No-fault auto insurance may offer some Americans relief in an accident, but they're paying a princely sum for the privilege. The situation has industry officials muttering the "f" word: fraud.

Dishonest claims account for $177 of each New York driver's insurance fees today. Insurance officials estimate that figure will rise to $242 per driver in 2004, and $321 each in 2005 -- representing a 3,500 percent increase from the $9 allotment in 1999.

It gets uglier: The frequency of claims in New York is 20 percent higher than the national average; the severity of claims, 130 percent higher. No wonder the state's estimated cost of auto insurance fraud is $1 billion annually -- and $6.3 billion per year countrywide.

"There's no obvious reason why people in New York are injured more severely or more often, even accounting for the greater number of cars," says Ellen Melchionni, vice president of the New York Insurance Association.

What it is
No-fault insurance dictates that drivers involved in an accident seek coverage for any injuries from their own insurance companies regardless of who did what. The objective when it was introduced in the 1970s was to halt lawsuits clogging the courts over fender benders.

But no-fault insurance claim procedures didn't change when managed care arrived, lugging its limits and protocols. This means car accidents became an area where consumers didn't have to see a gatekeeper first. They could saunter into a neurologist's office to examine a pain in the neck without first ruling out strained muscles -- and insurance pays. Nor do medical personnel have to follow rules on when to use specific treatments. Want to order a CAT scan first for a nebulous complaint of aches and pains? The insurance company pays.

What's more, the law in New York has continued to allow medical claims up to $50,000 -- no real questions asked, says Robert Hartwig, chief economist of the Insurance Information Institute.

"Basically, you had the last great open checkbook in America," he says.

How the scam works
A few ordinary Joes shrugged and padded their claims because they could, but the bulk of trouble stems from organized rings, Hartwig says.

Questionable doctors, lawyers and collision repair facility operators use street-level collision coordinators known as "cappers" to recruit a few chumps and stage vehicle accidents just as they would a Hollywood production.

They target an innocent driver, position bogus witnesses to counter the victim's testimony, and wham! A car accident then allows the unscrupulous doc to produce inflated bills for supposed injuries. The shady attorney negotiates a settlement with the insurer for the cooperating victims, and everyone in the scam splits the payday, with the lawyers and physicians pocketing the lion's share.