Citing rising fraud and rising insurance costs in his home state, New York Sen. Charles E. Schumer is proposing a bill to impose federal penalties against those who commit auto insurance fraud.

Charles E. Schumer

Schumer (D-N.Y.) plans to file the Cheaper Car Insurance Act of 2010, which would impose fines, set by a judge, of up to $100,000 for those committing the crime. If the cost of the fraud exceeds $100,000, the fines can cover the fraud’s total cost, according to the senator’s office.

The proposed legislation also would incarcerate perpetrators for insurance fraud rings and allow auto insurers to require inspections for cars they suspect could be used for fraud before insuring to prevent insurance fraud by criminals who buy cars in bad condition and falsely claim that they were damaged in a car accident.

Schumer said his bill “sends a very simple, very strong and very clear message to anyone even thinking of committing auto insurance fraud: expect to be arrested, expected to be tried in federal court by federal prosecutors, and don’t make any plans for the next five to fifteen years.

“Auto insurance fraud is a serious business that causes substantial damage to drivers and business, and until we tackle this problem head on insurance rates will continue to rise,” he said in a statement.

The bill would create a three-tiered system for those participating in the fraud.

Participants, those who serve as “runners,” “cappers” or “steerers,” including those who get paid to simply set up an accident, would face up to five years in jail for each offense. Organizers, those who employ or solicit the aforementioned individuals, to help set up the fraud or make false auto insurance claims, would face up to 10 years in  jail for each offense, and the mastermind of the fraud would face up to 15 years in jail for each offense.

Rising problem in New York

Schumer said the proposed legislation comes amid new data from state insurance regulators that auto fraud is on the rise in New York, having risen 33% since 2006 and causing an increase of 6.3% to the average auto insurance premium last year.

He added that Robert Hartwig, president of the Insurance Information Institute, said the problem will grow much larger in Upstate New York – the area of Rockland and the counties north of Westchester – if not addressed, citing a rise in fraud cases in that region.

Premiums across the state average $1,076 per year and premiums in the Upstate area average $653, according to data by the New York State Insurance Department. Of the $1,076 for downstate premiums, 4% is due to fraudulent claims and is expected to rise to 13% if not addressed, Schumer’s office said.

“Auto fraud hurts everyone whose car insurance bill goes up even though their car goes down in value,” the senator said. “ It hurts every small business that can afford to buy more delivery vans but can’t afford to insure them. Fraud hurts vacationers and business travelers to New York who don’t understand why car rental insurance rates are so much higher here than in other cities and states. Fraud hurts us all, and it’s time to strike back.”