You discover that you have a serious illness, a circumstance beyond your control. Then, you learn that your nice, neighborly insurance agent had sold you a fake health policy. You urgently need treatment, but you don’t have coverage. Taking care to choose an honest agent was in your control, but now it’s too late.

Most agents are honest, but regrettably, we’ve seen a wave of agent fraud stories lately. Victims paid into all kinds of coverage they later discovered were fake.

Some examples:

In Missouri, an insurance agent sold homeowner and auto policies without a license, and pocketed clients’ premiums. She pleaded guilty this week to 20 counts of fraud.

In Oklahoma, an agent is charged with deliberately miscoding workers compensation policies to make roofing companies illegally eligible for coverage. Suspected victims were issued certificates of insurance that were not backed by actual policies. They discovered, as many do, that they’d allegedly had paid into a plan that didn’t cover them.

In New York, Norman Michaels was arrested for selling forged health policies to more than 400 individuals. Prosecutors say his victims were lured by the promise of cheap insurance. The insurance was cheap because the coverage allegedly didn’t exist.

The New York Alliance Against Insurance Fraud is arming consumers with important advice to empower themselves against crooked agents.

Among key tips:

• Make sure the insurance agent is licensed in your state
• Get a copy of every form you sign
• Read your policy closely before you sign. Know the details of what your policy does and doesn’t cover.

In Spanish we say, “it’s better to prevent than to cure.” Let’s make sure that’s true when considering cheap insurance policies.

About the author: Jennifer Tchinnosian is communications specialist for the Coalition Against Insurance Fraud.

At a time when many school districts are laying off teachers, cutting back on classes and increasing class size, six districts in Pennsylvania likely will have to come up with several hundreds of thousands of more dollars to pay for workers compensation and liability insurance. The districts in Berks County will have to bear the extra expense because they allegedly were defrauded by a couple of agents to the tune of more than $1 million. The money they dished out for insurance was used by the agents to buy luxury cars, expensive wine and other personal items — while the school districts went bare, coverage-wise.

The AG’s Insurance Fraud Section arrested cousins Kevin and Robert Pickell yesterday for defrauding the schools. They face up to 20 years in prison if convicted. In announcing the arrest AG Tom Corbett said “because the schools are all publicly funded, the true victims in this case are the taxpayers who live in those communities.” While true, it’s likely the kids will suffer as well because I doubt the school districts have an extra $1 million laying around to replace their insurance coverage. After-school programs, art classes, new books, teacher raises are usually the kinds of things cut when schools face budget crunches.

Fraud by insurance agents is on the rise across the country. A recent study by the Coalition found that a whopping 69% of state fraud bureaus say cases involving crooked agents increased in the last year. Nearly 40% reported the number of agent cases were “much higher.” Unless consumers become more sophisticated in dealing with agents — and regulators become more vigilant — we’re likely see many more stories like the one out of Pennsylvania this week.

I’m having a hard time getting worked up about the investigative stories out today that AARP is making money off its members who purchase insurance through the organization. From the Boston Globe:

Arthur Laupus joined AARP because he thought the nonprofit senior citizen advocacy group would make his retirement years easier. He signed up for an auto insurance policy endorsed by AARP, believing the advertising that said he would save money. He didn’t. When Laupus, 71, compared his car insurance rate with a dozen other companies, he found he was paying twice the average. Why? One reason, he learned, was because AARP was taking a cut out of his premium before sending the money to Hartford Financial Services Group, the provider of the coverage.

Now, how is this different from buying a policy from State Farm, Allstate or any independent agent where a sales commission is paid?

Mr. Laupus apparently handed over $1,400 to the AARP insurance program without comparison shopping. A savvy consumer he apparently is not.

Some AARP members likely are getting a good deal with AARP’s insurance. Others are not. It all depends on the rating criteria used in underwriting. That’s just the way auto insurance works.

If AARP is using misleading ads or deception to sell insurance, then the regulators should step in and right those wrongs.

But some of the reporting on this story — especially by Bloomberg — is thin on substance and long on hyperbole.

Allegations that there’s a conspiracy by AARP to steal from senior citizens just seems a bit over the top. AARP is a wonderful advocate for older Americans and sponsors many programs that do save people money.

With all the egregious financial crimes against the elderly today, I would think reporters might do better to focus their energies elsewhere.

Disclosure: Hartford Insurance is a member of the coalition, and I am a member of AARP.

Financial auditors in state insurance departments are the unheralded workers who help ensure that insurance companies remain solvent and that insurance agencies stay honest. The news out of North Carolina today is sad: A state auditor, Sallie Rohrbach, 44, is missing and an insurance agent has been charged with her murder.

Details are sketchy, and speculation about a motive would be premature at this point. More information probably will be released this afternoon when agent Michael Arthur Howell, of Charlotte, 40, is arraigned.

Update – May 21, 2008 – A body was recovered yesterday by police. Howell appeared in court, but few details were provided. The North Carolina Department of Insurance released this statement:

The news this evening that Sallie’s body was found brings conflicting emotions to those of us at the Department of Insurance. We are devastated that all hope is lost, but we also find a sense of closure in knowing that we can lay to rest our dear friend and colleague with the dignity and respect she deserves. Not knowing where to find her was torturous, so at least in that regard there is some relief.

Finally, we send our sincere thanks to the Charlotte Mecklenburg Police Department. Their response to this case was, in our minds, exceptional, and we commend them for their professionalism. Thank you, CMPD, for bringing closure to those who knew and loved Sallie.

There is solid piece in the National Underwriter this week that profiles agent fraud, why so many cases go undetected and whether this fraud is increasing. Michael Goddard, investigations chief for California insurance department, cites the use of technology by agents in creating forms and other documents that look legitimate. Goddard says his office opened 899 cases of agent fraud in the last year statistics were available, and that in 2007 his office is expanding to handle the load.

. . .recently, it seems that agents are creating false applications for persons who have not agreed to enter into a contractual relationship with the company, he said, adding this is probably driven by an increased use of technology. A bad agent can get personal information rather easily, submit an application and then collect a year’s worth of commission. “They think they can pay back the commission, but inevitably they cannot and the scheme collapses.

Cory Cox, head of the Arkansas fraud bureau, says his agent fraud caseload remains steady, but agents are finding new ways to defraud beyond pocketing clients’ premiums:

The article points out that insurance regulators have attempted and failed to craft model regulations through the NAIC to counter some of the agent scams. We suspect that at least one agent group is using its clout to keep the proposed regulations bottled up. It’s hard to understand why a professional association would help to protect rogue agents.