Fraud: why should I worry?
Watch out... Insurance crooks are picking your pocket to line theirs. These thieves are committing insurance fraud, one of America's largest crimes.
Insurance fraud occurs every day, and in every state. People of all races, incomes and ages are victimized. Insurance schemes steal at least $80 billion a year, the Coalition Against Insurance Fraud estimates.
But look beyond the high-dollar costs... Honest, hard-working consumers and businesses pay a steep price. Lives, businesses, careers and families are damaged or even ruined by insurance fraud crimes.
People lose their savings. Trusting citizens are bilked out of thousands of dollars, often their entire life savings, by insurance investment schemes. The elderly are especially vulnerable.
Health is endangered. People's health and lives are endangered by swindlers who sell nonexistent health policies or perform quack medical care to illegally inflate health insurance claims.
Premiums stay high. Auto and homeowner insurance prices stay high because insurance companies must pass the large costs of insurance fraud to policyholders.
Consumer goods cost more. Prices of goods at your department or grocery store keep rising when businesses pass higher costs of their health and commercial insurance onto customers.
Honest businesses lose money. Businesses lose millions in income annually because fraud increases their costs for employee health coverage and business insurance.
Innocent people are killed and maimed. People die from insurance schemes such as staged auto accidents and arson — including children and entire families. People and even animals also are murdered for life insurance money.
Employees lose jobs. People lose jobs, careers and health coverage when insurance companies go bankrupt after being looted by fraud thieves.
Insurance fraud occurs when people deceive an insurance company or agent to collect money to which they aren't entitled. Similarly, insurers and agents also can defraud consumers, or even each other. Insurance fraud can be "hard" or "soft."
Hard Fraud. Someone deliberately fakes an accident, injury, theft, arson or other loss to collect money illegally from insurance companies. Crooks often act alone, but increasingly, organized crime rings stage large schemes that steal millions of dollars.
Soft Fraud. Normally honest people often tell "little white lies" to their insurance company. Many people think it's just harmless fudging. But soft fraud is a crime, and raises everyone's insurance costs. Consider...
A car owner inflates a fender bender claim to cover her deductible, or she understates how many miles she drives annually to lower her auto premium... A homeowner inflates the value of his stereo equipment stolen during a robbery... Or a printing business lists fewer employees than it really has in order to pay lower workers compensation premiums.
Insurance fraud is hard to measure because so much goes undetected, and complete research has yet to be done. Still, we have enough evidence to know that fraud is widespread — and expensive.
Healthcare fraud alone costs Americans $54 billion a year, the Coalition Against Insurance Fraud estimates.
More than one third of people hurt in auto accidents exaggerate their injuries. This adds $13-$18 billion to America's annual insurance bill, notes a study by the Rand Institute for Civil Justice.
Nearly one third of doctors exaggerate the severity of a patient's illness to help the patient avoid early discharge from a hospital, according to the Journal of the American Medical Association.
Consumer scams: Insurance fraud happens when people deceive an insurance company to collect money to which they aren't entitled. Padding a burglary claim or lying about where you register your car to lower your auto premiums are two examples of smaller "soft" fraud. Burning down your home for insurance money or taking part in staged accidents are examples of "hard" fraud.
Insurer fraud: Insurance agents can steal your premiums and not buy the promised coverage, leaving you unprotected. A dishonest insurer claims employee can steal your claim checks, and fake insurers can sell you bogus policies. Crooked health insurers can pad Medicare or Medicaid claims for profit.
Good question! Here are some actions that usually aren't insurance fraud:
• Good-faith disagreement between an insurance company and consumer about a claim; and
• Decision by an insurer to decline your application, or not renew your coverage.
If you have a good-faith difference about a claim or other insurer decision, here are several actions you can take:
• Know your policy well — what it does and doesn't cover.
• Contact your insurance agent, who may be able to help resolve your questions. Provide the evidence of your difference with the insurer. Include the policy or claim number, date of loss and other relevant facts. Also include any documentation.
• If you don't have an agent, contact your insurer's complaint department.
• If you aren't satisfied by the insurer's response, contact your state insurance department. Provide full documentation. Each insurance department will have a hotline, website contact form or other way to file your complaint
Insurers sometimes back off. Most insurance companies take a tough stand against fraud, but some companies unwittingly encourage fraud by paying suspicious claims too easily. These companies believe it's cheaper to pay some smaller suspect claims than fight in court, and a quick payoff also may avoid multimillion-dollar lawsuits for bad faith.
The health system is an easy target. America's health care system is huge and vulnerable. The sheer number of patients and treatments plus complexity of billing attract cons who are skilled at looting our overworked health care system. The pressure to control costs also encourages many doctors or health firms to cheat so they can recoup lost profits or meet rigorous treatment quotas.
Immigrants are vulnerable. Insurance cheats consider America's large and growing immigrant groups easy targets. Asian and Hispanic communities, for example, report extensive insurance fraud as con artists prey on immigrants' trust, lack of English skills and ignorance of how insurance works.
Low-Risk Crime. Insurance cheaters view insurance fraud as a low-risk, high-reward game, and far safer than drug trafficking or armed robbery. Consider:
• Six states still don't have specific insurance fraud laws, thus
discouraging many prosecutors from tackling tough fraud cases.
• Courts are getting tougher on convicted schemers, but too often jail
sentences still are light, with courts often reserving space in overcrowded
prisons for people convicted of more-violent crimes.
• Professional societies overseeing doctors and lawyers often are reluctant to discipline peers convicted of insurance fraud.
Low Legal Priority. Prosecutors often give top priority to combating drugs, violence and other high-profile crimes. Though prosecutors are tackling more fraud cases than in the early 1990s, too many prosecutors still believe insurance crimes often are too complex and technical to successfully prosecute.
People Tolerate Fraud. Too many consumers believe insurance fraud is justified. This environment of tolerance makes it much easier for con artists to operate safely. Research by the Coalition Against Insurance Fraud reveals:
• Two of three Americans tolerate insurance fraud to varying degrees;
• Two of five Americans want little or no punishment for insurance cheats; they blame the insurance industry for its fraud problems because they believe insurers are unfair.
Insurance fraud comes in all shapes and sizes. Here are several examples...
• Staged auto accidents Juan and Maria Lopez and their 2-year-old daughter Joanna were burned alive during an auto accident two men staged on the Long Beach (Calif.) freeway to collect insurance money in 1997. The scammers suddenly stopped in front of a tractor trailer the Lopezes were following. A gravel truck then rammed the Lopezes from behind, killing the young family instantly. Isidorio Medina Gomez and Esteban Galves Solano each received 11 years in state prison in 1998.
• Arson. Helen Tidwell hired two local teenagers to torch her Tampa restaurant, Gram's Country Kitchen, so she could collect insurance money in 1996. But fumes from the gasoline the boys poured in the restaurant accidentally ignited, causing an explosion. One boy died and the other was permanently scarred. Tidwell received 30 years in prison in 1999.
• Health insurance fraud (corporate). Columbia/HCA Healthcare has agreed to pay at least $754 million after overbilling taxpayer-funded Medicare for years. If the deal stands, it will be the largest healthcare fraud settlement in U.S. history. The chain (now named HCA) billed Medicare for unneeded lab tests, improper diagnoses to make patients seem sicker than they were, and disguising unreimbursable expenses as reimbursable. Criminal charges still are pending.
• Health insurance fraud (individual). Massachusetts orthopedic surgeon Harold Goodman routinely gave patients potentially harmful X-rays and steroid injections they didn't need so he could falsely bill Medicaid. Goodman spent as few as five minutes with each patient, giving one patient 74 X-rays and 112 steroid injections in less than three years. Goodman received six months in prison in 2000.
• Faked death. Bonnie McCaslin bought 78 life insurance policies on her ex-husband Timothy, who knew nothing about the policies. She then tried to collect $11 million from dozens of life insurance companies by claiming he died in an earthquake in Mexico in 1995. McCaslin received two years in jail in Nebraska, but blames Timothy for not cooperating with her ruse. "He's such a jerk. If it weren't for him, I wouldn't be in here," she told Forbes magazine.
• Murder for insurance. Dina Abdelhaq suffocated her seven-week-old daughter Tara to collect $200,000 in life insurance money to feed her gambling addiction in 1995. Jobless and on welfare, the Illinois resident was deeply in debt from riverboat gambling. Tara died in her crib just two weeks after Abdelhaq took out a life policy on the child. Abdelhaq received 21 years in prison for insurance fraud in 2000.
• Insurer fraud. Thousands of investors, many of them retirees left almost penniless, were financially devastated when National Heritage Life Insurance Co. collapsed in 1995 after being looted of $450 million by company insiders. The insiders lived lavish lifestyles while retirees who invested in the company lost their entire life savings. Four major players were convicted in 1999, and dozens more are charged in America's largest insurer insolvency caused by fraud.
• Property insurance. California software distributor Irwin Bransky had a lot of useless merchandise on his hands. So when the Northridge earthquake struck California in 1994, Bransky ordered employees to jump on the software packages and bend them with their hands to inflate an insurance claim. Bransky filed a $5-million claim, and the insurer paid $840,000 before an employee blew the whistle. Bransky received 51 months in prison in 1998.
Insurance companies respond
• Fraud-busting units. Most insurers have made fighting
fraud a priority, more than tripling anti-fraud spending in recent years.
Most insurers have created special fraud-busting units, often staffed by
former detectives and police officers.
• Educate consumers. Many insurers actively educate
consumers how to detect and protect against fraud, and often sponsor active
fraud hotlines so people
can phone in tips.
• Train employees. Most insurers train employees and
alert insurance agents to spot fraud.
• Track down cheaters. Insurers also sponsor the National Insurance Crime Bureau (NICB). The NICB is increasing the number of fraud convictions by gathering detailed data about suspected fraud crimes, and referring them for prosecution. The NICB also runs a national consumer fraud hotline.
States increase pressure
• More fraud bureaus. State insurance regulators have created 37 fraud
bureaus in 45 states, whose job is to investigate and hunt down fraud.
• Closer scrutiny of companies. State regulators have
created a model law that makes it harder for con artists to set up fake
insurance companies. Many states also are scrutinizing insurance company
finances and market practices more closely.
• Tougher fraud laws. Increased crackdowns in the 1990s uncovered far more insurance fraud than anyone realized existed. To give prosecutors better legal tools to convict crooks, the Coalition Against Insurance Fraud developed a tough model state fraud law. Some 15 states have adopted or strengthened their insurance fraud laws based on the Coalition's model. Among other provisions, this model:
- creates state fraud bureaus that help hunt down fraud artists and build strong cases against them. Many fraud bureaus even have power to subpoena and fine crooks.
- requires insurance companies to develop thorough plans for preventing and detecting fraud.
- requires insurance applications and claim forms to warn that fraud is a serious crime.
- provides immunity to insurers when sharing fraud information with other insurers, investigators and law enforcement.
The nation's improved fraud-fighting efforts are working. More insurance crooks are being convicted every year, and billions of dollars stolen from honest citizens and businesses are being recovered. Precise figures aren't available, but growing evidence shows real progress on many fronts.
State fraud prosecutions have tripled over the last three years, according to a new study of state fraud bureaus by the Coalition.
Nearly nine of 10 fraud cases lead to convictions in Massachusetts.
Healthcare insurers have saved policyholders more than $11 for every dollar spent fighting fraud, a 50-percent increase over 1995, notes the Health Insurance Association of America.
Fewer people believe it's ok to inflate insurance claims by small amounts to recoup their deductible or premiums, according to the Insurance Research Council.
Despite the encouraging progress, insurance fraud will remain a vast and dangerous criminal enterprise. Here are several fraud trends consumers should know about:
The Internet will hatch new insurance swindles as computer-savvy consumers buy from online insurance companies that may be virtually untraceable. Young people raised on the Internet will be the vanguard of this crime wave.
The global economy is igniting huge insurance money-laundering schemes, often involving fake insurers that bilk people out of millions. Tracking them across international borders will pose a big problem for U.S. law enforcement.
The large population bulge of aging Boomers needing more medical attention will keep health fraud near the forefront of the largest and costliest fraud crimes.
Insurance fraud against immigrants will remain a serious problem as diverse ethnic groups continue migrating to the U.S. Many fraud crimes will be committed by fraud rings or organized mafias of immigrants themselves.
The elderly will remain one of the largest targets of insurance swindles. Investment schemes are among the newest approaches: Thousands of seniors are investing in bogus viaticals — life insurance policies that don't exist or were obtained illegally. Many seniors also are investing in fake promissory notes sold by insurance agents and guaranteed by non-existent insurance companies.
Everyone pays for insurance fraud, and so everyone must join in stamping out these swindles. Consumers, lawmakers, insurance companies, doctors, lawyers and many more must be part of the answer. Insurance fraud will disappear only when criminals realize fraud is a fast highway to jail, not an easy road to riches.
You can protect yourself against insurance scams: Stay alert, ask questions, and go slow or back out if an insurance transaction seems suspicious.
• Never sign blank insurance claim forms.
• Demand detailed bills for repair and medical services. Check closely
• Make sure "free services" aren't actually hidden in your insurance
• Be wary of buying insurance from door-to-door or telephone sales
• Be suspicious if the price of insurance seems too low to be true.
• Contact your state insurance
department to make sure the agent and company are licensed.
• Keep your insurance identification number secret; insurance crooks can
steal it and involve you in scams.
• Be wary if a car suddenly pulls in front of you, forcing you to follow
dangerously close. You may be set up for a staged accident.
• After an auto accident, be careful of strangers who offer you quick
cash or urge you to see a specific medical clinic, doctor or attorney. They
could be part of a fraud ring.
Premiums stay high. Insurance prices stay higher because
insurance companies must pass the large costs of insurance fraud to
People lose their savings. Trusting consumers are bilked out of thousands of dollars, often their entire life savings, by insurance investment schemes. Seniors are especially vulnerable.
Local businesses lose money. Fraud increases the costs for business and makes it more expensive to provide health coverage and other insurance benefits for employees.
Consumer goods and services cost more. Prices of goods at your department or grocery store keep rising when businesses pass higher costs of their health and commercial insurance onto customers.
Schemes kill & injure. People die from insurance
schemes such as staged auto accidents and arson — including children and entire
families. People also are murdered for life insurance money. Doctors perform
dangerous and invasive operations on healthy patients to inflate their
Workers lose jobs. People lose jobs and careers when insurance companies go bankrupt after being looted by company insiders. Dishonest businesses also lie to illegally lower their workers compensation premiums. The swindlers thus can underbid honest competitors for contracts or prices of goods and services. Victimized competitors may have to lay off workers, freeze wages or even move out of state.
Victims feel violated. People feel shame, despair and a sense of violation that can last a lifetime. Fraud schemers also expose their own families to embarrassment in their communities. Jail time and fines also can tear apart families of convicted schemers.
Anti-fraud units. Most insurers actively fight fraud with Special Investigation Units — or SIUs. The investigators typically have strong law enforcement backgrounds, or come from elsewhere in an insurer such as the claims department.
Anti-fraud software. Many SIUs use sophisticated software to identify schemes, especially large and complex fraud rings. One of the most powerful programs, predictive analytics, even can forecast the likelihood of certain schemes happening in the future.
Educate consumers. Insurers educate consumers how to protect against being scammed. Insurers also often sponsor toll-free fraud hotlines accept tips through their websites.
Train employees. Most insurers train employees such as adjusters and claims staff how to spot fraud.
Sue swindlers. Some insurers aggressively sue swindlers in civil court. These insurers seek to bankrupt the swindlers and send a strong message to other cheaters that cheating that insurer isn't worth the risk. Staged accident and health fraud rings are frequent targets.
Sponsor national effort. Property-casualty insurers sponsor the National Insurance Crime Bureau (NICB), whose agents help investigate suspected schemes and refer the suspects for prosecution. NICB also runs a national consumer fraud hotline. Health insurers formed the National Health Care Anti-Fraud Association, which offers training and data for investigating fraud.
Investigations recoup. Health insurers save more than $11 for every dollar spent fighting fraud, says the Health Insurance Association of America.
More fraud bureaus. State insurance regulators have created fraud bureaus in 41 states and the District of Columbia. These agencies investigate suspected schemes.
Prosecutions growing. State fraud prosecutions have tripled over the last three years, according to a new study of state fraud bureaus by the Coalition.
Closer scrutiny of companies. States have created a model fraud law that makes it harder for con artists to set up fake insurance companies. Many states also are scrutinizing insurance company finances and market practices more closely.
Tougher fraud laws. To give prosecutors better legal tools to convict crooks, the Coalition Against Insurance Fraud developed a tough model state fraud law. Nearly 20 states have adopted or strengthened their insurance fraud laws using the Coalition's model. States in general have passed dozens of fraud laws in recent years, but large gaps still remain. Fraud fighters must better educate state lawmakers about this crime, and better organize lobbying efforts.
Tougher health fraud penalties. Stopping widespread Medicare and Medicaid fraud is a special focus of federal efforts. Congress has enacted tougher penalties and expanded current federal health insurance fraud laws to cover all payers. Medicare also has stepped up its crackdowns, especially in South Florida.
Federal agencies. The FBI, U.S. Postal Service, Medicare,
Medicaid and other federal agencies are heavily involved in combating insurance
Stronger punishment. Federal law imposes stiff prison terms and fines for white-collar criminals who loot insurance companies. The law also heavily penalizes anyone who gives false financial information to state insurance regulators, and forbids convicted insurance felons from returning to the business of insurance without special permission.
Citizen lawsuits. The federal False Claims Act encourages private citizens to expose schemes by suing in civil court. Whistleblowers receive a percentage of any recoveries. Whistleblower suits are among the largest sources of recoveries in health care schemes.
Joining forces. Joint efforts among federal agencies insurers, and state and local agencies have cracked many difficult cases around the U.S. taskforces, especially, increase the pressure on large and complex fraud rings. Many taskforces, for example, fight large health schemes, staged accident rings and workers compensation premium fraud.
Despite much progress in recent years, America's fraud fighting still needs improving. Here are several holes in the system that fraud fighters are working to close:
Health system an easy target. America's huge health insurance system is vulnerable. Swindlers can skillfully exploit computerized billing systems with large volumes of well-disguised claims. Low reimbursements and pressure to control costs also encourage many medical providers to cheat.
Low-Risk Crime. Insurance cheaters view insurance fraud as
a low-risk, high-reward gambit. Even drug dealers have entered insurance fraud.
They think fraud is safer and more profitable than working street corners.
Nine states lack fraud bureaus of any kind. Fraud bureaus are agencies charged with investigating suspected insurance schemes.
Court sentences often are light, limited to probation, restitution or short prison terms. Courts often reserve overcrowded prisons for people convicted of more-violent crimes.
Professional societies overseeing doctors, chiros and lawyers can be reluctant to revoke or suspend the licenses of peers convicted of insurance fraud.
Insurers sometimes back off. Most insurance companies actively fight fraud. But some insurers may pay suspicious claims, believing it's cheaper than fighting in court.
Low legal priority. Prosecutors often give top priority to combating drugs, violence and other high-profile crimes. Though prosecutors have tried more fraud cases in recent years, many prosecutors still believe some insurance crimes are too complex or not serious enough to pursue.
Climate of tolerance. Though most people are honest, too many consumers think insurance fraud is a victimless crime, or that insurers won't miss a few stolen dollars. Thus they justify defrauding insurers or not reporting other people's scams. More troubling, people's tolerance of fraud is growing, reveals research by the Coalition Against Insurance Fraud.
Weak public outreach. Most public outreach efforts by fraud fighters are poorly funded and may have limited effectiveness. This makes it harder to reverse people's lax attitudes about this crime.
Despite the encouraging progress, insurance fraud will remain one of America's largest and costliest crimes for years to come. Here are several trends to watch for:
Troubled economy. Insurance schemes tend to spread when America's economy hits a downturn. People dump unwanted vehicles or torch their homes for insurance payouts. Dishonest businesses try to cheat their workers comp insurers out of premium money. Fake insurers could sell bogus health and liability coverage to small businesses.
Newer schemes are emerging. Insurance schemes are fueling two rapidly spreading schemes — illegal diversion of addictive prescription drugs, and medical identity theft.
Large fraud rings. Increasingly, organized criminal enterprises are entering insurance fraud. They know insurer payment systems well, and can loot insurers with large volumes of claims in short periods of time. Staged accident and health-fraud rings are especially active and spreading.
Aging Boomers. As millions of Baby Boomers approach retirement, seniors will remain major targets of insurance swindles. Schemes in life insurance, long term care coverage, Medicare and others likely will continue spreading. And as more Boomers come to need increased medical care, health-insurance fraud likely will continue spreading as the nation's largest insurance crime.
Immigrants vulnerable. America's large and growing
immigrant groups are frequent fraud targets. Con artists prey on immigrants'
trust, lack of English skills and ignorance of how insurance works. Most
immigrants are honest, but many also are recruited into fraud schemes
themselves. Staged-accident and health-fraud rings, especially, promise quick
cash payments for little effort.
Fewer federal resources. The FBI has shifted resources to anti-terrorism efforts and uncovering crime involving the nation's financial meltdown. This has reduced federal resources for fighting rampant health-insurance fraud.
State budget crises. Passing tough state fraud laws is becoming harder because many legislatures are focusing their limited resources on solving widespread budget crises in today's troubled economy.
Stay alert, go slow and ask questions when facing an insurance transaction that seems suspicious. Contact the authorities with the evidence. View the Coalition's fraud alerts to learn how you can avoid being victimized.
You can also report fraud directly to the authorities. Thanks for your commitment to fighting fraud.