditure on Auto Insurance, NY State vs. US: 1997-2008*
$959
$960
$930
$939
$1,1
72
$1,1
22
$1,0
83
$1,0
47
$1,0
44
$705
$703
$685
$690
$726 $7
86 $830
$843
$831
$817
$796
$789
$1,1
68
$1,1
00
$1,0
15
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
97 98 99 00 01 02 03 04 05 06 07 08
NY US
In the wake of NY’s first no-fault crisis, the average expenditure on auto insurance in NY state fell by $128 or 10.9% between 2004 and 2008, much more
than the 6.4% drop in the US overall.*Latest available.Source: National Association of Insurance Commissioners.
NY ranked as the 2nd most expensive state during the last crisis, falling to 4th by 2007
Figure 12.