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Though the no-fault auto insurance system in New York may have originally seemed like a measure that would benefit drivers in the state, according to many insurance experts, the system is increasing their costs.

No-fault insurance allows customers to file medical claims directly to their insurer – regardless of who is at fault – to avoid delays in treatment for injuries resulting from a crash. This type of coverage has come under fire in a number of states, as it seems to have been accompanied by a sharp increase in claims, many of which may be fraudulent.

According to the Insurance Information Institute, no-fault personal injury protection claims rose 48 percent between 2004 and 2010, with an average cost of $8,664 per claim.

“The scale of fraud and abuse in New York State’s no-fault auto insurance system today remains at crisis levels,” said the III’s Robert Hartwig. “Not only are New York’s courtrooms filled with no-fault cases, but an Insurance Research Council study found that over one in five of all downstate New York no-fault closed claims showed signs of fraud and more than one in three appeared to be inflated.”

Groups lobby against plans

A number of groups have sprung up to fight for reforms in the New York auto insurance system, including the New York Insurance Association. The group is calling for immediate reform of the insurance system in the state, which they argue is inherently flawed and unfair to New York drivers.

“Criminals are committing rampant fraud, imposing a ‘fraud tax’ on honest, hardworking New Yorkers,” NYIA president Ellen Melchionni said in testimony prepared for a meeting of the state Senate Insurance Committee. “Meaningful, comprehensive reform of the laws is necessary to fix the broken system that criminals are blatantly exploiting for their personal gain.”

The group has made a number of recommendations regarding how to reduce fraud, including giving insurers more time for fraud investigations, creating harsher penalties and promoting fair and efficient dispute settlements – something some states have done by capping attorney fees. According to Melchionni, these recommendations are included in a bill introduced by state Senator James Seward and Assemblyman Joseph Morelle.

New York is not the only state reviewing no-fault auto insurance. Recent reports say rising instances of auto insurance fraud and increasing premiums are causing Minnesota, Michigan and Florida to reconsider their no-fault systems.