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Cheaper Car Insurance Act of 2010

The Cheaper Car Insurance Act of 2010 was introduced to the United States Senate on February 5. The Act was announced by Senator Charles Schumer of New York. The state of New York, and particularly certain areas of New York City, have been the locations of auto insurance fraud rings which have become more intricate and common in recent years, and partly as a result of this increase in fraud, auto insurance prices in New York are some of the highest in the nation, with recent annual price increases well above the national average. Schumer's hope is to combat higher auto insurance prices in New York and around the country by focusing on preventing fraud, and punishing it sufficiently when it does occur that it serves as a deterrent to would be organizers and participants in fraud rings.

Overview of Car Insurance Act

The Cheaper Car Insurance Act of 2010 is a revamped version of legislation that was originally introduced in 2004 but was never voted into law. According to published reports, both auto insurance fraud and auto insurance premiums are steadily on the rise in the state of New York. Fraud cases in New York have increased by 33 percent since 2006, according to the reports [1]. The Cheaper Car Insurance Act would set up new federal penalties to prevent and punish auto insurance fraud. It includes specific punitive measures to more effectively punish those who participate in these crimes, and to deter others from taking part.

Auto insurance legislation has been traditionally a states' rights issue, but the federal government has become more involved in the domestic auto insurance industry as of late, from the creation of a Federal Insurance Office to legislative interest in various actions regarding the industry's use of credit based insurance scoring in the setting of its rates for consumers.

The Cheaper Car Insurance Act of 2010 would go after criminals engaging in auto insurance fraud at any level, from the masterminds running the operation down to the street level participants, and would require those convicted to serve jail time and foot the bill for their crimes. To Schumer, the bill sends a strong message to anyone thinking of committing auto insurance fraud. The stipulations of the bill include federal prosecution for crimes and federal sentencing to jail time up to 15 years, no small price to pay for the commission of a crime.

Details on Act of 2010

Schumer feels that auto insurance fraud is a serious and growing problem, one causing substantial damage to both individuals and businesses, especially in his home constituency of New York. He also thinks that both fraud cases and auto insurance rates will continue to go unchecked unless something is done to address the problem [1].

The new federal penalties will include fines of up to $100,000. If the financial damage of the fraud was over that amount, the fines can be increased to match the damages according to the provisions of Schumer's bill. This is in addition to imprisonment of convicted perpetrators of auto insurance fraud.

The new bill if passed into law would also allow insurance companies the option of requiring inspections on cars before insuring them if they suspect the cars will be used for fraudulent means. One frequent method used in auto fraud is to buy damaged cars and insure them, then claim they were damaged in a car accident. The inspection option would help insurers avoid that possibility. It remains to be seen whether this sort of inspection could be done in a cost effective manner, or whether implementing something of this sort would cause the kinds of rate increases the bill is trying to prevent. What is certain is that the issue of auto insurance fraud has become so prevalent that it warrants attention on the floor of the U.S. Senate.

Three Tiered System of Punishment

Under the guidelines of the Cheaper Car Insurance Act of 2010, criminals who stand trial for auto insurance fraud can be tried in one of three categories or tiers for their participation in a car insurance theft ring. The different tiers have different specifications for the specific involvement of the individual, and each of the three brings its own maximum length of prison time. The three tiers are called participants, organizers, and masterminds.

On the lowest tier of the system are participants. Participants in the bill's definition are those who are doing work at the street level. They are the drivers in staged accidents. They might be those people offering money to others to use a particular clinic taking part in the insurance scam. They might be involved in convincing others to lie about accident circumstances. This tiered system makes it a separate crime to participate in an auto insurance fraud at this level. As a guideline for punishment, a five year prison sentence is mandated.

At the middle level of the three tier system in Schumer's bill are organizers. According to the bill, organizers are those who facilitate the work of participants below them. They work to help set up fake accidents, or to make false auto insurance claims on behalf of the ringleader of an auto insurance scam. Organizers face a maximum of 10 years in prison for their involvement in an auto insurance fraud ring.

Finally, the masterminds are those at the top of the auto insurance fraud ring. They are the ones in charge of the whole operation. They come up with the concept, recruit active participants, and often fund the ring. Masterminds are those charged with conceiving of and masterminding an auto insurance fraud operation. As the leaders of a fraud ring, they face a maximum of 15 years imprisonment for their involvement under the provisions of the Cheaper Car Insurance Act of 2010 [1].

In every state across the country, auto insurance fraud hurts many groups of consumers. One such group is small business owners who are ready to expand their businesses by adding vehicles to their fleets. In some cases they can afford the cars or vans themselves, but cannot handle the high rates of insurance. This is especially common in states like New York where auto insurance is so expensive.

Another example is vacationers and businesspeople making a trip out of state and renting cars. In pricing out their trips, they sometimes have to make concessions or plan shorter, less expensive ventures because rental car insurance is so pricey. Visits to the Empire State, for example, may be compromised by high insurance costs, leading to losses to industries like hospitality, bars and restaurants, airlines and tourist destinations. The artificial increases of auto insurance prices brought on by rampant fraud have produced many like effects outside the industry.

Auto insurance fraud in its many forms is a persistent and age old problem manifesting itself in new ways in the midst of a recession making people all over the country look for ways to survive and replace lost income. The temptation to commit fraud is there for honest people as well as for everyday criminals. If passed, the Cheaper Car Insurance Act of 2010 will give muscle to federal intervention in insurance fraud.

[1] http://schumer.senate.gov/record.cfm?id=322134& Retrieved 2010-02-12.

 

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