Insurance fraud grows, and Minnesotans take the hit

In 1974, Minnesota joined nearly half of the states in adopting a no-fault auto insurance system. The intent was to provide for first-party medical benefits for those hurt in accidents without burdening the court system with litigation over minor sprains and strains that make up the majority of accident injuries.

But back in the 1970s, the authors of this new law in our state never envisioned the massive amount of fraud that would be unleashed upon the system. The system has been virtually unchanged in 40 years, with almost no tools that are an effective deterrent against fraud.

For eight straight years recently, Minnesota's average auto premium saw a dramatic decrease, from $930 in 2004 to $693 to 2011. This is almost entirely due to a decrease in the number of motor vehicle accidents in the state — which in turn is due to fewer miles driven and to amazing advancements in accident-avoidance technology such as anti-lock brakes and electronic vehicle stability.

But in the most recent statistics from 2012, rates unexpectedly flattened. This corresponds to a very large increase in the amount of auto insurance fraud happening right now in Minnesota.

Last year, the National Insurance Crime Bureau announced that Minnesota led the nation in terms of the increase in organized criminal activity engaged in insurance fraud. The NICB noted a significant "reverse migration" of criminal gangs from the East Coast and Eastern Europe who are leaving other fraud hot spots such as New York, New Jersey and Florida and coming here.

And while premiums are going down, consumers are paying a greater percentage of the amount for the same $20,000 in medical coverage, because of fraud and abuse.

Recognizing a problem, the Minnesota Senate Commerce Committee last year began holding hearings on insurance fraud. The committee's chair, Sen. Jim Metzen, DFL-South St. Paul, established a working group that has developed a long list of possible solutions to combat insurance fraud of all types. It's an important job, because insurance fraud is not a victimless crime. The Coalition Against Insurance Fraud estimates the cost to the average Minnesota family to be more than $1,400 a year in higher premiums and other factors.

This newspaper ran an article last fall about the solicitation of auto accident victims using the accident reports generated by local police agencies, which sell the reports for $5 each. The victims are then bombarded with cards and letters, some of which make misleading and often fraudulent statements. Worse, the information on the reports is often used by "runners." Runners are used by unscrupulous medical providers. They show up at a victim's house to offer free rides and even cash incentives to get insurance information so that the provider can start the fraudulent claims process.

The working group's list of reforms is a bill called the Insurance Fraud Prevention Act. It doesn't address all the problems but is an excellent first step. The bill is working its way through both the House and Senate. Legislators should be strongly encouraged to support it, and Gov. Mark Dayton should sign it.

The good intentions of the no-fault insurance law have slowly but steadily eroded. If we don't send a strong message soon to out-of-state fraudsters to stay away, our problem will only get worse.