Augusta, Maine -- The state of Maine has the dubious distinction of having the highest per capita rate of insurance fraud in the nation, and unfortunately, the state lacks an insurance fraud bureau to combat this growing crime, according to legislative testimony in Augusta today by the Coalition Against Insurance Fraud.
The number of suspected frauds in Maine totaled 158 per 100,000 population — more than any other state and significantly higher than a national average of 32, according to statistics provided by the coalition.
In 2007, insurers reported 2,093 suspected frauds in the state, which is six times the rate as New Hampshire and nearly 10 times as much as Idaho and Hawaii — three similar-size states with insurance fraud bureaus.
During testimony before the Maine legislative committee on insurance and financial services, Dennis Jay, executive director of the coalition, said the high rate of suspected fraud, along with data showing fraud is increasing, should compel the legislature to approve a pending bill to create a fraud unit within the state’s bureau of insurance.
“... the economy is driving an increase in fraud. Insurers say they’re receiving more suspect claims of stolen cars and homes being burned, Jay said. “Additionally, there’s increasing evidence that organized criminal enterprises are seeking to take advantage of down economies and distracted law enforcement. They’re also becoming more mobile and are moving into areas that they deem vulnerable,” he added.
Jay also testified that a fully functioning fraud bureau can help curb the various forms of insurance fraud -- from automobile insurance scams, to those who cheat workers compensation insurance programs to scams by medical providers and insurance agents. He also said a fraud bureau could help combat the growing problem of illegal use of prescription drugs in the state since most diversion of painkillers is financed through insurance fraud.
Creation of a fraud bureau acts as a deterrent, he says. “It helps keep people honest.”
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Below is a copy of testimony provided on April 6, 2009:
Testimony
of Dennis Jay
Executive Director
Coalition Against Insurance Fraud
Before the Committee on Insurance and Financial Services
Senator Bowman, Representative Treat and members of the Committee, I appreciate the opportunity to testify in support of LD 1285/SP 466 to create an insurance fraud unit within the Maine Bureau of Insurance.
I am Dennis Jay, executive director of the Coalition Against Insurance Fraud. We are a national alliance of consumer organizations, government agencies and insurance companies dedicated to combating all forms of insurance fraud through education, advocacy and research. Since our founding 16 years ago we have been involved in helping to create more than a dozen insurance fraud units around the country,
Additionally, I had the honor of being appointed in 1997 by Governor Angus King to a task force to draft the state’s insurance fraud act, which was enacted by this body. That statute was based on a model law drafted by the Coalition Against Insurance Fraud.
Every year for the last 12 years, the coalition has collected indepth statistics on state insurance fraud bureaus to analyze their level of activity and understand their overall effectiveness. This qualitative and quantitative research concludes generally the creation of state fraud units are good investments for the citizens of the states.
Every year, the numbers become more impressive in the totals of cases opened, suspected frauds detected, arrests, convictions and restitution back to citizens, the state and insurance companies.
I would be glad to share our data with the committee. It’s difficult to compare states with and without fraud bureaus. However, data has been collected by the Maine Bureau of Insurance to suggest the level of fraudulent activity in the state.
In its latest data compilation, the bureau reported that insurers detected 2,093 instances of fraud by claimants and others. Comparing this figure to the data we have collected from 36 other states with fully functioning fraud bureaus, Maine has the highest per capita rate of suspected fraud in the nation. The average number of suspected frauds per 100,000 population is 32. Maine’s is 158.
Comparing the incidence of fraud with similar-size states, Maine’s rate is six times that of New Hampshire and nearly ten times that of Idaho and Hawaii.
By almost all measures, Massachusetts has one of the highest incidences of fraud in the nation. In 2007, the Massachusetts fraud bureau received nearly 4,200 reports of insurance fraud. That is double the number reported in Maine. Yet, Massachusetts’s population is nearly five times that of Maine.
If I may, I’d like to share a quick story about Massachusetts. In 2003, after concluding that auto insurance fraud was rampant in the city of Lawrence, the Massachusetts fraud bureau teamed up with local police and the state AG to create a task force to crack down on fraud in the city. Through enhanced law enforcement activity and public awareness about fraud, the task force has been credited with reducing the incidence of fraud substantially. Within three years, auto insurance rates in the city fell 24 percent, saving local citizens a combined $15.5 million per year.
Last week, the Kennedy School of Government at Harvard, cited this effort as one the nation’s top 50 innovations in government.
Now, Maine isn’t Massachusetts. I don’t suggest the fraud problems can be easily compared. Yet, in looking at the data from insurers, it appears the economy is driving an increase in fraud. Insurers say they’re receiving more suspect claims of stolen cars and homes being burned.
In desperate times, decent people sometimes commit desperate acts, and that’s what increasingly appears to be happening throughout the country right now.
Honest insurance consumers are having to subsidize insurance costs for those who cheat. That’s unfair.
Additionally, there’s increasing evidence that organized criminal enterprises are seeking to take advantage of down economies and distracted law enforcement. They also are becoming more mobile and are moving into areas that they deem vulnerable.
The legislation before you is moderate in scope, and contains provisions that have been enacted in a majority of the states.
A fully functioning fraud bureau can help curb the various forms of insurance fraud -- from automobile insurance scams, to those who cheat workers compensation insurance programs to scams by medical providers and insurance agents.
Additionally, we’ve found that fraud units are developing expertise to help uncover a growing problem across the U.S. and in Maine -- the illegal diversion of prescription drugs. Most drug diversion is financed by insurance, and such, can and should be investigated and prosecuted under your existing insurance fraud statute.
The creation of a fraud unit also has two additional positive outcomes in our experience. One is that it creates greater deterrence in encouraging people from committing fraud. It helps keep people honest, knowing that the state is specifically on the lookout for such frauds.
Secondly, insurers are more likely to invest in anti-fraud efforts in states with fraud bureaus because they feel their investments will yield a greater return. They become more serious about fraud when the state takes insurance fraud more seriously.
The time has come for Maine to build on its anti-fraud efforts by creating a specific unit within the insurance bureau to combat fraud.
I understand that resources are scarce in the Bureau of Insurance. The fraud unit can start out modestly and increase its capabilities as the economy recovers.
I strongly encourage you to report this bill out favorably and encourage your colleagues in the legislature to enact it.
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