More evidence fraud is on the rise

crashed carNew research on the extent of automobile insurance fraud was released today by the Insurance Research Council. Shortly after, I received an analysis from insurance attorney Barry Zalma, whose views I don’t always share, but fully respect. His observations are usually insightful and sometimes provocative, and he doesn’t disappoint on this latest:

Readers will not be surprised by the most recent conclusion of the Insurance Research Council (IRC) that estimates that claim fraud and buildup added between $4.8 billion and $6.8 billion in excess payments to auto injury insurance claims closed with payment in 2007.

What is amazing about this report, and what should cause all shareholders in stock insurers and members of mutual insurers or interinsurance exchanges, is that those insurers identified more than 20,000 claims that involved fraud and yet made payment on each of those claims. Since one who commits fraud may not recover at all, regardless of how small the fraud, any more than a person can just be partially dead, those more than 20,000 claims were successful frauds identified by the insurer. At least the same amount of fraud – more likely tenfold more – were not discovered and were paid.

Insurers who identify fraud should not pay a cent to the perpetrator. That $4.8 to $6.8 billion was paid to people who committed fraud is a travesty and a mark of unprofessional claims handling.

The payments, described by the IRC to be “excess payments” amount to between 13 percent and 18 percent of total payments under the five main private passenger auto injury coverages.

The study showed that excess payments were greater in 2007 than in 2002. In 2002 IRC estimated excess payments at between $4.3 billion and $5.8 billion, or between 11 and 15 percent of total payments.

The percentage of claims that appeared to involve fraud, defined as specific material misrepresentation of the facts of a loss, increased from 9 percent of bodily injury (BI) claims closed with payment in 2002 to 11 percent of closed claims in 2007.

The most common type of claim abuse found by the IRC was described as “buildup,” that the IRC defined as the inflation of an otherwise legitimate claim, such as through unnecessary medical treatments or diagnostic procedures. Twenty percent of BI claims appeared to involve buildup in 2007, up from 18 percent in 2002. Apparent buildup was found in 14 percent of PIP claims, up from 12 percent in 2002.

The study also examined differences in claiming behavior between claims with apparent fraud or buildup and claims without apparent fraud or buildup. Claims with apparent fraud or buildup were more likely than other claims to involve sprain and strain injuries and periods of disability. In addition, the study found that claimants in apparent fraud and buildup claims were more likely than other claimants to receive treatment from physical therapists, chiropractors, and other alternative medical providers.

The study, Fraud and Buildup in Auto Injury Insurance Claims: 2008 Edition, is based on data from more than 42,000 auto injury claims closed with payment under the five principal private passenger coverages. Twenty-two insurers, representing 58 percent of the private passenger auto insurance market in the Unites Sates in 2006, participated in the study. The IRC closed claim study collected detailed data on injury, medical treatment, claimed losses and total payments, claim handling techniques, and attorney involvement. In addition, claim file reviewers were asked to indicate whether specific elements of fraud or buildup appeared in the claims.

Because the study involves only claims closed with payment, it likely understates the incidence of fraud and buildup in all claims filed whether without payment or with payment but not discovered as fraud.

Thanks, Barry. And thanks for the IRC for its continued work in producing useful research on insurance fraud.

Burning desire to be car(e)less

Car fireThis morning I’m taking a van shuttle from my neighborhood to BWI airport. At first it’s only the driver and me. Then another passenger gets on who’s apparently an acquaintance of the driver. After a few minutes of chit-chat, which is impossible not to overhear, the driver asks what their mutual friend, Eddie, is up to these days.

“He just burned his truck for insurance money,” the passenger replied matter-of-factly. No response from the driver.

I didn’t believe what I had just heard. Then it sinks in that neither one shows any emotion about a criminal act that is becoming all too common. A few seconds later they switch to another topic.

I’ll be checking the local police report upon my return to determine if there were any recent suspicious truck fires.

But in the meantime, my personal experience today is magnified on an almost daily basis as more and more reports come in about the increasing incidence of auto giveups around the country.

As the economy coninues to crumble and people become more desperate, more vehicles will be burned or hidden or dumped in lakes and rivers. Intense deterrence efforts need to be undertaken quickly to get the word out that getting rid of a car is a dumb way to solve a financial problem.

Elections post-mortem

Vote buttonFor fraud fighters, the elections brought some good news and not-so-good news. From today’s Insurance Fraud Weekly ePort:

* Monica Lindeen replaces retiring commissioner/state auditor John Morrison in Montana. Morrison was a leading consumer advocate pushing for stricter review of, and stronger penalties for, phony insurers and discount medical cards…Wayne Goodwin was elected insurance commissioner in North Carolina. He replaces long-time commissioner and strong anti-fraud advocate Jim Long, who retired…The Democrats increased their majority in the Oregon House. The chamber was unfriendly to a bill making insurance fraud a specific crime this year; a stronger Democratic majority thus could make the odds of passage unlikely in 2009 as well.

* The Indiana governor was re-elected. The governor and his appointed insurance commissioner support strengthening the state’s fraud laws. The department also was drafting a bill to create a fraud unit. The unit would’ve been funded by the insurance department’s existing funds, but the troubled economy has dried up the money. Whether insurers will support funding a fraud unit with annual assessments is uncertain. This makes the unit doubtful in 2009.

* The New York Senate has changed hands to a Democratic majority — the first time in more than 40 years. It’s also the first time Democrats control both chambers with a Democratic governor since the Roosevelt years. But the Democrats have only a slim and not fully reliable Senate majority. The party in power decides committee chairmanships and agendas. How this wobbly majority will affect insurance fraud issues will have to play out in 2009.

Political races we’re watching today

vote buttonThere are a few political races today that could have an impact on combatting fraud.

We’re watching closely whether the New York State Senate falls into the hands of the Democrats for the first time in many, many years. The entire legislature and the governorship could be controlled by one party and that could break the gridlock that has gripped the state for many years. Anti-fraud legislation (and other bills) have languished for several years as partisan feuds stalled most initiatives.

North Carolina will elect a new commissioner for the first time in more than 20 years. Commissioner Jim Long has been a solid supporter of anti-fraud efforts. Will his successor continue that tradition? The North Carolina fraud unit is a good one and has gained momentum in recent years. It would be a shame if the next commissioner didn’t provide the same level of support.

Indiana is another state we’re watching. Governor Mitch Daniels is up for re-election. His administration — including his insurance commissioner — has supported legislative efforts in the past to combat fraud, and likely would be a strong ally next year when a bill to create a fraud bureau will be introduced. A change in governors could change those plans.

We’ll also be watching to see if Oregon voters make many changes in their legislature. Over the years, the legislature has become less and less friendly to the idea of enacting a fraud law. Will the makeup of the legislature become better or worse for fraud fighters? We’ll see.

And lastly, Pennsylvania Attorney General Tom Corbett is up for re-election. We’re biased in favor of General Corbett, not only because he serves on our board of directors, but his office is aggressive in prosecuting fraud.

Watch this space for our take on these and other elections.