DWP: Driving While Poor

I recently pulled out a parking lot, and forgot to turn on my headlights immediately, but I turned them on after a couple of seconds.

Yes, I was pulled over by the cops.

They asked me to produce proof of insurance, but my fricking glove box was jammed with the drivers manual.  He didn't ticket me for not having my headlights on, but did ticket me for not having proof of insurance.  He told me if I would provide proof to the clerk of court this would be dismissed.  Failure to provide proof would result in a $385 FINE if I didn't pay this fine, I would lose my license to drive. He let me go.

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Yes, Virginia, There is Auto Insurance Fraud

Cross-posted from Tort Deform

By Marc Dittenhoefer

For years now the debate has been raging in the public media as to whether or not there is systemic fraud in the field of automobile accident and No-Fault insurance. Industry spokespersons have long been pointing to "phony" lawsuits and illegitimate claims pressed by felonious claimants and their dishonest lawyers and doctors, all with the purpose of invading the insurance policies that some of America's largest and most profitable corporations sell to drivers at exorbitant rates. These industry mouthpieces have all the while been saying that it is the `fraud' running rampant throughout these types of cases that is the driving force behind the rise in auto insurance rates to their present unconscionable levels, and that all that needs to be done to restore balance to the world of auto insurance - as well as fairer rates to the consumer - is to crack down on this fraud.

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Highway Robbery: The High Cost of Automobile Insurance in New York

Cross-posted from Tort Deform: The Civil Justice Defense Blog

Highway Robbery:
The High Cost of Automobile
Insurance in New York

The Office of the New York City Comptroller just released a report disclosing the disproportionately high profits as well as high premiums for auto insurance in New York.

Here's an overview from the report:

Since 2001, New York's status as one of the most expensive states to insure an automobile has been reinforced by statewide premium increases that were substantially greater than the inflation rate and exceeded 40 percent in much of New York City for some major insurers.

An analysis of automobile insurance industry financial data by the Office of the New York City Comptroller determined that these increases were excessive relative to national averages and in relation to other states and led to unprecedented auto insurer profitability within New York State. Overall premiums should be reduced by at least 15 percent on average--at least $1.5 billion statewide--to bring rates back to historical balance.

Key findings on automobile insurer profitability:

* From 2000 to 2005, automobile insurance premiums in New York increased nearly 29 percent, to $10.5 billion. At the same time, losses (claims payouts) decreased more than 20 percent, to $5.1 billion. Chart 1 illustrates this divergence.

In contrast, premiums increased 33.8 percent nationally, moderately faster than New York, yet losses nationally actually increased 12.9 percent. Looking further back, from 1990 to 2005, premiums increased nationally at a rate 1.6 times as fast as losses. In New York during this period, premiums increased at a rate 4.6 times as fast as losses. Nationally, the property and casualty insurance industry, which includes automobile insurers, is expected to report record net income of $60 billion in 2006, up from a near record $43 billion in 2005; New York drivers are contributing disproportionately to
this success.

* The amount by which premiums exceeded losses in New York reached $5.4 billion in both 2004 and 2005, by far the largest such gap since at least 1990. From 1990 to 2002, the amount by which premiums exceeded losses ranged only from approximately $1.4 billion to $3.2 billion.

Rising premiums and decreasing losses led the private passenger automobile insurance loss ratio--the portion of each premium dollar that goes to pay claims--to plummet to an extraordinarily low 50 percent in 2000 and, notwithstanding small premium reductions, to only 48.4 percent in 2005. These were the lowest loss ratios in the nation. In fact, only seven times between 1990 and 2004 was the loss ratio less than 50 percent in any state. Historically, automobile insurer loss ratios have ranged between 60 percent and 75 percent.

* Return on net worth was an extraordinary 18.6 percent in 2004. Return on net worth is the main indicator of insurer profitability reported by the National Association of Insurance Commissioners (NAIC). In 2004 (the latest year available), return on net worth for private passenger automobile insurance was 18.6 percent, the highest New York return since at least 1990 and well above the 13.2 percent nationwide return. In fact, the New York return in 2004 substantially exceeded the nationwide return in any year between 1990 and 2004.
Underwriting profit in 2004 also was unusually high. Underwriting profit (or loss) is the amount left after losses, expenses and dividends are subtracted from premiums.

Typically, automobile insurers have an underwriting loss but still realize a profit due to investment income. Yet the underwriting profit for private passenger automobile insurance in New York during 2004 was 13.2 percent of  earned premiums, double the highest previous New York underwriting profit and more than double the highest national underwriting profit in the 1990-2004 period.

* A $1.5 billion annual reduction in premiums would restore to historical levels the gap between premiums and losses. This figure takes into account any conceivable increase in losses and inflation, and the phase-in of rate reductions approved by the Insurance Department in 2005 and the first half of 2006.

(link to full report)

To read a letter from the Comptroller to Governor Elect Spitzer, click here.

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When Being Innocent Isn't Enough!: A Cautionary Tale for Drivers

Cross-posted from Tort Deform: The Civil Justice Defense Blog

By Marc Dittenhoeffer

What's your take on this? Ms. & Miss Innocent were riding along the road minding their own business in their 1998 Dodge, insured by Picayune Insurance Company. Their insurance policy contained the standard "uninsured motorist endorsement" to provide them with recourse to their own coverage in the event that they are damaged in an accident with an uninsured vehicle. They have broken no laws, taken no unreasonable actions with respect to the use or operation of their vehicle, and harmed no one. They are in compliance with all state insurance mandates, vehicle inspection requirements and rules of the road. At the intersection of Strange Street and Loophole Avenue, while stopped waiting for a red light to change, a 1989 Honda belonging to Oswald Owner slammed into their Dodge from behind.

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NY Auto Insurance Nightmare Continues: The Option of Indefinite Denial & Your Med. Insurance

Did you know that in NY, if you are involved in an accident you are legally prohibited from making a claim against your medical insurer until your no-fault auto insurer pays or denies your claim? And it gets worse: there's no telling how long this may take.

It's true. Until your NY auto insurance company decides one way or another about your claim, your medical insurer can legally refuse payment for the amount covered by your no-fault insurance. Usually NY auto insurers have about thirty days to pay or deny a claim, and are assessed some penalties if they exceed this amount of time. If you are caught in this situation, your only option seems to be to take your auto insurance company to arbitration. However, arbitration is unlikely to be helpful when the problem is not an outright denial, but a refusal to pay or deny. Auto insurance companies are able to legally refuse to pay or deny as long as they are investigating your claim (at least as long as they mention so in their contract). Hypothetically, your no-fault auto insurance carrier can simply refuse to deny or pay your claim for any number of months during which you both receive no benefits from them, and are prohibited from making claims against your medical insurer.

How do you pay your medical bills during this "in-between" time? Nobody knows. I spent about an hour calling New York State's Insurance Department and spoke with three different staff members in three different sub-departments. After all of these conversations nobody there could tell me of any way for a person in this "in-between" situation to get their medical bills paid. The consensus answer was that this "in-between" issue would "never happen," and that I should "not worry about it." The best advice was to just call them if it did happen (at which point I would have been without bill payment for at least a month). Sadly, nobody could tell me whether or not it was legal for this to happen. Finally, I called the agency's legal counsel directly, and was told to put my question in writing and to expect an answer in approximately three weeks (during which time I would still be without medical coverage).

A new bill proposed by Assemblyman Heastie will make this a much larger problem than it already is. Heastie's bill substantially reduces the penalty insurance companies face when they exceed the standard 30-day time limit to pay or deny. The bill proposes to no longer prohibit auto insurance companies from raising defenses to claims if they take longer than the allowed 30 days to pay or deny. This reduced penalty will often make not paying or denying claims for extended periods of time a very rational business choice for auto insurance companies.

Think about what happens.

Most claimants do not have the financial resources for a protracted litigation, and many may simply give up their fight if the insurance company waits long enough without paying or denying.

Even if they don't give up, and they ultimately win in court, the very best that they can get in compensation is the value of their original claim + 2% per month + 20% of their original claim. Of course this 20% is meant to cover reasonable attorney fees, leaving the claimant with only what they were rightfully already owed --- plus 2% monthly. For example, if your claim had originally been for $7,800 dollars, you will end up with what you were already owed and a check for $156. Of course this also assumes that your attorney fees consisted of only $1560.

If this new bill passes you very well may find yourself "in-between" your no-fault auto insurer, your medical insurer, and a very hard place in which nobody is legally obligated to pay for your medical expenses.

All the while, you will still be expected to pay both your auto and medical insurance premiums - on time - of course.

To see the previous posting on this issue click here.

If you or your organization is interested in learning more about or working on these types of civil justice issues, please feel free to contact me at cdugger@drummajorinstitute.org.

Cyrus Dugger
Senior Fellow in Civil Justice
Drum Major Institute for Public Policy

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