GEICO supports no-fault insurance, fraud bureau


November 26, 1990

One on One is a weekly feature offering excerpts of interviews conducted by The Evening Sun with newsworthy business leaders. August P. Alegi is group vice president and legislative counsel for GEICO Corp., one of the largest insurance companies in Maryland. About 93 percent of the company's business is in automobile insurance and it has about 120,000 policyholders in Maryland.

Q. GEICO has been very active recently in legislative matters leading up to the 1991 General Assembly. What are GEICO's objectives during the next General Assembly session?

A. I think GECIO doesn't really have any specific GEICO objectives. There are lots of things we think we would like to see the General Assembly do to try to control the rising cost of automobile insurance in Maryland and especially here in Baltimore City. We are anxiously awaiting the report of the Governor's Commission on Insurance. We would very much like to see that commission recommend the governor support, and the legislature enact, a good strong no-fault law, a good strong choice law for Maryland. We think the state also needs a fraud bureau in its insurance department. We think insurance fraud is rampant in this state and we would certainly like to see more effort on behalf of the state in helping the insurance companies combat fraud. We also think the solvency regulation in the state needs to be fine-tuned . . . We would like to see those three things done. Hopefully, the Insurance Commission, the Governor's Insurance Commission, will recommend those things and the legislature will then enact them.

Q. Some people find it rather unusual that the insurance industry is now a big supporter of no-fault because when no-fault was first talked about a couple of decades ago, they were staunch opponents. Why the change?

A. Well, Massachusetts enacted the first no-fault law in 1971 and the industry then felt the law that was enacted . . . was flawed. We talk a lot about thresh holds, and I think the industry turned out to be right, that unless the law is constructed right, it is going to fail and it is going to raise costs instead of lowering them. That is what happened in Massachusetts. That's what happened in New Jersey. Benefits are too high, and there's not enough restriction on the right to sue. The whole theory behind no-fault is that you get paid quickly and fairly for your losses -- for your lost wages, your out-of-pocket expenses, your medical expenses. These things are paid to you within 30 days. In return for that, you give up some rights. The dollars that pay for the first-party benefits have got to come out of the rates. If you don't have a strong enough threshold, if you don't take enough small claims out of the system, there aren't going to be any dollars to pay for the first-party benefits except through rising premiums. Three states, we think -- New York, Michigan and Florida -- have enacted no-fault laws that pay generous benefits to the public and yet at the same time have controlled insurance prices. Back in the early 70s we said if you don't do it right, it's not going to work, and unfortunately, we were right about those particular states.

Q. You were talking about possibly having a fraud unit in the state. The insurance industry has come under some criticism for not being diligent enough in pursuing fraud and also being perhaps not diligent enough in denying frivilous claims, that they will settle these claims so that they don't have to go to court. Do you think that's legitimate?

A. It's kind of a damned-if-you-do and damned-if-you-don't situation. My company initiated what we call special investigation units. These are generally retired or ex-policemen that we hire, put in our claims department. Their job is to root out fraud, to make sure GEICO is not paying any fraudulent claims. There are lots of other companies that do this too, but once again, we're just an insurance company. Our hands are tied. Suppose we make a case of insurance fraud. We've got the facts; we bring it to the States Attorney. What does the State's Attorney say? "I can't convict murderers and rapists and drug dealers. I am not going to fool around with an insurance fraud case." That's what happens. That's why we need, one, strengthened penalties for insurance fraud, and two, we need a state unit dedicated to ferreting out and prosecuting insurance fraud, a dedicated unit which will say, "We are going to take these cases the insurance companies make; we're going to make them our own cases, we're going to go after these people, and we're going to get convictions, and we're going to put them in state prison."

Q. Nobody wants people who fake accidents or fake injuries t get paid, but there is some fear that maybe if somebody fills out the form incorrectly, then they might get in trouble.

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