Michigan needs an auto-fraud authority

Push as stand-alone bill to tackle widespread staged-crash rings

Over a year ago I wrote that there’s no such thing as a “no-brainer” when it comes to passing legislation. Issues are harder to move forward when observers think they’re a “no-brainer.” I wrote that blog with Michigan in mind.

Michigan is one of the two most populous states without an infrastructure to tackle insurance fraud. There’s no fraud bureau, fraud authority or dedicated prosecutors. There’s no state agency to investigate and prosecute suspected frauds.

Several years ago the Coalition worked with anti-fraud partners to help craft a bill creating a fraud authority to target widespread auto-fraud schemes in Michigan. Staged-crash rings were among the offenders needing stifling.

The authority would have a statewide board funded by an assessment on auto insurers. The funds would be distributed as grants to law enforcement statewide, local prosecutors and others to chase down auto scammers. Michigan’s legislation was modeled after the Pennsylvania Insurance Fraud Authority, which is a successful statewide anti-fraud effort.

In advocating legislation for a fraud authority, legislators had difficulty understanding that auto insurance fraud is a statewide concern instead of a local issue. Then the state police pushed back, fearing they might lose funding for their own auto-theft authority. Those concerns eventually were resolved.

The fraud authority was a stand-alone bill. But that changed a couple of years ago when the governor, many legislators, opinion leaders and insurers decided Michigan’s entire no-fault auto insurance system needed an overhaul. So the fraud authority was rolled into the current comprehensive no-fault reform package. That has tied up efforts to pass an auto-fraud authority.

Several versions of large scale no-fault reform have fizzled, and the auto fraud authority went down with the doomed bills each time.

Michigan’s statehouse is about to close for the year, with a new legislature and leadership coming in 2015.

It’s time to rethink the issue. The auto-fraud authority should stay free of large reform bills, which often collapse from their own weight and complexity. The agency should be introduced as a stand-alone bill. It has wide support, and stands a far better chance of passing that way. Michigan drivers and fraud fighters deserve nothing less.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Time for states to crack down on auto-rate cheating

Mass. court suggests underwriting fraud not taken seriously

Helen ChenThe scam started with a small, classified ad in a Chinese newspaper circulated in New York, offering cheap auto insurance.

Forty Chinese Nationals jumped at the sales pitch, prosecutors say. The drivers traveled to Massachusetts and met with Lefen “Helen” Chen, who helped them apply for auto coverage. All drivers lied that they lived in the Bay State.

Xin Han Chen, Ting Zhang and Huai Dong Gu saved an average of more than $1,100 over similar auto coverage in New York. It was well worth the short hop to Massachusetts.

adProsecutors and the court yesterday freed the trio after they agreed to pay the difference owed in premiums between the two states.

Requiring fraudsters only to pay back what they stole sends the signal that this is not a serious crime. Might as well say “better luck next time.”

Jail time isn’t necessarily called for here, but how about requiring the three to go back to the Chinese community and give presentations about why they shouldn’t defraud the insurance system?

Sadly, the fact that they were even charged is an anomaly. Most courts don’t prosecute auto premium evasion, and most states don’t even have laws against it.

Only about 50 premium-evasion cases were prosecuted in the U.S. during the last two years, reveals the Coalition’s criminal conviction database. And most involved drivers who illegally bought coverage after being involved in a crash.

Auto rate evasion defrauds honest consumers and both jurisdictions. In this case, Massachusetts drivers will subsidize accidents of the New York drivers. New York loses both the premiums that would’ve broadened the insurance pool in the state, and the registration fees the drivers are diverting.

Fairness is a key concept in insurance. When consumers sense the system works against them, more likely will cheat. In slippery-slope style, cheating begets more cheating. Insurers, regulators and lawmakers need to quash rate evasion schemes with strict laws and enforcement now, while they still can manage this growing crime.

No-fault repeal could harm lower-income drivers

Quashing system could delay medical treatment for injuries

The no-fault PIP auto insurance system was created in the 1970s with noble intentions: Resolving crash claims in a timely manner, regardless of who’s at fault. The concept still works to a degree. But the unintended consequence has been the large growth of fraud schemes.

Few policymakers thought PIP would become a cash cow for scammers when the system was enacted in Florida, New York, Michigan and other states. But adaptive fraudsters quickly learned the loopholes to exploit the system to steal hundreds of millions of insurance dollars or more in false crash-related claims.

Florida, New York and Michigan have tried to reform PIP and strengthen the anti-fraud provisions in the last few years. Policymakers in those states believe no-fault still is viable. Yet there are rumblings in Florida about repealing PIP and installing a system similar to Colorado’s after that state repealed no-fault in 2004. Rampant no-fault fraud is the main factor driving calls for repeal in Florida, most recently by the editorial writers of the Palm Beach Post.

Who does repeal benefit and harm the most?

PIP clearly helps low-income drivers, especially those who cannot afford private health insurance. Their auto crash injuries are quickly taken care of under PIP. What would happen if PIP is repealed?

One of the intents of the Affordable Care Act is to expand the availability of health insurance to all — especially low-income Americans. Much of this would be achieved by expanding Medicaid eligibility, which lets states insure more poor residents.

But not every state expanded Medicaid, including Florida. Without expansion, no-fault repeal could leave the working poor — those not eligible for existing Medicaid coverage — with few options for affordable medical treatment. Yes, they would be compensated for their injuries if the other driver is at fault, but in situations where fault may be in question, the wait can be long, causing lapses in treating injuries.

The Coalition has no position on whether states should repeal PIP. But policymakers considering such a tumultuous change, especially in Florida, first should remember why their state enacted no-fault in the first place. Without no-fault, they also may have figure out how assist more lower-income residents.

If expanding Medicaid is the tradeoff for dumping no-fault, then perhaps those who advocate repeal ought to lobby the governor in Florida to expand Medicaid.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Will Republican surge affect anti-fraud efforts?

Fraud fighters must be well-mobilized no matter who’s in power

The impact of yesterday’s elections on anti-fraud efforts around the U.S. will become clearer once the results are analyzed in more detail.

Certainly the Republican sirocco that swept through the elections is shaking up an order that has opposed and supported state anti-fraud efforts.

For the most part, however, state anti-fraud legislation and budget funding are driven less by party lines and more by the priorities of the men and women who hold office.

Also look to powerful gate-keeping committees that decide which bills reach the floor. Complex insider agendas, alliances and political tradeoffs frequently affect bills far more than broad party affiliation. Politically powerful special-interest groups also can stall or push measures regardless of which party holds sway.

Still, the election results hint generally at things to come in several hot-button states.

Republicans gained control of the state House in Minnesota. That rattles a power structure that worked against fraud fighters this year. The chair of the House Commerce committee gives up his position. His committee gutted a promising bill that would’ve added civil penalties for fraudsters, tightened rules against bogus medical billing and treatments, and allowed dishonest medical providers to be booted from the insurance system.

This power shift may open the door for a fresh revisit of the bill.

Florida’s CFO was reelected. Jeff Atwater has taken strong anti-fraud stands in a state wracked by debilitating crash rings and medical fraud. Atwater’s continued presence could ensure a continued department-level priority on rolling up scams. Legislation to tighten the noose is murkier. Larger agendas involving reforming or even dumping the state’s no-fault auto system could surface. The future of fraud reforms could hinge on the outcome of those larger issues.

Oregon re-elected a governor who vetoed a bill making insurance fraud a crime a decade ago. That creates a political environment that looks ill-suited for passing a bill in 2015.

Kansas insurance commissioner Sandy Praeger is retiring. She was a stalwart supporter of anti-fraud efforts. Will her successor show the same commitment?

Closely watch Pennsylvania, Illinois, Massachusetts and Maryland. Those states elected governors of the opposite party. They’ll likely install new insurance commissioners. Their anti-fraud priorities will merit close scrutiny.

New York’s statehouse has consistently stalled much-needed legislation clamping down on staged-crash rings. Nothing in yesterday’s voting seems likely to change that. Only the governor’s active backing can break a logjam that has lasted for several years.

Bills expanding the ability of insurers and regulators to share case information may be the one issue that benefits from the Republican surge. Giving insurers more leeway could be something that corporate-friendly legislators and regulators would support.

Special-interest politics has been a larger factor throughout the years than Red vs. Blue.

The well-funded and politically mobilized trial bar was a big factor in derailing the Minnesota bill and a Michigan measure creating an automobile-fraud prevention authority — both this year. The trial bar also reared up against no-fault fraud reforms in Florida in 2011 and 2012.

The bottom-line takeaway: On balance, fighting fraud crosses party lines. Putting a big dent in crime is a universal goal. Democrats and Republicans have fought hard for anti-fraud bills, and helped thwart them. Fraud fighters must be well-mobilized regardless or who’s in power. They must be prepared to build strong cases that anti-fraud bills are pro-consumer. Just as important, they must build close relationships with committees, and with members of the broader legislature.

This is closer to the universal roadmap for influence and impact. For fraud fighters, the issue is less Red or Blue, and more Red, White and Blue.

More states taking on vehicle rate evaders

Drivers falsely registering in states with lower premiums

Dishonest drivers are ginning the auto-insurance system by illicitly registering their vehicles in states or counties with lower auto premiums. These cheaters may not drive or live there, but dishonestly setting up the address can save them a bundle on auto premiums.

This insurance scheme may cost honest consumers and the insurance system millions of dollars. And in some jurisdictions the drivers are committing insurance fraud.

Years ago the then-Philadelphia DA offered amnesty for dishonest drivers to step forward and properly register their vehicles in Philadelphia instead of their falsely claimed addresses in the Philly suburbs or southern New Jersey. A number of folks set their registration record straight — including an employee in the DA’s office.

More recently, North Carolina knew it had a problem with out-of-state drivers registering in the Tar Heel State. North Carolina now requires drivers to show proof of residence before they can register and insure their vehicle.

Several weeks ago the New Jersey Assembly passed a bill targeting drivers who lie about where they garage their vehicles. The state would gain more authority to go after these insurance cheaters if the bill becomes law.

New York has seen insurance investigators, consumer and community groups identify numerous suspicious vehicles parked in residential neighborhoods in Staten Island and Brooklyn. The vehicles oddly had license plates from Virginia, North Carolina, Pennsylvania and Iowa. Visiting friends or relatives don’t own these vehicles. They’re driven by New Yorkers who are cheating the insurance system.

An agent also may be helping New York drivers register vehicles in a state hundreds of miles away, confidential sources say. These drivers are cheating the system. They are raising the insurance risks and possibly auto premiums in the target state. They also are paying lower auto premiums without lowering the insurance risks in New York.

Neighborhood groups, anti-fraud groups and some legislators would like to make false vehicle registering a crime of insurance fraud in New York. A bill awaits action in Albany.

Most states have yet to make illegal registering a specific insurance crime. For the most part, we’ve also seen only sporadic enforcement. Still, more auto insurers and states are starting to realize that false vehicle registering can lead to other insurance crimes such as bogus vehicle injury or theft claims. Stopping rate evasion thus can help in the larger fraud fight.

States should step up and realize that rate evasion is an insurance fraud that needs targeting. It’s good for honest consumers and the insurance system.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.


Give health insurers a break from loss ratios

Move will help fight healthcare fraud — and help put downward pressure on premiums

A columnist for the Los Angeles Times recently skewered UnitedHealth for what he says was aiding and abetting a $43-million medical scam involving bogus weight-loss surgeries.

The health plan failed to scrutinize bad claims, the columnist says, until long after money was out the door.

Whether or not the harsh criticism is justified, we’ll leave to others to debate. But if UnitedHealth and others are not investing in expanded anti-fraud efforts, there’s likely a good reason:

Federal law discourages it.

One of the least publicized provisions of the Affordable Care Act is intended to make health insurance more affordable. Health reform governs the percentage of premiums health plans can dedicate to non-claims business expenses, such as marketing, salaries, administration, profit and yes — anti-fraud activities.

The so-called Medical Loss Ratio requires health plans to spend 80 to 85 percent of premiums they collect on claims.

In essence, anti-fraud expenses must be paid out of profit. That’s enough to discourage most health-insurance companies from growing their anti-fraud programs.

In some instances where insurer expenses are out of balance, paying suspect claims could boost profits — or at least not affect them. Now most health insurers wouldn’t intentionally pay suspect claims, but bad claims can be harder to detect when the anti-fraud efforts haven’t grown commensurate with the growth in policies and claims.

And thanks to Obamacare, policies and claims are growing. But anti-fraud efforts are not.

The Medical Loss Ratio is a good idea in theory. It prevents insurers from spending all the new-found premium money on frivolous expenses, such as corporate bonuses.

But good legislation also has unintended consequences — such as discouraging investment in fraud.

If fraud is allowed to increase — such as the $43 million that reportedly was spent on unnecessary and phantom stomach lap-band surgery — then upward pressure will continue on premiums, and everyone loses — except the fraudsters.

The time has come to rethink how the MLR is calculated.

About the authors: Dennis Jay is executive director of the Coalition Against Insurance Fraud. Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

What’s the correct sentence for faking a car theft?

Most scammers get off easy, but not this fellow from Boise

People who fake the thefts of their vehicles to collect insurance money usually never see the inside of a jail.

A review of 133 cases from the Coalition’s files since 2009 found that six of 10 people convicted don’t serve jail time for this crime. They’re usually ordered to repay the insurance company, perform some community service and be on their way.image

Of those who go to jail, the average sentence is just more than a year.

A big exception to the typical sentence unfolded in a Boise, Id. courtroom yesterday when Quincy Hoffman was sentenced for faking the theft of his 2003 pickup truck. He collected $4,700 from Allstate after reporting it stolen from the side of the road.

Police later learned that Hoffman sold his pickup for $1,000 a year earlier, and charged him with two counts of insurance fraud.

The judge sentenced Hoffman to five to 10 years in state prison.

While there may be extenuating circumstances here, if Hoffman serves the full 10 years, this will be the longest sentence dished out on record for faking a vehicle theft.

The widespread publicity of this sentence in Boise likely will deter others from committing similar crimes.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Technology coming of age as anti-fraud weapon

More insurers are using advanced tools, but success still relies on investigator instincts

Insurer use of anti-fraud technology has rapidly moved forward in the last few years. Time and time again, these weapons have proven to be game-changing tools for investigations of all kinds.

This is especially true of large and complex rings such as no-fault medical mills that pile up expensive and false crash-injury claims against auto insurers.

Tech software can quickly churn through imposingly large amounts of evidence and expose the structure and inner workings of often well-insulated fraud cartels. The door thus is opened to major busts, devastating prosecutions, and large-dollar savings that help control premiums for honest policyholders.

The maturation of technology use by insurers was confirmed by a study released this week by the Coalition, with assistance from the business analytics firm SAS.

Nearly all insurers (95 percent) said they use anti-fraud technology, compared to 88 percent when the study was first conducted in 2012.

Suspicious activity has increased, the responding insurers say. So the need for technological wingmen is stronger than ever.

Insurers also appear to be making a strong business case that technology returns a strong ROI. More case referrals, better ones and improved investigator efficiency were among the chief business benefits, large percentages of insurers asserted.

And more insurers are using advanced weaponry such as link analysis, predictive modeling and text mining.

Technology has moved miles ahead of the early days when it could only sift through basic clues for case leads. We’re now in the modern era. Advances in technology finally may be starting to get keep pace with America’s fraud wave, and possibly start getting ahead of the biggest offenders.

Measuring progress with precision is impossible. Nor is technology alone the solution. Insurers need to continue supporting the acquisition of modern tech pistons for their investigative units. Investigators, in turn, are challenged to keep making a strong business case for these tools.

Software developers must deliver viable tools — and make them as affordable as possible. The best weaponry must be within reach of as many insurers of all sizes and diverse investigative needs as possible.

Breaking open fraud crimes of all stripes still comes down to the keen instincts and training of investigators. They must properly interpret and doggedly track down the evidence that tech uncovers.

Human and digital boots on the ground can be an imposing team, one that more fraudsters will come to fear in the years ahead.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Insurance industry’s anti-fraud efforts looking up

Upbeat attitude at IASIU’s annual seminar signals growing strength for the fraud fight

IASIU logoWhen anti-fraud professionals gathered just a few years ago, the talk typically centered on lack of job security, reduced budgets and perhaps even the lack of respect by senior leaders at insurance companies.

How quickly times change. The upbeat attitude expressed at the opening of today’s annual seminar of the International Association of Special Investigation Units is yet more evidence that the anti-fraud community is strong and growing.

Investigators are smiling again. Insurers seem to be loosening their belts on funding for staffing, anti-fraud technology and even sending more fraud fighters to IASIU’s annual seminar. The 700-plus attendance here in Greensboro, N.C. is the best in several years.

The anti-fraud community seems to be maturing nicely. IASIU is now 30 years old. The old guard of investigative managers combined with the influx of young, tech-savvy analysts and investigators gives insurers the best-trained and best-equipped army of insurance fraud fighters the industry has ever deployed.

Add to that the strength of organizations such as NICB, ISO and a growing cast of insurers that support anti-fraud efforts, and there’s good reason for optimism that we’re finally getting a handle on combating fraud.

That’s hardly to say we’re turning the corner and seeing widespread declines of insurance crime. But the fraud fight definitely is looking up compared to just a few years ago.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Consumer education key to combating home contractor fraud

New book gives homeowners step-by-step details on dealing with contractors

contractor bookThis time of year historically has not been kind to insurers and property owners. In the past we have seen Hurricanes Andrew and Katrina as well as Superstorm Sandy wreck havoc on everywhere from South Florida, the Gulf Coast and the Jersey Shore, New York and Connecticut. This year we have the Napa, California earthquake, plus tornados and hail storms in the Midwest.

These and other events underscore the importance of helping homeowners prevent becoming victimized a second time by crooked contractors. Many of these fraudsters are fly-by-night operators who prey on vulnerable property owners desperately wanting to get their lives back to normal again.

The Coalition partners with insurers, consumer groups and government agencies in targeting shady contractors. We support strong legislation giving consumers the ability to rescind a contract if the repairs are deemed unnecessary by their insurer. The contract also must clearly state that the consumer has the right to rescind the agreement within a specified number of days.

We also want to make sure that contractors do not act as unlicensed adjusters to 
act as a “go-between” with the homeowner and their insurer, as well as stopping adjusters from acting as contractors for the repair. Contractors also should be penalized for offering any inducement including waiving an insurance deductible to get a consumer to sign a contract.

Anti-fraud legislation helps a lot, but just as vital is public education. Consumers need to equip themselves with information on preventing contractor fraud — and that needs to happen long before the loss occurs.

A good place to start that education is with a just-published book, Don’t Even Think About Ripping Me Off. It’s a step-by-step guide to help consumers navigate the often-confusing process of dealing with contractors and home repair.

The book was published by Phae Moore, executive director of the National Center for the Prevention of Home Improvement Fraud, who became an advocate after her grandmother was badly victimized by a shady contractor.

The books makes for a good gift, especially for seniors and young homeowners. Insurance professionals should also consider distributing the book to their policyholders and clients. You can order the book online at NCPHIF’s website.

I have one on my bookshelf. Shouldn’t you?

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.