Smart Auto Insurance Blog

Many states are still working under the no-fault auto insurance ruling and experts believe this is causing a crisis in the auto insurance industry.  The laws were originally put into place to stop ambulance chasing lawyers from submitting small-claims cases, and it helped car accident victims receive funds quickly instead of waiting for the determination as to who was at fault.

Unfortunately, these laws are backfiring since many believe its contributing to fraud, rising medical costs, large benefit payouts, and excessive lawsuits.  Auto insurance quotes in Florida are skyrocketing and many are blaming their no-fault laws according to “Why Does Everyone Hate No-Fault Car Insurance?” by Barbara Marquand on FoxBusiness.com.  Some insurance companies have actually limited their business in states with no-fault insurance laws since it ends up being so much more expensive for the insurer.  This ends up affecting competition and can drive up auto insurance rates.

Currently, 12 states and Puerto Rico have no-fault auto insurance laws including Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.  The laws allow policyholders to collect funds for car accidents from their own insurance company regardless of who was at fault.  The laws also prevent people from suing for pain and suffering unless their injuries are a certain extreme.  Florida is the nation’s staged-accident capital and this of course drives up Florida auto insurance quotes.  Many industry experts believe no-fault auto insurance needs to be eliminated altogether or the crisis will continues and rates will keep going up.

According to the article “Florida Lawmakers Seek to Reduce Costly Court Battles Over Auto Insurance” by Sally Kestin on OrlandoSentinel.com, Florida auto insurance lawsuits are out of control and need to be reined in.  Florida auto insurance quotes are increasing and insurance regulators agree that pricey court battles are partly to blame.

Rep. Bryan Nelson believes something must be done soon.  He says it’s critical they take a hard look at ways Florida can reduce costs over time.  There is currently a proposal under consideration in Tallahassee which would limit the fees lawyers can collect when they win a personal injury protection suit.  Fees can be upwards of $100,000 for disputes of just a few thousand according to the Sun Sentinel in Florida.

Sen. Ellyn Bogdanoff, a Fort Lauderdale Republican and a chief negotiator in legislation passed in ‘07 that revised the state of Florida’s no fault insurance system, says Personal Injury Protection has become a multibillion industry.  She said the original purpose was to reduce suits, but it is actually increasing them causing serious financial stress on the state of Florida.

According to the article “Insurance Study Sees Widespread Fraud in NYC” by Erik Holm, New York City residents are much more likely to file false claims driving up the cost of auto insurance quotes in NYC.  This is based on some research conducted by the Insurance Research Council, a nonprofit group funded by insurance companies.

New York state’s “no fault” system was implemented in 1974 and it allows someone injured in a crash to file up to $50,000 worth of claims for medical expenses or even lost wages with their own insurance company regardless of who is at fault.  The purpose of this was to speed up processes by eliminated the argument over who whose fault the accident was.  Through this system, perpetrators have figured out how to bank on false claims and take home cash.

The state insurance department has been working for over a year to revise the no-fault insurance regulation.  The Insurance Fraud Bureau estimates no-fault fraud has increased dramatically from 2006 at 10,117 instances to 13,433 instances in 2009.  Auto insurance companies are hoping that the insurance department’s changes will make it easier to deny fraud claims, but it’s going to be a process that may take years to make a difference.

According to the article “New York No-Fault Auto Insurance Leads to Inflated Claims” by Ryan Fields on e-wisdom.com, New York auto insurance could be experiencing higher rates because of their insurance model.  New York is one of many states in the US using the no-fault auto insurance system.  The purpose of this type in insurance model is to reduce costly legal costs from deciding who is at-fault for an accident.

Since no-fault auto insurance has auto insurance companies paying out claims directly to their customers regardless of fault, fraud can be an issue.  According to the Insurance Information Institute, about 20% of each no-fault auto insurance claims made are fraudulent.  That adds up to approximately $1561 per claim and cost insurers and their customers over $600 million since 2005.

Chief economist, Dr. Steven Weisbard, ties the increase to medical providers who submit claims that are much higher than they should be.  He says the amount of fraud in New York’s auto insurance system is so severe that payouts for claims are currently the 2nd highest they have been since the late 1990’s.  This excess translates to higher auto insurance rates for drivers in New York obtaining auto insurance.  Costs rise for everyone as fraud claims rise.

Currently only 12 states have no-fault laws in place according to the article “How Florida No-Fault Auto Insurance Laws Work” by Robert Fredricks on youronlineinsurance.com.  A no-fault law means that there is a limit on what a driver can sue another driver’s auto insurance company for.

Florida has a qualitative threshold with its no-fault law which means that for particular injuries or death the driver can sue the insurance company for up to a certain dollar amount.  These types of laws can keep auto insurance rates in check because the auto insurance companies are not getting sued for as much as in other states where just about any type of lawsuit is allowed.

Because of this type of regulation, Florida auto insurance tends to be lower which is great news for residents.  There are other states that have much stricter no-fault laws which only allow drivers to sue for the exact amount of injury or damages not already covered by the auto insurance company.  One downside to these types of no-fault laws is that when real permanent damage has been done the victim can be left short of what they truly deserve.  It can be hard for these victims to fight for what they believe is right.

Auto insurance companies warn that a new bill in the Colorado state legislature could increase rates for motorists, claims Bob Mook of the Denver Business Journal. In 2003, the state switched to a tort system (where insurers pay a percentage of costs based on whose fault the accident was, going to court to settle disputes), but the Colorado No-Fault Motor Vehicle Insurance Act would reverse that change.

Governor Bill Ritter says that the tort system saves drivers about $322 per year on average, a 35% decrease from auto insurance rates under the no-fault system. A representative of the Rocky Mountain Insurance Information Association claims that Colorado auto insurance premiums have dropped from being the ninth-highest in the nation to 23rd-highest since the reform. According to Bob, insurance companies believe that no-fault insurance, where each insurer pays all expenses for their driver without assigning blame, is easily defrauded.