Inside the mind of fraudsters: What were they thinking?

A new study from the Coalition Against Insurance Fraud examines who commits insurance fraud and why.

Almost 50% of study participants believed that if they attempted to commit insurance fraud, they would be caught. Photo: Fotolia

Insurance fraud costs a staggering $308.6 billion annually, an expense borne by insurers and policyholders alike, and consumer beliefs surrounding how acceptable insurance fraud is may or may not be changing.

A new study, “Who Me? Who Commits Insurance Fraud and Why,” conducted by Dynata in conjunction with the Coalition Against Insurance Fraud and Verisk, involved responses from more than 1,500 consumers who were asked about their views on insurance fraud.

In addition, Dr. Kelly Richmond Pope, a renowned author and educator with expertise in forensic accounting, interviewed five fraudsters convicted of insurance fraud. Her findings provide more insight into why individuals choose to perpetrate fraud, how they execute their crimes, and how they justify their actions.

The way a person views insurance fraud often depends on their age. At a time when information, music, photos, games, television shows, movies and more are available seemingly for “free” on the Internet or by using a friend’s login, many Americans don’t consider copyright infringement or the use of streaming services without paying to be “theft.” By the same token, other types of theft — lying on applications, increasing the value of stolen items, reporting items not really stolen, or destroying property for an insurance payout are not viewed as a serious crime — and certainly not as insurance fraud.

Consumers aged 55 or older were the most likely to view insurance fraud as a crime (95% for ages 55-64 and 96% for those aged 65+). The numbers begin to drop a bit with the age ranges, with 87% of those aged 45-54 considering it a crime, while only 75% of those aged 35-44 thought it was. There was a slight drop to 74% for those aged 25-34, while almost 65% of those aged 18-24 considered it a crime.

While the overall findings indicated that 84% of the U.S. population believes insurance fraud is wrong, Matthew Smith, executive director of the Coalition Against Insurance Fraud says in a press release that the remaining “16% who disagree could represent as many as 53 million Americans.” As the population shifts to fewer Baby Boomers and more Gen Y and Gen Z consumers, how they view insurance fraud will also change.

Approximately 9% of the respondents believed insurance fraud was acceptable because “insurance companies rip people off, so it’s fair.” Another 3.2% stated that “I pay them enough, it’s my money I’m getting back.” Combined, this 12% of responses equates to nearly 40 million individuals who can justify their insurance fraud.

What kinds of fraud are “acceptable”?

While the phrase “insurance fraud” can be somewhat nebulous, the study asked respondents how they would respond in very specific circumstances. When queried whether they would definitely submit a claim for vehicle damage caused in a prior accident, the responses varied significantly between those under the age of 45 and those over the same age, but over 60% of respondents indicated filing a claim for previous damage wasn’t an issue for them.

While some may consider filing a claim for a previously damaged vehicle acceptable, the respondents were also asked about their likelihood of submitting a claim for damage to their home caused by a previous storm. Over 76% said they definitely would submit such a claim:

Property-related claims weren’t the only areas where respondents thought insurance fraud was acceptable. Workers’ compensation claims are also subject to fraud and respondents were asked if they would submit an injury that occurred on personal time as being an on-the-job workers’ compensation injury. Again, individuals 44 and younger were the most likely to submit fraudulent claims.

Interestingly, more than 60% of the respondents across all demographics believed they had a better than 50% chance of getting away with their crime and only 14% thought there was a high risk of being caught. At a time when insurers are pushing toward “touchless claims” and seeking to automate much of the purchasing, first notice of loss, investigation and payments associated with a claim, having fewer insurance professionals involved in the claims process could make fraud easier. At the very least, it highlights the need for accurate fraud detection technology.

Understanding the “why” of fraud

What motivates someone to commit insurance fraud? Was it an honest mistake? A crime of opportunity? An easy way to get rich? A challenge based on the belief that no one would be caught or get hurt? There are a variety of reasons, as Dr. Pope learned during her interviews with several convicted fraudsters.

Barry Mount was on vacation with his family in Wildwood, N.J., when he passed out while driving his rental car and hit two parked cars, causing tens of thousands of dollars in damage. He filed a claim with his insurer, assuming he had coverage for the rental car. He did not. The insurer rejected his claim and accused him of attempting to commit insurance fraud. Under the advice of counsel, Mount agreed to participate in a program for first-offenders called the “Accelerated Rehabilitative Disposition (ARD)” Program and received one year of unsupervised release, 10 hours of community service and a fine. Mount maintains that his mistake didn’t warrant such a severe punishment. Not understanding his coverage or lack thereof, became an expensive lesson. Pope classifies him as an accidental perpetrator because his crime appeared to start with an error and he was unaware that he had done anything wrong.

For Sean Enrique O’Keefe, his desire to help people turned to greed when the successful workers’ comp attorney decided to help a neurosurgeon friend who offered to pay a $15,000 referral fee for every spine surgery O’Keefe sent him. Despite running a successful legal practice with a gross income of $1.5 million annually, he became involved in a multi-year scheme that paid tens of millions in kickbacks to multiple parties. When things unraveled, O’Keefe cooperated with authorities and was ultimately sentenced to 15 months in prison for his role. He says he went from being “a humanistic, kind, generous lawyer to a greedy and criminal one.” Pope’s analysis identifies him as an intentional perpetrator who used his knowledge of the workers’ compensation system “to manipulate the system for personal gain.”

Courtney McMahon had two bachelor’s degrees, a master’s, and a thorough understanding of personal injury law and medical billing. Years before her arrest, she was in a car accident where she sustained significant financial hardships and an addiction to painkillers. When her boyfriend was in an accident and large portions of his claims were denied, McMahon created false documentation to support his claims and when the adjuster began asking questions about discrepancies, she panicked. McMahon says, “I was compromised by opioid addiction; my judgment was impaired.” When the Attorney General’s office began asking questions, she admitted her guilt and though she is a convicted felon, her primary penalty was two years of probation. Pope categorizes McMahon as a righteous perpetrator who acted “out of a deep sense of unfairness and the need to help someone else.”

Pope believes that “understanding the issues, schemes and the various types of fraud offenders can help companies better combat the proliferation of insurance fraud.” While it may be more difficult to stop intentional perpetrators, she says in the report that “the risks posed by accidental and righteous perpetrators can be managed with proper internal controls and training.”

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