No-fault payments for medical care for New York accident victims rose 56% in the second quarter, leading one state insurance group to seek reform in the state’s laws.

The average claim cost rose to $8,748, compared to $5,615 in late 2004, according to the Insurance Information Institute’s analysis.

Ellen Melchionni

Based on the findings, New York needs to reform its no-fault auto insurance regulations, said Ellen Melchionni, president of the New York Insurance Association. “There are external forces which drive up the cost of auto insurance in this state which can and must be contained,” she said.

While officials continue to investigate suspicious claims, loopholes in the no-fault system make it “particularly vulnerable to fraud and abuse by a “no-fault industry” of corrupt medical professionals, attorneys, and street-level criminals who work on their behalf, said Robert Hartwig, the institute’s president and an economist, in a statement.

“In less than five years, New York’s auto insurers have seen an extraordinary 56% increase in the average cost of no-fault claims, to a great extent the result of abuse and, sometimes, outright fraud in the system,” Hartwig said. “The costs of fraud and abuse of the state’s no-fault system ultimately are borne by New York’s honest policyholders. New York’s no-fault claim costs are now the second highest in the country.”

Hartwig said New York’s costs are 111% higher than the U.S. average of $4,152.

The state Insurance Department’s Frauds Bureau, in its 2008 annual report, said that no-fault fraud reports to the NYSID had increased 22% since 2006, after the number of these same reports fell 35% between 2003 and 2006, according to Hartwig.