The unspoken danger of optimizing auto premiums

Why give consumers another excuse to defraud?

price imageAny first-year college student studying insurance is taught that premiums must be commensurate with the degree of risk. It’s a basic concept at the heart of insurance pricing.

Over the years the industry has driven this point home to explain to consumers why 18-year-olds pay more than older people for car insurance. Or why a home far a from a fire hydrant is a greater risk for loss, and thus, requires a higher premium.

This concept is a basic tenant of insurance and risk, and is law in most states.

Some insurers now want to change the pricing model of auto insurance to allow them to charge more to people willing to pay more. Price optimization uses sophisticated computer algorithms to identify such people.

Some state regulators are crying foul. Seven states — Florida, Maryland, Ohio, Indiana, Washington, Vermont and California — have banned the practice. Opponents say price optimization deviates from risk-based pricing, and unfairly hits some lower-income people who may not be savvy enough to shop around for the best price, or even have the means such as an Internet connection.

My problem with price optimization is that it sends a terrible message to insurance buyers looking for another reason to justify fraudulent behavior.

If insurers are willing to price insurance at whatever the market will bear, why shouldn’t I look for every advantage at my disposal — legal and otherwise — to reduce my premiums, such as rate evasion or filing a questionable claim to get a rebate on those high premiums?

There’s a tidal wave of insurance buyers on the horizon — the Millennials — who show little loyalty to businesses unless those businesses act socially responsible. As a group, Millennials also are more likely to tolerate some unethical behaviors such as exaggerating claims and auto rate evasion.

Let’s not give them more excuses to commit fraud.

Guest blog: Staged crashes a common theme in N.C.

Insurance swindlers growing more sophisticated

North Carolina insurance commissioner Wayne Goodwin is the new chair of the NAIC’s antifraud task force. He replaces long-time chair Sandy Praeger, who retired as Kansas insurance commissioner at the end of 2014. 

We invited Commissioner Goodwin to be our guest blogger this week. He discusses emerging fraud trends his fraud bureau sees, and ongoing schemes he battles year in and year out.

We have the oldest insurance fraud bureau in the country. We are celebrating our 70th anniversary this year. We have a proud history, but we know that success in fighting fraud hinges on keeping in front of evolving criminal trends.

Fraudsters can cripple our economy unless we find a way to combat their unscrupulous acts. Far from being a victimless crime, every policyholder foots the bill for insurance fraud.

Technology is a common denominator in many of the fraud trends we are currently seeing. It’s amazing how sophisticated criminals have become. With the hardware and software currently on the market, criminals are becoming more and more sophisticated. With the advent of digital currency as a method of payment, I am sure we will see this become a factor in insurance fraud.

Cyber laundering is a new way to hide the proceeds of crime, and fighting money laundering in cyberspace is a daunting task for law enforcement agencies. There is little to no training available, and it is my hope the antifraud task force can draw attention to this issue and create training to combat this new criminal element.

Staged crashes have been a common scheme over the years, but more recently they’ve taken on a new twist. We are seeing more cases in which people stage actual car crashes rather than cases in which the accidents only occur on paper in insurance documents.

Furthermore, to take advantage of the medical payouts associated with staged crashes, some people include children into their schemes. When individuals resort to involving children in a car accident for money, there is a whole new level of concern.

We have to get ahead of the trends, and we can do that with proper training and equipment. I read that the Coalition has determined 95 percent of states are using some form of anti-fraud technology. With the reductions to state budgets, I was excited to hear this. States do take insurance fraud seriously.

The mission of the antifraud task force is to serve the public interest by assisting the state insurance regulatory officials, individually and collectively.  We are promoting the public interest through the detection, monitoring and appropriate referral for investigation of insurance crime, both by and against consumers.

I want those who commit insurance fraud to know that we are united in our efforts, and will do all that we can to stop them. I look forward to our relationship with the Coalition and can’t wait to get started.

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.

Fighting fraud starts with the basics

States need fraud law and fraud unit to have an impact

fraud bureau

This week I spoke to the Insurance Regulatory Examiners Society on state fraud bureaus and why they are integral to any state’s anti-fraud effort.

The vast majority of states (and District of Columbia) have fraud bureaus, with most housed inside the insurance departments. Several states have placed these bureaus within the state attorney general’s office, and a couple are housed inside the state police. Still, a handful of states led by Illinois, Michigan and Wisconsin do not have a fraud unit. And Oregon has neither a fraud bureau nor a specific crime of insurance fraud. It is the only state with that distinction.

After working on diverse fraud issues for more than two decades, I feel strongly that a full state infrastructure is essential to effectively fighting this crime. That means a strong insurance-fraud law, insurers doing their part, supportive and alert consumers, and the state having a bureau with prosecutors willing to take on cases. 

States with fraud bureaus have their hands full trying to keep up with the flood of case leads. So you can imagine how much scamming is going untouched in states without a functioning anti-fraud infrastructure. 

A Wisconsin regulator at my session said fraud cases usually are referred to the U.S. attorney’s office. The western part of the state is more likely to take cases, she said.

But that’s hardly the most efficient way to combat fraud. First, cases that go to the U.S. attorney invoke charges of mail or wire fraud. That’s because  insurance scamming is not a federal crime, except for health-insurance scheming. So the feds must find an unrelated law to charge someone. Most U.S. attorneys also have a fairly high threshold before they even consider trying a case. Not efficient at all.

Fraud bureaus help complete the state infrastructure. Where does an insurer or consumer go with a case lead unless the state has a fraud bureau? Should a local police or sheriff’s office be relied upon to investigate a case? Would a local prosecutor take a case? That’s far from certain. 

A state created a fraud law and fraud bureau several years ago. A legislator there said his state didn’t have much of a fraud problem until the law and fraud bureau were activated. He understood that the crime exists but goes unreported without the infrastructure. He was joking, but legislators in states without an anti-fraud apparatus can’t afford the luxury of joking.

Common sense tells us that we must spend enough time, budget funds and political will to have an impact on this crime. And that begins with an insurance-fraud law and a fraud bureau. The return will be a large benefit for consumers, and the state itself. 

Ultimately, everyone — except fraudsters — comes out ahead with a broad, well-funded anti-fraud infrastructure. Most states seem to “get it.” Now we need the remaining states to realize this commitment is in everyone’s best interest. 

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

Ridesharing: Old laws, regs collide with new technology

Explosive industry raises concerns about fraud, and who’s covered when

The issue of ridesharing has exploded in recent months. Concerns about whether the drivers have proper insurance are just one of the questions raised by regulators, insurers and consumer groups. Insurance fraud is a side concern for now, but is growing with the rideshare industry.

News coverage has mostly focused on state and local oversight of ridesharing, and complaints by local taxi drivers and companies about their new competitors. In the past several weeks taxi drivers here in Washington D.C. demonstrated against the ridesharing firm Uber’s growing presence in the nation’s capital.

Cabbies are worried that the largely unregulated rideshares will cripple the mainstream taxi industry. Ridesharing firms should meet the same regulatory standards as taxis and other for-hire vehicles, the cabbies argue.

State insurance regulators, state attorneys general, consumer groups and local taxi commissions increasingly are vocal about insurance and oversight issues. The California insurance commissioner has actively voiced insurance concerns. A big question is for rideshare drivers to manage auto coverage so a private vehicle is covered when it’s operating both privately and as a commercial rideshare.

I have a friend who owns a livery service. He’s affiliated with Uber. He has an app on his smartphone that when turned on tells Uber he’s available to pick up passengers.

We talked while he drove me to the airport recently. He has a proper state license and insurance for livery use of his vehicle. Still, he’s unsure when Uber’s auto policy protects him when driving an Uber passenger, and whether Uber’s insurance covers him while driving to or from picking up a passenger.

This raises questions about insurance fraud. At least one insurer has been reported to denying several damage claims by San Francisco rideshare vehicles the insurer says were personal vehicles used commercially. Several fraud-related issues thus arise from this new industry:

  • Do ridesharing drivers and cars have adequate insurance to act as a commercial driver and vehicle?
  • Does a rideshare driver’s personal-auto insurer know that the vehicle also is being used commercially?
  • Is the driver lying to his or her personal auto insurer that the vehicle is used commercially for part of the time?
  • Is the driver filing a fraudulent personal auto claim for a loss that occurs when driving commercially?
  • What protections do injured passengers have if the personal auto insurer denies claims because the vehicle was used as a rideshare outside the scope of the policy?

Ridesharing reveals how 21st technology is outstripping laws and regulations that have been mainstays for at least a century. Consumers can use a smartphone to arrange a ride without hailing a taxi from a street corner.

Clearly we are heading into a new era. Taxis are heavily regulated. Laws and regulations must be updated and adapted to ridesharing — it is here to stay. Fraud fighters must ensure that ridesharing companies do an honest business with their insurers — and the consumers entrusted to their care.

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

How Obamacare likely will impact p/c insurance

Changes will be both positive and negative, but real impact still unknown

obamacare logoFull implementation of the Affordable Care Act — with tens of millions of added people covered by healthcare policies — will have substantial impact on property/casualty insurers and their policyholders. Some of the effects, including coverage, regulatory and legislative changes, will be positive for insurers. Other unintended consequences could hurt.

Four years after passage, there’s no consensus on the net effect of Obamacare, said a panel of experts from yesterday’s ACE claims conference in Washington, D.C. Yet, there was agreement that insurers and state regulators must prepare for upcoming changes, including a likely uptick in medical fraud.

Among the interesting observations made by panelists:

• Gamesmanship involving provider upcoding will accelerate, and unfortunately property/casualty insurers usually do not respond quickly enough to detect and counter these schemes, says Dr. Rick Wakefield of International Health Consultants. State insurance regulators should give insurers more flexibility to respond quicker to upcoding schemes, he said.

• With Obamacare squeezing some medical disciplines, providers likely will turn to property/casualty insurers to make up the difference, Dr. Wakefield also predicts.

• With universal healthcare, a major reason for keeping no-fault automobile coverage is fading, says Peter Foley, vp of claims administration for the American Insurance Association. No-fault was enacted in many states because low-income drivers lacked healthcare coverage. With Obamacare, no-fault is not as necessary as it once was.Lawmakers and policyholders may be apt to dump no-fault and its added fraud costs.

• The collateral-source rule, which prohibits admitting evidence that plaintiffs have received compensation from some source other than the damages sought against the defendant, could encourage “double dipping” where medical providers get compensated from healthcare policies and from auto or comp insurers, says Kevin Hilyard, claims vp for Nationwide.

• The Affordable Care Act includes 39 anti-fraud provisions that have helped the federal government recoup $8 for every $1 spent in combating fraud, says Marc Smolonsky, a former senior official with Health & Human Services. Yet the added resources aren’t nearly enough to counter the potential increase in fraud. The planned data-sharing project between private insurers and the federal government to detect medical fraud may be in jeopardy because of lack of funding, Smolonsky added.

• Lastly, there was concern that some states may no longer require businesses to buy workers compensation insurance since most workers now will be covered for illnesses and injuries under Obamacare. Some dishonest employers already are demanding that their workers claim injuries under health policies.

Changes are afoot, and it would serve insurers and the fraud-fighting community to be well-prepared as the impact of the Affordable Care Act becomes clearer.

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

Enforcement can have unintended consequences

Do better fraud-busting reveal uncontrolled crime or solid enforcement?

Social scientists call it the “Law of Unintended Consequences.” That’s when an action creates results that aren’t expected when the action was contemplated.

Strengthening insurance fraud laws or increasing enforcement of existing laws can have its own unintended consequence: Fraud might appear to be spiking. Yet that could be an illusion. Better enforcement may simply be uncovering crime that already exists.

The Coalition worked with legislators and the insurance department to enact a strong anti-fraud law in a Great Plains state several years ago. A year or so later, I ran into one of the legislators we worked on the bill and asked him how it was going. “We didn’t have any fraud until you guys showed up,” he kidded me.

Fraud wasn’t being investigated or reported to law enforcement before the law took effect. Insurers began investigating and reporting the crime to law enforcement after the measure took effect.

Fraud seemed to be spiking. But maybe the opposite was taking place: Stepped-up enforcement could’ve started diminishing this crime.

Oregon is the only state without a specific insurance-fraud law or fraud bureau. That means few investigations or prosecutions happen. It creates a false sense of security, that insurance fraud barely exists in the state. Yet, we in the anti-fraud community know otherwise.

If Oregon enacts a needed fraud law, the welcome boost in enforcement could suggest a seeming crime spike. The populace would need to be carefully educated that fraud isn’t necessarily running out of control. Instead, fraud fighters may be just doing a really good job.

Incidence of suspected fraud spike and fade for all kinds of reasons. A state may start to enforce its mandatory fraud reporting requirement and all of a sudden, the number of cases skyrocket. Or as we’ve seen during the 2009/10 recession, fraud bureau budgets can cut, and the number of cases dwindle.

I was reminded of unintended consequences last week when the Social Security Administration released a video last week that noted “Social Security’s zero-tolerance approach has resulted in a fraud incidence rate that is a fraction of one percent.”

Just goes to show that you don’t really have a fraud problem if you don’t bother looking for it.

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

Should marijuana replace addictive opioids?

Studies still needed, but insurers must solve prescription-drug pandemic

Could marijuana replace OxyContin as the painkiller of choice?

As legal pot spreads across America, insurers might want to consider this alternative.

I had the honor last Friday of serving as keynote speaker for the annual conference of the Rocky Mountain chapter of IASIU held just outside of Denver. It was a well-attended meeting with good speakers and interesting topics — including one on the impact of legal marijuana on insurance.

With a few hours to kill before my plane departed, I decided to check out Colorado’s latest burgeoning industry and visit a marijuana dispensary to satisfy my curiosity (and impress my hip friends back home).

The dispensary in Boulder is called The Farm. It was a medical marijuana retailer before the state legalized recreational pot for adults on January 1. Entering the store, ID was required and scanned for validation.

“You wouldn’t believe how many underage kids try to use fake IDs to get in here,” the young woman behind the counter told me. After validation, she handed me a plastic chip with a number on it. She encouraged me to look around while waiting for my number to be called.

The store’s main section looked like a traditional jewelry store with several showcases of shiny merchandise. Instead of diamonds, glass bongs were featured. It was certainly more upscale — and expensive — than the head shops I recall from the 1960s and 70s.

A locked side room contained the featured merchandise on display. Only perhaps a half-dozen customers at a time were allowed in the room, where marijuana products were displayed along the walls and underneath glass display cabinets.

If more studies conclude marijuana is effective and relatively safe for pain relief, then insurers and government programs should consider getting out front to replace the widely destructive — and expensive — use of opiods.

I told the clerk I wasn’t buying but wanted to see what was available and just look around. He was accommodating and knowledgable of the many products available, from dozens of varieties of marijuana to edibles to oils.

As I wandered around, I noticed the clientele wasn’t anything like I imagined. One guy looked like a corporate middle manager. Another could’ve been a truck driver, and a middle-class, middle-aged woman also perused. None looked like the potheads I’d expected. Overhearing their conversations, I learned that all sought relief for some ache or pain. One had back problems and another customer had arthritis.The corporate guy was picking up a package I surmised was for a family member, perhaps wife or parent, who had cancer.

Different types and strains of marijuana are suggested for different ailments, the clerk told me. Some marijuana even is sold without the key ingredient that gets users high — and his clients attest that it’s still effective.

I’d always thought that medical marijuana was more of an excuse for stoners to get high legally, but new evidence out this week challenges that assumption.

If more studies conclude marijuana is effective and relatively safe for pain relief, then insurers and government programs should consider getting out front to replace the widely destructive — and expensive — use of opiods. Prescription abuse kills Americans by the thousands, and is creating the largest generation of heroin users this country has seen. Prescription drug diversion also imposes a huge dollar drain on insurers and government health programs.

Twenty-one states and DC now allow marijuana for medical use. I’d love to see a group of insurers or a state Medicaid program conduct a pilot program in one state to test pot vs. opiods such as the painkiller oxycodone..

I’m still not sold on the idea of legal recreational marijuana, but medical marijuana might help curb one of our nation’s most pressing problems of prescription drug abuse.

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

Top fraud fighter may leave post in Florida

CFO Jeff Atwater in line for university presidency

People in public service come and go as a routine, but it was still a surprise to learn that Florida CFO Jeff Atwater may soon be departing to take a job as president of Florida Atlantic University.

As CFO, Jeff is the state’s top fraud fighter. The Florida Department of Insurance Fraud reports to him and he’s been a strong supporter of a wide range of anti-fraud efforts over the years.

As a former legislative leader, he wielded a good deal of influence during legislative battles in 2011 and 2012 to get fraud provisions included in PIP reform bills.

And under his command, the state saw record numbers of insurance fraud arrests and convictions. He’s also fought to give state investigators more tools to combat fraud.

His surprise announcement comes while he was planning his re-election campaign and amid speculation that he likely will be a candidate for governor some day.

It’s not certain whether he’ll get the university job. But whether he stays or goes, we wish him the best. He’s earned it.

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

Penny-wise and fraud foolish

Congress puts momentum of fighting medical fraud at risk

blogCrooked medical providers across America have much to celebrate this July 4th — and it has nothing to do with Independence Day.

News came this week that more than 1,200 medical fraud referrals are laying dormant at the Department of Health & Human Services. They will not be investigated because HHS says it doesn’t have enough resources — auditors, attorneys and investigators — to pursue the fraud allegations. And the problem soon will get worse.

HHS is set to lose 400 fraud fighters over the next two years due to impending budget cuts. Existing investigations and even cases already developed will be dropped, HHS says.

At stake is not only the billions of dollars in savings for the taxpayers and the treasury, but also the momentum that this federal agency and the Justice Department have created in gaining ground on widespread medical crooks.

Even if budgets are restored in the future, it will take years to rebuild the anti-fraud infrastructure, relationships and investigative acumen that are reaping the federal government $8 for every $1 spent on fraud fighting.

And in the meantime, the next generation of organized medical rings will have time to ramp up and get a foothold on becoming competent in avoiding detection while plundering Medicare money

The cuts are “a penny-wise, pound foolish approach that will end up costing our country in the long run,”  U.S. Sen. Tom Carper (D-Del.) called the cuts after a recent hearing on Capitol Hill.

Fraud fighters, taxpayers and deficit hawks everywhere should be outraged. The Coaltiion certainly is.

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