Go figure: fraud data

Auto insurance

Auto bodily injury claims: Staged-accident rings fleece auto insurers out of billions of dollars a year by billing for unnecessary treatment of phantom injuries. Usually these are bogus soft-tissue injuries such as sore backs or whiplash, which are difficult to medically dispute.

Fraudulent and abusive auto-injury claims are a costly problem. Fraud and “buildup” added $4.8 billion to $6.8 billion in excess payments to auto injury claims in 2007. That means 13-percent to 18-percent increases in payments under private-passenger auto policies from 2002. (Insurance Research Council, Nov. 2008)

Bogus and abusive claims also are rising. They ranged between $4.3 billion and 5.8 billion in 2002, or between 11 percent and 15 percent of total payments. (ibid)

Claims with apparent fraud or buildup were more likely than other claims to involve sprain and strain injuries, and periods of disability. These claimants also were more likely to receive treatment from physical therapists, chiropractors and other alternative medical providers. (ibid)

Buildup involves treatment that’s excessive but isn’t deliberately or criminally fraudulent.

Underwriting fraud: Dishonest drivers try to lower auto premiums by dishonestly lying on their insurance application or renewal. Among the ruses: registering their vehicles in locales where premiums are lower; low-balling their stated mileage; and saying a commercial vehicle is used mainly for personal use.

1. Auto insurers lost $15.9 billion due to premium rating errors in private-passenger premiums in 2009. Premium rating errors account for nearly 10 percent of the $161.7 billion in personal auto premiums written. Fraud accounts for a portion of these losses. Some drivers will seek to lower their premiums by schemes such as deliberately misrepresenting mileage driven, how the vehicle is used and where it’s registered. In fact, drivers are five times more likely to report midterm mileage changes that reduce auto premiums than changes that increase premiums. Quality Planning Corporation “found a small upward trend in the misreporting of garaging address and youthful drivers, most likely due to an attempt by policyholders to lower their insurance costs. This trend was most striking in large urban areas, where vehicle-garaging rating errors cause honest policyholders to subsidize dishonest ones...these polices account for more than $2 billion in annual premium leakage.” And for auto insurers, every one percent of rating error left uncorrected also causes a 20-percent profit loss. (Quality Planning Corporation, 2010)

Staged Accidents: An effective strategy against staged-accident rings involves creating multi-agency task forces to apply highly focused pressure in targeted locales where the fraud rings operate. The goal is to thwart often-massive fake injury claims by bogus crash victims. Massachusetts, for example, has experienced considerable success with task forces in recent years...

Nearly 1,200 people in 13 communities have been arrested for suspected involvement in staged crashes since Massachusetts began clamping down on widespread accident rings in late 2003. Many have been convicted. Fraud fighters phased in multi-agency task forces in 13 communities amid public outcry after 65-year-old grandmother Altagracia Arias died in a setup crash in September 2003. (Community Fraud Initiative, A Five-Year Retrospective; Automobile Insurers Bureau of Massachusetts and Insurance Fraud Bureau of Massachusetts, 2009)

The number of injuries per 100 accidents has dropped in those communities, from 38 injuries per 100 accidents in 2003 to 26 in 2008. The statewide average dropped from 38 injuries per 100 accidents to 26 over the last five years. (ibid)

Drivers in the 13 targeted communities have saved nearly $252 million in lower premiums total over the four years between 2005 and 2008. Statewide, the savings was $514 million. (ibid)