Insurance Fraud Robs Americans of $20
Billion a Year
Insurance fraud is a crime, whether it is padding a claim to cover the deductible or
an elaborate scheme by an organized gang. It costs insurers and their customers $20
billion a year!
FRAUDULENT CLAIMS COST HONEST CUSTOMERS MONEY
Many professional crime rings net hundreds of thousands, or millions, of dollars through
insurance fraud. Their schemes often involve unethical health practitioners who submit
fraudulent bills to insurance companies for treating supposed accident "victims"
who actually had only minor injuries or none at all. Such rings frequently include an
attorney who institutes legal proceedings to drive the settlement up as high as possible.
This type of fraud, involving medical and legal bills, is most common in automobile
accident and workers' compensation cases. It also is seen in instances of someone who
claims to have slipped on a wet spot in a store, sustaining serious soft-tissue injuries
such as strains and sprains.
Another scam involves a "runner" who listens to a police radio and looks for
accidents. He then brings some of the people involved to a lawyer who handles the case
while a doctor builds up medical bills by giving needless treatment or charging for
treatment never given. The end result is a highly inflated insurance claim.
In still another version, 45 people were indicted in New York City for reportedly
collecting more than $3 million in phony claims in a scheme that also involved arson.
Those conspirators allegedly set fire to leather goods manufacturing shops, quickly
extinguished the flames, and then submitted inflated damage claims.
On a smaller scale is the average person who pads an insurance claim by a few hundred
dollars to recover his deductible or make up for premiums paid in previous years. He may
do this by agreeing with a body shop to inflate the total repair cost, or he may get some
old damage repaired along with that from a new accident.
In any case, honest insurance customers end up paying the tab.
INSURERS ARE ACTIVELY FIGHTING FRAUD
The insurance industry has been fighting fraud for years and is doing more all the time.
Although the industry does not want to reveal all the techniques it uses to detect fraud,
some current activities include:
• Fraud Detection Training - Improving the training that insurance adjusters are
given helps them detect fraud. This includes teaching them to evaluate when physical
damage to a vehicle is not commensurate with injuries reported or other facts recited.
• Fraud Indicators - The insurance industry has developed a list of fraud
indicators, factors which frequently are found in fraud cases and which adjusters are
trained to look for. Such factors include a pile of medical bills for several people who
received strains or sprains in an accident, yet no one was hospitalized.
• Special Investigation Units - Many insurance companies have established Special
Investigation Units and staffed them with experts specifically assigned to investigate
suspected fraud.
• Fraud Bureaus - The insurance industry generally supports creation of fraud
bureaus in insurance departments of states where such fraud is a serious problem.
Professional law enforcement personnel in those bureaus should have full police authority
and the power to impose substantial civil penalties in addition to seeking criminal
sanctions.
• National Insurance Crime Bureau - More than 700 property and casualty insurance
companies have joined together voluntarily to create and fund the National Insurance Crime
Bureau (NICB) to fight insurance fraud and auto theft. NICB's $30 million annual budget
makes it the largest privately funded crime-fighting organization in the United States.
NICB maintains a national toll-free hotline number (1-800-TEL-NICB) or citizens anywhere
in
the country to report cases of suspected insurance fraud. Callers are eligible for a
reward based
on the quality of information they provide.
• South Dakota Anti-Arson and Theft Association -
MANY SAY IT'S OKAY TO STEAL FROM INSURERS
One surprising aspect about insurance fraud is how many people see nothing wrong with
padding a claim. A survey by the well-regarded Roper Organization revealed that 23 percent
of the public thought it was all right to pad a claim to cover the deductible. The survey
also showed that 20 percent of the people see nothing wrong with padding an insurance
claim to make up for earlier years when they didn't file a claim.
That amount of padding may not seem like much. But when you multiply those two figures by
the millions of claims filed in a year, the total easily exceeds $190 million a year!
That same Roper survey also revealed that 23 percent of the public thought it was
acceptable to say a car was kept somewhere else, where the rates are cheaper than where it
was actually used. Twenty percent felt it was all right to list a car as being driven by
an older adult when the actual driver was a teenager.
Insurance companies are striving to protect their policyholders from defrauders, but the
task is far from easy. It's made more difficult by the public attitude as reflected by the
Roper study. Still another impediment is the secondary attention that insurance fraud gets
from law enforcement agencies, who feel obligated to focus on what they consider to be
more serious crime.
EVERYONE HAS A STAKE IN STOPPING FRAUD
Insurance fraud is everyone's business, whether it involves a several hundred
thousand-dollar scam or
padded claims. All fraud results in higher insurance premiums for everyone.
To help fight this problem, the public must recognize fraud for the crime it is, and
refuse to condone it.
To take it a step further, citizens also must make it a practice to report all fraudulent
acts to insurance companies and law enforcement authorities.
In the meantime, insurance companies will continue their accelerated efforts to catch and
prosecute criminals who commit insurance fraud. We also need your help.
Why Auto Insurance Rates Go Up
Why do my auto insurance rates keep going up when I've never or rarely filed a
claim?
Millions of consumers ask that question. The answer is, no driver pays only for his or
her own experience. You're helping to pay for everyone else who uses the roads.
You're helping to pay for the nearly 50,000 people who are killed in auto accidents
annually. You pay, too, for the 5,500,000 injuries and the 34,000,000 accidents.
Any insurance system that pays for that level of destruction is not going to be
inexpensive. To compensate victims, heal injuries, repair cars and other property, and
deal with lawsuits, insurance companies paid out $67 billion last year.
That isn't all you pay for.
Uninsured motorists. About 13 percent of drivers (21,000,000 persons) are uninsured,
in spite of laws in most states that require everyone to carry insurance. Accidents
involving uninsured drivers add approximately $2 billion a year to our insurance premiums.
High-risk drivers. There are, conservatively, 10,000,000 high-risk drivers on the road.
The law requires insurance companies to make coverage available to everyone, including
those with poor records and those who present abnormally high risk. In populous states,
the rates allowable by law are never enough to pay for the losses of high-risk drivers, so
good drivers have to make up the difference.
Theft. A car is stolen in the U.S. every 20 seconds...1,500,000 a year. Another 2,900,000
are looted. Total bill: $7 billion. Everyone pays for that.
Fraud. Staged, phony or inflated claims cost at least $1 billion a year. We all pay
more because of them.
Drunk driving. A drunk driver kills someone every 24 minutes of every day. Alcohol is
involved in almost half of auto fatalities. The average, responsible driver will carry the
burden of paying for those losses until drunk driving is fully brought under control.
That still isn't all you pay for.
Even if you never file a claim, the millions of claims that are filed are driven upward by
inflation in the cost of goods and services that insurance companies buy for their
customers. Those costs are enormous and many are beyond the control of insurers.
One solution that won't work.
It is sometimes suggested that good drivers ought to be relieved of all these add-on costs
by charging them solely on their own record. That would appear fair, but it would be
socially unacceptable. Millions of poor drivers could not afford a rate based on their bad
records. It would also defeat the whole purpose of insurance, which is to spread risk and
share losses, so that the full financial burden doesn't fall on any one person. At today's
prices, it would take only one average accident to absorb ten or more years of premiums.
The average auto insurance rate is about $636. An average injury accident costs $7,594. If
you had such an accident, should your rate be $8,000 for the next year? Or $800 for the
next several years?
What insurance doesn't do.
Using decades of statistical proof as a guide, insurance companies try to protect good
drivers by distributing costs fairly within groups of people who present about the same
risk. In other words, you are grouped with your neighbors, with people about your age,
with more or less the same driving record, and so on. That holds down prices for most
people. For example:
More accidents and thefts occur in cities, so drivers in urban areas pay more and drivers
in rural and suburban areas pay less. Drivers under 25, particularly males, have more
accidents and thus pay more than other drivers and females.
What is being done.
The reasons for high rates have to be attacked at their root. All of us have to drive
defensively, quit speeding, buckle up, and don't drink and drive.
For their part, auto insurance companies are responsible for bringing the public airbags.
The insurance industry supports seatbelt laws, tough anti-drunk driving laws and better
licensing laws. They finance research on auto safety and crashworthiness.
Insurance companies set up, at their own expense, special units to fight theft and
fraud. The industry helped draft model state legislation to combat theft and fraud
effectively, and is actively working to get such legislation enacted.
Other ways insurers reduce costs.
To contain spiraling medical costs, the industry promotes close auditing of bills,
monitoring treatment, and utilization of professional peer review panels and other
approaches to manage health care benefit programs better.
Encouragement of competitively produced, high quality replacement parts is another way the
insurance industry has saved money for all motorists. As the result of this support,
replacement parts have become available at a cost which is twenty-five to forty percent
lower than the price that car-makers charged when they enjoyed a monopoly. Insurers make
every effort to be sure that the quality of these parts is every bit as good as or better
than the original equipment.
These are the kinds of programs that will cut costs. So will programs to control
medical costs and legal expenses.
Insurers can't achieve any of these goals alone. That will take action by all of us. And
this includes you and your family. Help us and you'll help yourself and your country.
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