Fraud bureau report

Executive summary

2001 — 2006

Budgets for state insurance fraud bureaus increased more than $15 million from 2004 to 2006, allowing these agencies to add more than 280 new investigators, analysts and lawyers to tackle schemers. Has the increased firepower translated into better fraud-fighting results?

The answer seems to be yes and no. Key measurements of success — criminal convictions, cases opened, referrals received, cases presented for prosecution and restitution ordered — all increased in 2005, but some appear to have plateaued in recent years.

This suggests that, for the most part, fraud fighters are delivering better results and are priming the pipeline with fresh cases that should result in a new generation of prosecutions and convictions in coming years. Still, the lack of growth in convictions and cases opened in the last three years is a concern. Of 47 bureaus, 18 saw convictions decline from 2004 to 2005. Nebraska dropped from 89 to 7 during the period, and other significant declines were reported by California (59), and Pennsylvania (26).

All told, fraud bureaus logged 4,459 criminal convictions in 2005. This represents an increase of 6.4 percent from 2004, but the average number of convictions per agency dropped from 105 to 93.

Still, the growth in anti-fraud budgets suggests that fraud fighters are succeeding in educating legislators and other decisionmakers that insurance fraud is a severe and draining crime — and one that can increase insurance costs for consumers and businesses.

As more fraud units continue maturing through growth in staff, better technology and improved working relationships with insurer SIUs, the future looks promising.

Insurer investigative units also logged a productive year. SIUs and other fraud fighters referred nearly 125,000 suspected scams to fraud bureaus. This record total is a spike of nearly 19 percent over 2004. Though two new fraud bureaus opened their doors in 2005 and helped boost the total, referrals also grew an average of 14 percent per bureau.

The encouraging surge in case referrals may signal that insurers are getting better at detecting fraud. Some states also may be more aggressively enforcing mandatory reporting requirements on insurers. Involving the public by promoting telephone hotlines to report fraud may help as well; the 39 fraud bureaus that track hotline calls received more than 9,800 phone tips.

A key harbinger of future success is the increased number of fraud investigations that were opened in 2005. The 29,000 probes represent a 6.5-percent increase over the previous year. This larger caseload should result in more prosecutions and convictions when the Coalition tallies the 2006 numbers. From 2001 to 2006, though, the number of cases open is relatively flat.

The data reveal wide-ranging capabilities and effectiveness among anti-fraud agencies. A handful of fraud bureaus appears to be highly effective, another handful of resource-starved units aren't putting much of a dent in fraud, and the majority of units fall somewhere in between.

But overall, the lean years between 2000 and 2003 when most fraud bureaus saw flat budgets, declining referrals and stagnant caseload may be ending. As more fraud units continue maturing through growth in staff, better technology and improved working relationships with insurer SIUs, the future looks promising.

Other findings

Prosecutions. While the total cases presented for prosecution — 5,467 — rose 6.5 percent, most of the growth appears to come from newer fraud bureaus as their early cases wind through the pipeline. Fraud bureaus with dedicated prosecutors, such as Florida, had the largest growth in cases.

Convictions. California continues to convict more insurance swindlers than any other state— one of every three insurance fraud convictions in the U.S. The Golden State's fraud bureau logged a record 1,546 convictions, ahead of runnersup Florida (493), New York (450) and New Jersey (354).

Referrals. Nearly three of four fraud units reported increases in referrals received. A half dozen fraud bureaus each received an increase of 50 percent or more in referrals of suspected frauds. California reported the most referrals at 27,687.

Cases opened. The total number of cases opened increased 6.5 percent after remaining relatively flat between 2001 and 2004. Much of the increase stems from the Rhode Island workers comp bureau — whose caseload soared nearly two thirds to 5,100 cases in 2005.

Civil actions. Civil and administrative actions against fraudsters fell by 9.5 percent to 2,266, with only slightly more than a third of states reporting civil suits. Even that total may be artificially high: New Jersey's Office of Insurance Fraud prosecutor tallied more than 40 percent of all civil actions.

Budgets. A total of $134 million was budgeted for 42 bureaus in 2006. California is the richest with a $36.8-million budget. New Jersey is second with $29.7 million. Nearly three of four budget dollars were spent by just five states.

Employees. A total of 1,559 fulltime employees were reported by 47 state fraud bureaus, and nearly two thirds were investigators. California is the largest employer with 298 staffers, followed by New Jersey at 270.

Restitution. Fraud-bureau cases resulted in $298 million in court-ordered restitution for 2005. But this figure is skewed by a few high-dollar cases. Still, most fraud bureaus reported increases for 2005.