Like other lines of insurance, there are varied ways to commit fraud involving life and disability insurance. In life insurance especially, scams faking deaths murdering policyholders, underwriting fraud, making fraudulent loans, selling stranger-owned life insurance and schemes by agents and brokers. Life insurers report that underwriting scams form the most-severe form of fraud against them.
Organized ring activity in life insurance also appears to be a widespread concern with fraud by diverse ethnic gangs.
Disability scams include lying on applications, misrepresenting illnesses or injuries, failing to report work-related income, illegally claiming on multiple policies, and “dead-money” schemes.
Anti-fraud efforts involving life insurance and disability insurance pale compared with fraud-fighting activities in other lines of insurance. The reason most likely is that fraud in life and disability is perceived to be less frequent and severe than in other lines of insurance.
Yet, anti-fraud efforts by insurers and government agencies vary more greatly in life and disability than in other lines. Some insurers sponsor robust anti-fraud programs while others seem to lack commitment to detecting and investigating insurance crime. Many disability carriers do not actively engage state fraud bureaus and law enforcement in taking their cases.
There’s widespread concern that many fraud bureaus and prosecutors lack the resources and expertise to successfully tackle life and disability cases.
“... there is no central organization in either industry to serve as liaison to law enforcement.”
Most state fraud bureaus and prosecutors are much-less-involved in life and disability cases than in other lines. They report receiving few referrals from insurers, and cases often are not well-documented or fully investigated. Several also cite the fact that there is no central organization in either industry to serve as a liaison to law enforcement.
Other issues that hamper investigations and prosecutions include the complexity of many cases, and added costs of international investigations of some life-insurance cases such as fake deaths for life insurance overseas.
Recommendations to better combat fraud include enhanced investigator training, more-collaborative relationships between insurers and law enforcement, reviewing state statutes that hamper fraud investigations, and creating central liaison offices to work with law enforcement.
Insurance fraud overall in the United States is considered to be either moderate or severe by most experts and published reports, depending on the line of insurance and area of the country. Published literature on insurance fraud finds that most fraudulent activity occurs in three areas: health insurance, auto insurance and workers compensation. The focus on these three areas can be seen in the number of arrests and convictions, specific state statutes, training programs, and level of activity by insurers and government agencies.
By contrast, there appears to be much less focus on fraud in life and disability insurance. Little research has been conducted to understand the severity of fraud in these lines, and how government and insurers are countering life and disability schemes.
“... there appears to be much less focus on fraud in life and disability insurance.”
To this end, the board of directors of the Coalition Against Insurance Fraud in 2014 created a special task force to explore the dimensions of fraud in these two areas.The task force also studied fraud-fighting capabilities, and obstacles to preventing and detecting fraud schemes. Specifically, the task force was charged with:
• Researching the magnitude of life and disability fraud;
• Identifying the most-common types of life and disability insurance scams;
• Exploring best practices in detecting and preventing life and disability fraud;
• Understanding how enforcement bodies combat life and disability fraud; and
• Recommending public-policy initiatives and other measures to better counter life and disability schemes.
The task force reviewed literature of studies, compiled lists of various types of fraud committed in life and disability fraud, reviewed state anti-fraud statutes. The task force also interviewed and surveyed three major anti-fraud constituent groups: insurers, prosecutors and state fraud bureau directors. Methodology also included compiling technology solutions for detecting life and disability fraud.
• Check to determine if statutes of limitations should be extended in some states to accommodate the complexity and lengthy timespan of some investigations. Statutes of limitations should be triggered from the time the suspected fraud is detected;
• Consider a central entity to serve as liaison with fraud bureaus and law enforcement, and help insurers collaborate;
• Consider a benchmarking study to gather metrics and best practices if enough insurers agree to participate. Benchmarking data can help gauge how each industry fares in pursuing fraud, and could help some insurers justify investing more resources in anti-fraud activities;
• Categorize and publish comprehensive compilation of training resources for insurers, fraud bureaus and prosecutors;
• Seek more funding for prosecution, perhaps similar to California’s specific grant programs;
• State lawmakers should consider expanding the authority of fraud bureaus in states where their investigative and prosecutorial scope is limited to health, auto and workers- compensation fraud; and
• Insurers that do not actively engage fraud bureaus and prosecutors in their cases should consider reaching out to law enforcement. They can cultivate more relationships and better understand their needs and criteria for pursuing cases. Fraud bureaus and prosecutors should give presentations on how they pursue cases at insurer and insurer association meetings.
To view the entire report, please visit InsuranceFraud.org.
About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.