Auto Insurance Fraud and Litigation Reforms Included in Final State Budget
Despite being nearly two months late, the recently enacted New York state budget delivers a sweeping set of auto insurance reforms that tackle excessive lawsuits and strengthen fraud enforcement. The package reflects years of sustained advocacy by Big I New York, the insurance industry at-large, consumer advocates, and the business community—all of whom have endured rising auto insurance premiums at the hands of fraudsters and frivolous lawsuits.
Big I New York led throughout budget negotiations by actively participating in policy discussions, op-eds, stakeholder outreach, meetings with lawmakers, and participation in public-facing events and rallies. The reforms collectively represent one of the most significant updates to the state’s auto insurance framework in years.
In a statement, Big I New York Chair of the Board, David H. Borg, said “New York State is turning a corner. The newly enacted state budget tackles auto insurance fraud and excessive litigation through the most significant reforms to the state’s auto insurance laws in decades. With these changes, we anticipate that New Yorkers will finally begin to see relief from some of the highest auto insurance costs in the nation.
For too long, staged accidents, organized fraud schemes, and abusive lawsuits have driven up costs for New Yorkers and undermined roadway safety. As a result, auto insurance premiums in New York remain significantly higher than in most other states.
These reforms are an important step toward restoring balance. We believe that, as the costs associated with fraud and excessive litigation decline, these changes will help stabilize premiums, encourage greater insurer participation in the marketplace, and foster increased competition that will ultimately benefit consumers.
We commend Gov. Kathy Hochul for prioritizing these changes and thank the State Legislature for acting on this critical issue.
Fraud and frivolous lawsuits have no place in New York. We must now hold the line against efforts to move backward to a system where insurance claims are treated like a windfall rather than a safeguard.”
Key elements of the agreement are highlighted below. Notably, the final agreement does not include a proposed homeowners loss ratio benchmark. The proposal would have required a re-filing of homeowners rates if carriers fell below a loss ratio set by the New York Department of Financial Services. The proposal examined the loss ratio during a 24-month period and would have potentially created unnecessary strain on pricing stability and availability.
FY27 State Budget P&C Insurance Reform Highlights
Serious Injury Threshold Reform: The “serious injury threshold” determines whether a person injured in a car accident may sue for pain and suffering beyond no-fault benefits. The budget repeals the “90/180 rule,” which allowed recovery based on limitations to daily activities during the first 180 days after an accident. The reform also requires juries to determine fault before considering whether a plaintiff meets the serious injury threshold. (TED Part EE)
Limits on Recovery for Illegal Conduct: The bill caps non-economic damages at $100,000 for at-fault drivers who were uninsured, intoxicated, or committing a felony at the time of the accident, except in cases involving death. (TED Part EE)
No Non-Economic Recovery When Primarily at Fault: In motor vehicle injury cases, a claimant is barred from recovering non-economic losses if they are more at fault than the defendant or defendants combined, but they may still receive no-fault insurance benefits. (TED Part EE)
Staged Motor Vehicle Accidents: The definition of a fraudulent insurance act is expanded to include those who hire, request, encourage, orchestrate, or invite another individual to stage a motor vehicle accident. It also holds such people accountable for the entire loss because of the fraudulent act, which affects how they can be charged for such crimes. (PPG Part F)
Auto Excess Profits Law: Requires auto insurers in New York to return “excess profits” to policyholders as credits when underwriting gains exceed a defined threshold over a three-year period. Excess profit is defined as underwriting gains over three years that exceed expected profit levels by more than 5% of earned premiums. (TED Part KK)
Flex Rating: The budget prohibits the use of flex rating for personal auto rate increases. Flex rating decreases of no more than 5% without prior approval are still permitted. (PPG Part II)
Restrictions on Underwriting and Rating Factors: Insurers are prohibited from using occupation, education level, homeownership status, or ZIP code as the primary basis for setting auto insurance rates or assigning policy tiers in New York, with limited exceptions (such as business-use classification, mass marketing programs, and approved actuarial discounts). (PPG Part JJ)
Premium Increase Transparency Requirements: Requires insurers in New York to provide policyholders with clear explanations of auto and home premium increases over 10%, including the dollar amount of the increase and the primary rating factors driving it. An insurer must also notify policyholders of their right to request an explanation for any increase and must provide a written response within 20 days. It also requires a notice crediting the FY27 state budget when auto insurance premiums decrease due to budget-related reforms. (TED Part BB)
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