It’s a fraud so ubiquitous it hardly gets recognized as one. In New York City it’s everywhere you turn, and the criminals involved proudly display their work for all to see.
Pennsylvania, North Carolina and Georgia license plates line the roadways of New York State—and in some cases, it’s the result of private citizens crossing borders to get their vehicles insured for a fraction of the cost they would pay in the city. More than one in 10 automobiles in New York is fraudulently registered elsewhere, according to an estimate by the advocacy group New Yorkers Stand Against Insurance Fraud. This abuse in turn causes premiums to go up on legally registered vehicle owners.
It’s rate evasion, and it costs insurance companies—and by extension, New Yorkers—millions of dollars.
“Some may think insurance fraud is a victimless fraud and that it’s only a crime against the insurance company,” said state Sen. James Seward, who chairs the Senate’s Insurance Committee. “But the fact of the matter is, anyone who insures their vehicle correctly is a victim.”
Car insurance is determined not by state but by ZIP code. Drivers in the five boroughs of New York City pay 60 percent higher combined insurance premiums than the state average, according to a 2011 report commissioned by the Independent Democratic Conference. Albany and the Capital Region pay the state’s lowest premiums.
As a result of the high costs, drivers in high-premium ZIP codes are those most likely to register with fraudulent addresses. The IDC study found that 1,650 vehicles in New York were registered to 14 residential Pennsylvania addresses, or 120 vehicles per locale. Fraud reduces the total number of people insured, premiums inch up and car owners increasingly have the incentive to purchase insurance illegally due to a progressively more expensive market.
Auto insurance fraud cost drivers $229 million nationwide in 2009, according to the Insurance Information Institute. Where was fraud the most common? New York City.
State Sen. Jeff Klein, the head of the IDC, and Assemblywoman Vanessa Gibson have introduced legislation that targets rate evasion by making the penalties stiffer. The bill, which makes false reporting of addresses a felony for both insurance companies and individual drivers, is further along in the state Senate than in the Assembly, where it remains tied up in committee. A similar version of the bill passed the Senate last year.
“We get this bill out of the Senate routinely,” Seward said. “I applaud Senator Klein for getting involved in this issue. The Assembly seems reluctant to increase penalties or create new crimes in New York State.”
Assemblyman Kevin Cahill, who chairs the Assembly’s Insurance Committee, said auto insurance fraud should be addressed comprehensively.
“We’re looking at all areas of fraud and no-fault insurance,” he said. “We don’t think it should be done on a piecemeal basis. It’s a program that wasn’t created on a piecemeal basis, and legislatures past have tried to address one issue at a time. All the wheels have to turn at the same time.”
Out-of-state licenses can create problems for law enforcement, as well. New York motorists who are registered with out-of-state plates have an easier time evading parking tickets and speed-camera ticketing.
A large reason for the widespread rate of evasion rests in a lack of enforcement of the law. Like Internet piracy, it is commonly understood among drivers that there is not much effort placed on cracking down on the rule breakers.
One potential snag is that it is a federal issue. To deter rate evasion, other states’ insurance companies and motor vehicles departments or registries would have to create a more stringent proof of residency. Once motorists have their out-of-state plates, the battle is largely lost.
Other auto insurance fraud legislation in committee primarily deals with no-fault insurance fraud, an altogether more insidious affair. No-fault insurance pays out medical expenses to insured motorists in the event of a crash, regardless of culpability. The insurance grants up to $50,000 to injured motorists, and has prompted crime rings to stage accidents.
Seward has legislation that makes staging auto accidents a felony. According to industry estimates cited by state Sen. Marty Golden’s office, there were 400,000 no-fault claims last year in New York. Some 80,000 of those claims were fraudulent; the overwhelming number of these involved staged accidents.
Legislation introduced by Golden and Assemblyman Carl Heastie would also grant insurance companies the right to retroactively cancel policies that were purchased fraudulently, such as with bad checks or illegitimate credit cards. By granting that retroactive power to insurers, con artists would no longer be able to implement auto-accident schemes risk-free. They would, at the very least, need to register their insurance with legitimate credit cards at the outset of their conspiracy.
“My bill is to help to bring down the insurance costs in the city … go after the bad payers, lock them up, and you’ll see more registering here,” Golden said. “Klein’s got a good bill—I’ve got a better bill.”
Heastie noted that he represents the Bronx, where motorists pay the highest insurance rates in the nation.
“Anything that can be done to lower insurance in the Bronx is a great thing,” he said.