The Coalition Against Insurance Fraud estimates that insurance fraudsters steal at least $80 billion worth of insurance payouts every year. Surprisingly, insurance fraud is still often viewed as a victimless offense. In actuality, insurance fraud does not just affect insurance companies, but also costs the average household between $400 and $700 in increased insurance premiums annually, not including health insurance fraud.
The true cost of fraud is difficult to nail down because claims could be inflated, staged or even completely fabricated. In order to mitigate these damages, state insurance commissioners launch investigations into alleged fraudsters and eventually file charges and seek their arrests. It can often take months, if not years, for law enforcement to track down alleged insurance fraudsters who fail to appear in court.
States are working with carriers to try to combat fraud, and some states have developed statutes making fraud a felony in certain jurisdictions. Several states have fraud departments, and encourage carriers to support state fraud actions and use standardized forms. Some states have statutorily mandated reporting requirements for insurance companies who detect fraud.
Insurance carriers often have Special Investigations Units (SIU). When an investigation of a potentially fraudulent claim is merited, the members of the SIU are expected to investigate the case thoroughly to determine if they can prove insurance fraud occurred. Another step a few state insurance offices have taken to mitigate the cost of insurance fraud is the creation and maintenance of an insurance fraud Most Wanted list.
Insurance fraud most wanted lists are generally online lists featuring the names and pictures of alleged fraudsters. Those individuals appearing on a list are included for failing to appear in court to answer charges of criminal insurance fraud and theft. These lists have become more valuable as use of the internet increases.
The lists popularize the faces of fraud and generate tips from the public on the possible locations of fraudsters. Since the lists are on the internet, even if a person on the list has fled to another state, he or she may still be caught because of the increased online exposure. These lists also help to educate the public on the amount of insurance fraud occurring, the potential cost to individuals, and specific actions the public can take to help authorities catch fraudsters.
Those on the most wanted lists have committed a wide range of insurance fraud such as stolen car fraud, where a fraudster either sells a car for parts and reports it missing, or sells the car overseas and reports it stolen. Auto accident fraud may involve legitimate accidents where claims are inflated, or an accident caused by fraudsters who plan to claim property damage and bodily injury on an unsuspecting victim's insurance policy.
Property insurance fraud occurs when individuals destroy their own property or make a false report of theft involving personal items or vehicles to obtain payouts from their insurance companies. Insurers often pay more in personal property claims than the property would be worth at resale.
Sometimes, personal property claims are inflated to claim lesser quality or value items than were actually owned by the insureds. The most serious property insurance fraud schemes involve arson because there is a greater risk of injury or death, and insurance covers not only the burned structure, but also all of the home's contents.
Business owners sometimes resort to arson when a company begins to fail or is not as profitable as expected. Another popular scheme is contractor fraud, where a typically unlicensed contractor performs substandard repairs or offers services that intentionally cheat the homeowner. Contractor fraud schemes generally target the elderly and perpetrators ask for payments up front with no contracts to sign.
State are getting creative with efforts to educate the public about repeat fraudsters. (Photo: Shutterstock)
|How states use most wanted lists
Most wanted lists can be useful for identifying contractor fraud because it will generally happen after a local natural disaster, and the fraudsters will typically go house-to-house soliciting work. If homeowners have seen a contractor's picture on a most wanted list, they will be able to identify him as a known fraudster and notify their state insurance office.
Washington State has successfully used most wanted lists. Washington's insurance commissioner has focused on ensuring consumers have access to reasonably priced insurance products that provide the service promised. The most wanted list helps to achieve that goal by publicizing fraudsters, not to embarrass or harass them, but to ensure they do not receive a benefit that costs other consumers. The department sends out emails identifying individuals on the fraud most wanted list.
Utah has a similar most wanted list, listing about 10 of the most egregious alleged fraudsters at a time. Florida's Most Wanted list takes a different approach, listing 50 fraudsters at any given time. All three states receive hundreds of tips each year and attribute several arrests annually to the most wanted lists.
However, it is not just individual states monitoring insurance fraud. The National Insurance Crime Bureau (NICB) is a not-for-profit organization that works with insurance carriers and law enforcement agencies to combat insurance fraud. After an SIU investigator concludes investigating a potential fraud case, he reports his findings to an adjuster who then decides what to do with a claim.
If the claim is denied or reduced, he reports the insured to law enforcement or the state department of insurance, and the NICB. The NICB mainly focuses on motor vehicle theft, providing a free-to-the-public service called VINCheck, which allows potential car purchasers to ensure a vehicle has not been declared as salvage. NICB also advocates for better insurance fraud statutes in criminal codes; provides tools to help combat personal injury claim fraud; and has task forces, research results, data and crime-trend analysis available to members.
Fraudsters also may appear on the FBI's true Most Wanted list, as insurance fraud can be very costly, involve more than one state, and include severe injury, dismemberment or even death. The insurance industry loses billions to insurance fraud annually. Many think it is a victimless crime, assuming carriers have lots of money, and not realizing that those losses result in higher premiums for all.
Hannah Smith ([email protected]) is an editor with FC&S Online, the authority on insurance coverage interpretation and analysis for the P&C industry. It's the resource agents, brokers, risk managers, underwriters, and adjusters rely on to research commercial and personal lines coverage issues.
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