New York put its no-fault auto insurance system in place in 1974 with the intention of creating a quicker, more cost effective way to compensate accident victims for their injuries.

However, fraudulent claims have increasingly become an issue in recent years, leading state officials and insurers to take a series of steps to try to curb the problem.

Understanding no-fault insurance

While traditional auto insurance policies allow you to purchase liability coverage for bodily injury claims from anyone injured in an accident you cause, under no-fault insurance, the bodily injury coverage under your policy extends to you, according to Allstate. One major benefit of this system is that medical claims are paid quickly and you don’t have to wait for a lawsuit before you can be reimbursed for your out-of-pocket medical expenses.

An aspect of no-fault insurance, known as Personal Injury Protection (PIP), will ensure that your hospital bills are paid and help cover other associated losses, such as lost wages if you are unable to return to work.

No-fault coverage is under the vehicle you’re in at the time of the accident, and it may also cover you if you’re a pedestrian or a cyclist who has been hit by a vehicle.

However, it will not cover property damage, and the system has certain other limitations.

Under no-fault laws, someone hurt in an accident may only sue for injuries, pain and suffering if the case meets certain conditions, known as a threshold, according to the Insurance Information Institute. New york and several other states have a verbal threshold for filing a lawsuit for pain and suffering that describes the severity of the accident. Other states have a monetary threshold based on dollar amounts.

Under PIP, policyholders in New York are entitled to $50,000 in medical and other benefits, according to the I.I.I. If medical bills exceed that amount, victims may sue for medical costs and other economic damages, as well as noneconomic damages.

The prevalence of fraud

No-fault insurance related fraud has become a big problem in the state, according to the I.I.I. One in every five claims settled in New York appears to have some element of fraud and about one in three appears to be inflated, according to a study by the Insurance Research Council.

Furthermore, from 2007 to 2010, no-fault claims that were fraudulent or inflated by excessive billing by dishonest medical care providers or by unnecessary medical services rose from 29 percent to 35 percent, according to the IRC.

And in March 2012, a major incident drew attention to the state’s no-fault insurance crisis, according to the I.I.I. Thirty-six people, including physicians and personal injury lawyers, were arrested for being part of a criminal ring that had billed insurers more than $279 million in fraudulent claims since 2007.

The price consumers pay

When claim costs rise because of fraud, policyholders end up paying for it through higher premiums, according to the I.I.I.

The I.I.I. estimated that in 2009, no-fault fraud and abuse in New York cost consumers and insurers about $229 million. And when the extra costs were averaged out over all the claims filed that year, the additional cost added up to $1,561, or 22 percent of each claim.

Reforming the system

New York Gov. Andrew Cuomo’s administration has taken a number of steps to curb fraud in the state.

In February 2013, the New York State Department of Financial Services adopted three amendments to Regulation 68, which implements the state’s no-fault law claim procedures, according to the I.I.I. The first amendment prevents billing for services that were not provided or billing more than the established fee for services. The second sets a deadline for healthcare providers to respond to requests for verification that the medical treatment provided was necessary and the third prevents immaterial paperwork errors from invalidating a denial of a claim or a request for verification, according to the I.I.I.

And in his 2014-15 Executive Budget, Cuomo said he would expand the New York Financial Services’ ability to audit healthcare providers who participate in the no-fault system to prevent fraudulent providers from receiving payment and fining providers who take part in illegal activities, according to the I.I.I.

The I.I.I. also reported that insurers are pushing for legislation that makes staged accidents a felony, requires medical care providers to prove that a prescribed treatment is medically necessary, ends fraudulent billing by fly-by-night durable medical equipment providers and permits retroactive cancellation of fraudulently obtained auto insurance policies.