Insurance Fraud
The Insurance Information Institute estimates that fraud accounts for 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses, or about $30 billion a year. This fraud results in higher premiums.
Fraud may be committed at different points in the insurance transaction by different parties: applicants for insurance, policyholders, third-party claimants and professionals who provide services to claimants. Common frauds include “padding,” or inflating actual claims; misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred; and “staging” accidents.
Prompted by the incidence of insurance fraud, 41 states and the District of Columbia have set up fraud bureaus (some bureaus have limited powers, and some states have more than one bureau to address fraud in different lines of insurance). These agencies have reported increases in referrals (tips about sus- pected fraud), cases opened, convictions and court-ordered restitution.
Insurance fraud can be “hard” or “soft.” Hard fraud occurs when someone deliberately fabricates claims or fakes an accident. Soft insurance fraud, also known as opportunistic fraud, occurs when people pad legitimate claims, for example, or, in the case of business owners, list fewer employees or misrepresent the work they do to pay lower workers compensation premiums.
People who commit insurance fraud range from organized criminals, who steal large sums through fraudulent business activities and insurance claim mills, to professionals and technicians, who inflate the cost of services or charge for services not rendered, to ordinary people who want to cover their deductible or view filing a claim as an opportunity to make a little money.
Some lines of insurance are more vulnerable to fraud than others.
Healthcare, workers compensation and auto insurance are believed to be the sectors most affected.
Insurance fraud received little attention until the 1980s when the rising price of insurance and the growth in organized fraud spurred efforts to pass stronger antifraud laws. Allied with insurers were parties affected by fraud— consumers who pay higher insurance premiums to compensate for losses from fraud; direct victims of organized fraud groups; and chiropractors and other medical professionals who are concerned that their reputations will be tar- nished.
One out of five Americans think it is acceptable to defraud insurance com- panies under certain conditions, according to the Coalition Against Insurance Fraud. The organization released the findings in a 2008 study, “The Four Faces of Insurance Fraud.” It found that the public is consistently more tolerant of specific insurance frauds today than it was 10 years before. In addition, studies by the Insurance Research Council show that significant numbers of Americans think it is all right to inflate their insurance claims to make up for insurance premiums they have paid in previous years when they have had no claims or to pad a claim to make up for the deductible they would have to pay.
Insurers must preserve the fine line between investigating suspicious claims and harassing legitimate claimants and the need to comply with the time requirements for paying claims imposed by fair claim practice regulations. All states have unfair claim settlement practice laws on their books to ensure that the parties involved are informed of the progress of investigations and that investigators settle the claim promptly or within a specified amount of time.
About 19 states have provisions that provide guidance and protection for inves- tigators by allowing time limit extensions or waivers and detailing what evi- dence is required and to whom the evidence should be made available.
Insurers’ Antifraud Measures: The legal options of an insurance company that suspects fraud are limited. The insurer can only inform law enforcement agencies of suspicious claims, withhold payment and collect evidence for use in a court. The success of the battle against insurance fraud therefore depends on two elements: the level of priority assigned by legislators, regulators, law enforcement agencies and society as a whole to the problem and the resources devoted by the insurance industry itself. To that end most insurers have estab-
lished special investigation units (SIUs). These entities help identify and investi- gate suspicious claims.
Insurers have also created a national fraud academy. A joint initiative of the Property Casualty Insurers Association of America, the FBI, National Insurance Crime Bureau (NICB) and the International Association of Special Investigating Units, it is designed to fight insurance claims fraud by educating and training fraud investigators. It offers online classes under the leadership of the NICB.