Insurance fraud
Encyclopedia
Insurance fraud is any act committed with the intent to fraud
ulently obtain payment from an insurer
.
Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are very diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities also affect the lives of innocent people, both directly through accidental or purposeful injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a very significant problem, and governments and other organizations are making efforts to deter such activities.
Insurance companies are also susceptible to fraud because false insurance claims can be made to appear like ordinary claims. This allows fraudsters to file claims for damages that never occurred, and so obtain payment with little or no initial cost.
The most common form of insurance fraud is inflating of loss.
estimates that in 2006 a total of about $80 billion was lost in the United States
due to insurance fraud. According to estimates by the Insurance Information Institute
, insurance fraud accounts for about 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses. The National Health Care Anti-Fraud Association estimates that 3% of the health care industry’s expenditures in the United States are due to fraudulent activities, amounting to a cost of about $51 billion. Other estimates attribute as much as 10% of the total healthcare spending in the United States to fraud—about $115 billion annually. In the United Kingdom
, the Insurance Fraud Bureau estimates that the loss due to insurance fraud in the United Kingdom
is about £
1.5 billion ($3.08 billion), causing a 5% increase in insurance premiums. The Insurance Bureau of Canada estimates that personal injury fraud in Canada
costs about C$
500 million annually.
Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to receive payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.
Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in a collision an insured person might claim more damage than was really done to his or her car. Soft fraud can also occur when, while obtaining a new insurance policy, an individual misreports previous or existing conditions in order to obtain a lower premium on their insurance policy.
, an ongoing investigation into the faked death
of British former teacher and prison officer John Darwin, who turned up alive in December 2007, five years after he was thought to have died in a canoeing accident. Darwin was reported as "missing" after failing to report to work following a canoeing trip on March 21, 2002. He reappeared on December 1, 2007, claiming to have no memory of the past five years.
According to Roger Feldman, Blue Cross Professor of Health Insurance at the University of Minnesota
, one of the main reasons that medical fraud is such a prevalent practice is that nearly all of the parties involved find it favorable in some way. Many physician
s see it as necessary to provide quality care for their patients. Many patients, although disapproving of the idea of fraud, are sometimes more willing to accept it when it affects their own medical care. Program administrators are often lenient on the issue of insurance fraud, as they want to maximize the services of their providers.
The most common perpetrators of healthcare insurance fraud are health care provider
s. One reason for this, according to David Hyman, a Professor at the University of Maryland School of Law
, is that the historically prevailing attitude in the medical profession is one of “fidelity to patients”. This incentive can lead to fraudulent practices such as billing insurers for treatments that are not covered by the patient’s insurance policy. To do this, physicians often bill for a different service, which is covered by the policy, than that which was rendered.
Another motivation for insurance fraud in the healthcare industry, just as in all other types of insurance fraud, is a desire for financial gain. Public healthcare programs such as Medicare
and Medicaid
are especially conducive to fraudulent activities, as they are often run on a fee-for-service
structure. Physicians use several fraudulent techniques to achieve this end. These can include “up-coding” or “upgrading,” which involve billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are not medically necessary; scheduling extra visits for patients; referring patients to another physician when no further treatment is actually necessary; "phantom billing," or billing for services not rendered; and “ganging,” or billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.
Perhaps the greatest total dollar amount of fraud is committed by the health insurance companies themselves. There are numerous studies and articles detailing examples of insurance companies intentionally not paying claims and deleting them from their systems, denying and cancelling coverage, and the blatant underpayment to hospitals and physicians beneath what are normal fees for care they provide. Although difficult to obtain the information, this fraud by insurance companies can be estimated by comparing revenues from premium payments and expenditures on health claims.
Examples of soft auto-insurance fraud can include filing more than one claim for a single injury, filing claims for injuries not related to an automobile accident, misreporting wage losses due to injuries, or reporting higher costs for car repairs than those that were actually paid. Hard auto-insurance fraud can include activities such as staging automobile collisions, filing claims when the claimant was not actually involved in the accident, submitting claims for medical treatments that were not received, or inventing injuries. Hard fraud can also occur when claimants falsely report their vehicle as stolen. Soft fraud accounts for the majority of fraudulent auto-insurance claims.
Another example is that a person may illegally register their car to a location that would net them cheaper insurance rates than where they actually live, sometimes called "rate evasion". For example, some drivers in Brooklyn
drive with Pennsylvania
license plates because registering their car in a rural part of Pennsylvania
will cost a lot less than registering it in Brooklyn
. Another form of automobile insurance fraud, known as "fronting," involves registering someone other than the real primary driver of a car as the primary driver of the car. For example, parents might list themselves as the primary driver of their children's vehicles to avoid young driver premiums.
"Crash for cash" scams may involve random unaware strangers, set to appear as the perpetrators of the orchestrated crashes. Such techniques are the classic rear-end shunt (the driver in front suddenly slams on the brakes, eventually with brake lights disabled), the decoy rear-end shunt (when following one car, another one pulls in front of it, causing it to brake sharply, then the first car drives off) or the helpful wave shunt (the driver is waved in to a line of queuing traffic by the scammer who promptly crashes, then denies waving)
Organized crime
rings can also be involved in auto-insurance fraud, sometimes carrying out schemes that are very complex. An example of one such ploy is given by Ken Dornstein, author of Accidentally, on Purpose: The Making of a Personal Injury Underworld in America. In this scheme, known as a “swoop-and-squat,” one or more drivers in “swoop” cars force an unsuspecting driver into position behind a “squat” car. This squat car, which is usually filled with several passengers, then slows abruptly, forcing the driver of the chosen car to collide with the squat car. The passengers in the squat car then file a claim with the other driver’s insurance company. This claim often includes bills for medical treatments that were not necessary or not received.
An incident that took place on Golden State Freeway June 17, 1992, brought public attention to the existence of organized crime rings that stage auto accidents for insurance fraud. These schemes generally consist of three different levels. At the top, there are the professionals--doctors or lawyers who diagnose false injuries and/or file fraudulent claims and these earn the bulk of the profits from the fraud. Next are the "cappers" or "runners", the middlemen who obtain the cars to crash, farm out the claims to the professionals at the top, and recruit participants. These participants at the bottom-rung of the scheme are desperate people (poor immigrants or others in need of quick cash) who are paid around $1000 USD to place their bodies in the paths of cars and trucks, playing a kind of Russian roulette with their lives and those of unsuspecting motorists around them. According to investigators, cappers usually hire within their own ethnic groups. What makes busting these staged-accident crime rings difficult is how quickly they move into jurisdictions with lesser enforcement, after a crackdown in a particular region. As a result, in the US several levels of police and the insurance industry have cooperated in forming task forces and sharing databases to track claim histories.
In the United Kingdom
, there is an increasing incidence of false whiplash
claims to car insurance companies from motorists involved in minor car accidents (for instance; a shunt). Because the mechanism of injury is not fully understood, A&E doctors have to rely on a patient's
external symptoms (which are easy to fake).
Resultingly, "no win no fee" personal injury
solicitors exploit this "loophole
" for easy compensation money (often a £2500 payout). Ultimately this has resulted in increased motor insurance premiums, which has had the knock-on effect of pricing younger drivers off the road.
. One reason for this is that any evidence that a fire was started by arson is often destroyed by the fire itself. According to the United States Fire Administration
, in the United States there were approximately 31,000 fires caused by arson in 2006, resulting in losses of $755 million. Example: The Moulin Rouge in Las Vegas was struck by arson twice within 6 years.
' insurers suppose staging damages blamable on the local authorities (mostly falls and trips on council owned land) or inflating the value of existing damages.
ized statistical
analysis or by referrals from claims adjuster
s or insurance agents. Additionally, the public can provide tips to insurance companies, law enforcement and other organizations regarding suspected, observed, or admitted insurance fraud perpetrated by other individuals. Regardless of the source, the next step is to refer these claims to investigators for further analysis.
Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud. Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived.
In a supervised method, expected values are obtained by analyzing records of both fraudulent and non-fraudulent claims. According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it requires absolutely certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect types of fraud that have been committed and identified before.
Unsupervised methods of statistical detection, on the other hand, involve detecting claims that are abnormal. Both claims adjusters and computers can also be trained to identify “red flags,” or symptoms that in the past have often been associated with fraudulent claims. Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious claims that need to be investigated further.
Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted to “special investigative units”, or SIUs, for further investigation. These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims. These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.
Determining fraud committed by the health insurance companies can sometimes be found be comparing revenues from premiums paid against the expenditure by the health insurance companies on claims.
As an example, in 2006 the Harris County Medical Society, in Texas, had a health insurance rate increase of 22 percent for “consumer-driven” health plan from Blue Cross and Blue Shield of Texas. This was despite the fact that during the previous year Blue Cross had paid out only 9 percent of the collected premium dollars for claims.
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
ulently obtain payment from an insurer
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
.
Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are very diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities also affect the lives of innocent people, both directly through accidental or purposeful injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a very significant problem, and governments and other organizations are making efforts to deter such activities.
Causes
The “chief motive in all insurance crimes is financial profit.” Insurance contracts provide both the insured and the insurer with opportunities for exploitation. One reason that this opportunity arises is in the case of over-insurance, when the amount insured is greater than the actual value of the property insured. This condition can be very difficult to avoid, especially since an insurance provider might sometimes encourage it in order to obtain greater profits. This allows fraudsters to make profits by destroying their property because the payment they receive from their insurers is of greater value than the property they destroy.Insurance companies are also susceptible to fraud because false insurance claims can be made to appear like ordinary claims. This allows fraudsters to file claims for damages that never occurred, and so obtain payment with little or no initial cost.
The most common form of insurance fraud is inflating of loss.
Losses due to insurance fraud
It is virtually impossible to determine an exact value for the amount of money stolen through insurance fraud. Insurance fraud is designed to be undetectable, unlike visible crimes such as robbery or murder. As such, the number of cases of insurance fraud that are detected is much lower than the number of acts that are actually committed. The best that can be done is to provide an estimate for the losses that insurers suffer due to insurance fraud. The Coalition Against Insurance FraudCoalition Against Insurance Fraud
The Coalition Against Insurance Fraud is a coalition of insurance organizations, consumers, government agencies and legislative bodies working to enact anti-fraud legislation, educate the public, and provide anti-fraud advice...
estimates that in 2006 a total of about $80 billion was lost in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
due to insurance fraud. According to estimates by the Insurance Information Institute
Insurance Information Institute
The Insurance Information Institute is a U.S. industry organization which exists "to improve public understanding of insurance -- what it does and how it works."The I.I.I...
, insurance fraud accounts for about 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses. The National Health Care Anti-Fraud Association estimates that 3% of the health care industry’s expenditures in the United States are due to fraudulent activities, amounting to a cost of about $51 billion. Other estimates attribute as much as 10% of the total healthcare spending in the United States to fraud—about $115 billion annually. In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, the Insurance Fraud Bureau estimates that the loss due to insurance fraud in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
is about £
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
1.5 billion ($3.08 billion), causing a 5% increase in insurance premiums. The Insurance Bureau of Canada estimates that personal injury fraud in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
costs about C$
Canadian dollar
The Canadian dollar is the currency of Canada. As of 2007, the Canadian dollar is the 7th most traded currency in the world. It is abbreviated with the dollar sign $, or C$ to distinguish it from other dollar-denominated currencies...
500 million annually.
Hard vs. soft fraud
Insurance fraud can be classified as either hard fraud or soft fraud.Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to receive payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.
Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in a collision an insured person might claim more damage than was really done to his or her car. Soft fraud can also occur when, while obtaining a new insurance policy, an individual misreports previous or existing conditions in order to obtain a lower premium on their insurance policy.
Life insurance
An example of life insurance fraud is the John Darwin disappearance caseJohn Darwin disappearance case
The John Darwin disappearance case was an investigation into the faked death of British former teacher and prison officer John Darwin, who turned up alive in December 2007, five years after he was thought to have died in a canoeing accident....
, an ongoing investigation into the faked death
Faked death
A faked death occurs when an individual leaves evidence to suggest that he or she is dead in order to mislead others. This may be done for a variety of reasons, such as to fraudulently collect insurance money or avoid capture by law enforcement for some other crime.People who fake their own deaths...
of British former teacher and prison officer John Darwin, who turned up alive in December 2007, five years after he was thought to have died in a canoeing accident. Darwin was reported as "missing" after failing to report to work following a canoeing trip on March 21, 2002. He reappeared on December 1, 2007, claiming to have no memory of the past five years.
Health care insurance
According to The Coalition Against Insurance Fraud, health fraud depletes taxpayer-funded programs like Medicare, and may victimize patients in the hands of certain doctors. Some scams involve double-billing by doctors who charge insurers for treatments that never occurred, and surgeons who perform unnecessary surgery.According to Roger Feldman, Blue Cross Professor of Health Insurance at the University of Minnesota
University of Minnesota
The University of Minnesota, Twin Cities is a public research university located in Minneapolis and St. Paul, Minnesota, United States. It is the oldest and largest part of the University of Minnesota system and has the fourth-largest main campus student body in the United States, with 52,557...
, one of the main reasons that medical fraud is such a prevalent practice is that nearly all of the parties involved find it favorable in some way. Many physician
Physician
A physician is a health care provider who practices the profession of medicine, which is concerned with promoting, maintaining or restoring human health through the study, diagnosis, and treatment of disease, injury and other physical and mental impairments...
s see it as necessary to provide quality care for their patients. Many patients, although disapproving of the idea of fraud, are sometimes more willing to accept it when it affects their own medical care. Program administrators are often lenient on the issue of insurance fraud, as they want to maximize the services of their providers.
The most common perpetrators of healthcare insurance fraud are health care provider
Health care provider
A health care provider is an individual or an institution that provides preventive, curative, promotional or rehabilitative health care services in a systematic way to individuals, families or communities....
s. One reason for this, according to David Hyman, a Professor at the University of Maryland School of Law
University of Maryland School of Law
The University of Maryland Francis King Carey School of Law is the second-oldest law school in the United States by date of establishment and third-oldest by date of first classes. The school is located on the campus of the University of Maryland, Baltimore in Downtown Baltimore's West Side...
, is that the historically prevailing attitude in the medical profession is one of “fidelity to patients”. This incentive can lead to fraudulent practices such as billing insurers for treatments that are not covered by the patient’s insurance policy. To do this, physicians often bill for a different service, which is covered by the policy, than that which was rendered.
Another motivation for insurance fraud in the healthcare industry, just as in all other types of insurance fraud, is a desire for financial gain. Public healthcare programs such as Medicare
Medicare (Australia)
Medicare is Australia's publicly funded universal health care system, operated by the government authority Medicare Australia. Medicare is intended to provide affordable treatment by doctors and in public hospitals for all resident citizens and permanent residents except for those on Norfolk Island...
and Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...
are especially conducive to fraudulent activities, as they are often run on a fee-for-service
Fee-for-service
Fee-for-service is a payment model where services are unbundled and paid for separately. In health care, it gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality of care...
structure. Physicians use several fraudulent techniques to achieve this end. These can include “up-coding” or “upgrading,” which involve billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are not medically necessary; scheduling extra visits for patients; referring patients to another physician when no further treatment is actually necessary; "phantom billing," or billing for services not rendered; and “ganging,” or billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.
Perhaps the greatest total dollar amount of fraud is committed by the health insurance companies themselves. There are numerous studies and articles detailing examples of insurance companies intentionally not paying claims and deleting them from their systems, denying and cancelling coverage, and the blatant underpayment to hospitals and physicians beneath what are normal fees for care they provide. Although difficult to obtain the information, this fraud by insurance companies can be estimated by comparing revenues from premium payments and expenditures on health claims.
Automobile insurance
The Insurance Research Council estimated that in 1996, 21 to 36 percent of auto-insurance claims contained elements of suspected fraud. There is a wide variety of schemes used to defraud automobile insurance providers. These ploys can differ greatly in complexity and severity. Richard A. Derrig, vice president of research for the Insurance Fraud Bureau of Massachusetts, lists several ways that auto-insurance fraud can occur.Examples of soft auto-insurance fraud can include filing more than one claim for a single injury, filing claims for injuries not related to an automobile accident, misreporting wage losses due to injuries, or reporting higher costs for car repairs than those that were actually paid. Hard auto-insurance fraud can include activities such as staging automobile collisions, filing claims when the claimant was not actually involved in the accident, submitting claims for medical treatments that were not received, or inventing injuries. Hard fraud can also occur when claimants falsely report their vehicle as stolen. Soft fraud accounts for the majority of fraudulent auto-insurance claims.
Another example is that a person may illegally register their car to a location that would net them cheaper insurance rates than where they actually live, sometimes called "rate evasion". For example, some drivers in Brooklyn
Brooklyn
Brooklyn is the most populous of New York City's five boroughs, with nearly 2.6 million residents, and the second-largest in area. Since 1896, Brooklyn has had the same boundaries as Kings County, which is now the most populous county in New York State and the second-most densely populated...
drive with Pennsylvania
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
license plates because registering their car in a rural part of Pennsylvania
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
will cost a lot less than registering it in Brooklyn
Brooklyn
Brooklyn is the most populous of New York City's five boroughs, with nearly 2.6 million residents, and the second-largest in area. Since 1896, Brooklyn has had the same boundaries as Kings County, which is now the most populous county in New York State and the second-most densely populated...
. Another form of automobile insurance fraud, known as "fronting," involves registering someone other than the real primary driver of a car as the primary driver of the car. For example, parents might list themselves as the primary driver of their children's vehicles to avoid young driver premiums.
"Crash for cash" scams may involve random unaware strangers, set to appear as the perpetrators of the orchestrated crashes. Such techniques are the classic rear-end shunt (the driver in front suddenly slams on the brakes, eventually with brake lights disabled), the decoy rear-end shunt (when following one car, another one pulls in front of it, causing it to brake sharply, then the first car drives off) or the helpful wave shunt (the driver is waved in to a line of queuing traffic by the scammer who promptly crashes, then denies waving)
Organized crime
Organized crime
Organized crime or criminal organizations are transnational, national, or local groupings of highly centralized enterprises run by criminals for the purpose of engaging in illegal activity, most commonly for monetary profit. Some criminal organizations, such as terrorist organizations, are...
rings can also be involved in auto-insurance fraud, sometimes carrying out schemes that are very complex. An example of one such ploy is given by Ken Dornstein, author of Accidentally, on Purpose: The Making of a Personal Injury Underworld in America. In this scheme, known as a “swoop-and-squat,” one or more drivers in “swoop” cars force an unsuspecting driver into position behind a “squat” car. This squat car, which is usually filled with several passengers, then slows abruptly, forcing the driver of the chosen car to collide with the squat car. The passengers in the squat car then file a claim with the other driver’s insurance company. This claim often includes bills for medical treatments that were not necessary or not received.
An incident that took place on Golden State Freeway June 17, 1992, brought public attention to the existence of organized crime rings that stage auto accidents for insurance fraud. These schemes generally consist of three different levels. At the top, there are the professionals--doctors or lawyers who diagnose false injuries and/or file fraudulent claims and these earn the bulk of the profits from the fraud. Next are the "cappers" or "runners", the middlemen who obtain the cars to crash, farm out the claims to the professionals at the top, and recruit participants. These participants at the bottom-rung of the scheme are desperate people (poor immigrants or others in need of quick cash) who are paid around $1000 USD to place their bodies in the paths of cars and trucks, playing a kind of Russian roulette with their lives and those of unsuspecting motorists around them. According to investigators, cappers usually hire within their own ethnic groups. What makes busting these staged-accident crime rings difficult is how quickly they move into jurisdictions with lesser enforcement, after a crackdown in a particular region. As a result, in the US several levels of police and the insurance industry have cooperated in forming task forces and sharing databases to track claim histories.
In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, there is an increasing incidence of false whiplash
Whiplash (medicine)
Whiplash is a non-medical term describing a range of injuries to the neck caused by or related to a sudden distortion of the neck associated with extension. The term "whiplash" is a colloquialism...
claims to car insurance companies from motorists involved in minor car accidents (for instance; a shunt). Because the mechanism of injury is not fully understood, A&E doctors have to rely on a patient's
Patient
A patient is any recipient of healthcare services. The patient is most often ill or injured and in need of treatment by a physician, advanced practice registered nurse, veterinarian, or other health care provider....
external symptoms (which are easy to fake).
Resultingly, "no win no fee" personal injury
Personal injury
Personal injury is a legal term for an injury to the body, mind or emotions, as opposed to an injury to property. The term is most commonly used to refer to a type of tort lawsuit alleging that the plaintiff's injury has been caused by the negligence of another, but also arises in defamation...
solicitors exploit this "loophole
Loophole
A loophole is a weakness that allows a system to be circumvented.Loophole may also refer to:*Arrowslit, a slit in a castle wall*Loophole , a short science fiction story by Arthur C...
" for easy compensation money (often a £2500 payout). Ultimately this has resulted in increased motor insurance premiums, which has had the knock-on effect of pricing younger drivers off the road.
Property insurance
Possible motivations for this can include obtaining payment that is worth more than the value of the property destroyed, or to destroy and subsequently receive payment for goods that could not otherwise be sold. According to Alfred Manes, the majority of property insurance crimes involve arsonArson
Arson is the crime of intentionally or maliciously setting fire to structures or wildland areas. It may be distinguished from other causes such as spontaneous combustion and natural wildfires...
. One reason for this is that any evidence that a fire was started by arson is often destroyed by the fire itself. According to the United States Fire Administration
United States Fire Administration
The United States Fire Administration is a division of the Federal Emergency Management Agency which in turn is managed by the Department of Homeland Security located in unincorporated Frederick County, Maryland, near Emmitsburg.-History:...
, in the United States there were approximately 31,000 fires caused by arson in 2006, resulting in losses of $755 million. Example: The Moulin Rouge in Las Vegas was struck by arson twice within 6 years.
Council compensation claims
The fraud involving claims from the councilsMunicipality
A municipality is essentially an urban administrative division having corporate status and usually powers of self-government. It can also be used to mean the governing body of a municipality. A municipality is a general-purpose administrative subdivision, as opposed to a special-purpose district...
' insurers suppose staging damages blamable on the local authorities (mostly falls and trips on council owned land) or inflating the value of existing damages.
Detecting insurance fraud
The detection of insurance fraud generally occurs in two steps. The first step is to identify suspicious claims that have a higher possibility of being fraudulent. This can be done by computerComputer
A computer is a programmable machine designed to sequentially and automatically carry out a sequence of arithmetic or logical operations. The particular sequence of operations can be changed readily, allowing the computer to solve more than one kind of problem...
ized statistical
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
analysis or by referrals from claims adjuster
Claims adjuster
Claims adjusters investigate insurance claims by interviewing the claimant and witnesses, consulting police and hospital records, and inspecting property damage to determine the extent of the company’s liability. In the United Kingdom, Ireland, Australia, South Africa, the Caribbean and New Zealand...
s or insurance agents. Additionally, the public can provide tips to insurance companies, law enforcement and other organizations regarding suspected, observed, or admitted insurance fraud perpetrated by other individuals. Regardless of the source, the next step is to refer these claims to investigators for further analysis.
Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud. Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived.
In a supervised method, expected values are obtained by analyzing records of both fraudulent and non-fraudulent claims. According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it requires absolutely certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect types of fraud that have been committed and identified before.
Unsupervised methods of statistical detection, on the other hand, involve detecting claims that are abnormal. Both claims adjusters and computers can also be trained to identify “red flags,” or symptoms that in the past have often been associated with fraudulent claims. Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious claims that need to be investigated further.
Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted to “special investigative units”, or SIUs, for further investigation. These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims. These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.
Determining fraud committed by the health insurance companies can sometimes be found be comparing revenues from premiums paid against the expenditure by the health insurance companies on claims.
As an example, in 2006 the Harris County Medical Society, in Texas, had a health insurance rate increase of 22 percent for “consumer-driven” health plan from Blue Cross and Blue Shield of Texas. This was despite the fact that during the previous year Blue Cross had paid out only 9 percent of the collected premium dollars for claims.
Legislation
National and local governments, especially in the last half of the twentieth century, have recognized insurance fraud as a serious crime, and have made efforts to punish and prevent this practice. Some major developments are listed below:United States
- Insurance Fraud is specifically classified as a crime in all states, though a minority of states only criminalize certain types (i.e. Oregon only outlaws Worker Compensation and Property Claim fraud).
- 19 states require mandatory insurer fraud plans. This requires companies to form programs to combat fraud and in some cases to develop investigation units to detect fraud.
- 41 states have fraud bureaus. These are law enforcement agencies where “investigators review fraud reports and begin the prosecution process.”
- Section 1347 of Title 18 of the United States CodeUnited States CodeThe Code of Laws of the United States of America is a compilation and codification of the general and permanent federal laws of the United States...
states that whoever attempts or carries out a “scheme or artifice” to “defraud a health care benefit program” will be “fined under this title or imprisoned not more than 10 years, or both.” If this scheme results in bodily injury, the violator may be imprisoned up to 20 years, and if the scheme results in death the violator may be imprisoned for life.
Canada
- The Insurance Crime Prevention Bureau was founded in 1973 to help fight insurance fraud. This organization collects information on insurance fraud, and also carries out investigations. Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim.
- British ColumbiaBritish ColumbiaBritish Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...
’s Traffic Safety Statutes Amendment Act of 1997 states that any person who submits a motor vehicle insurance claim that contains false or misleading information may on the first offence be fined C$25,000, imprisoned for two years, or both. On the second offense, that person may be fined C$50,000, imprisoned for two years, or both.
United Kingdom
- A major portion of the Financial Services Act of 1986 was intended to help prevent fraud.
- The Serious Fraud Office, set up in 1987 under the Criminal Justice Act, was established to “improve the investigation and prosecution of serious and complex fraud.”
- The Fraud Act 2006Fraud Act 2006The Fraud Act 2006 is an Act of the Parliament of the United Kingdom. It affects England and Wales and Northern Ireland. It was given Royal Assent on 8 November 2006, and came into effect on 15 January 2007.-Purpose:...
specifically defines fraud as a crime. This act defines fraud as being committed when a person “makes a false representation,” “fails to disclose to another person information which he is under a legal duty to disclose,” or abuses a position in which he or she is “expected to safeguard, or not to act against, the financial interests of another person.” This act also defines the penalties for fraud as imprisonment up to ten years, a fine, or both.
See also
- Horse murdersHorse murdersThe horse murders scandal were cases of insurance fraud in the United States in which expensive horses, many of them show jumpers, were insured against death, accident, or disease, and then killed to collect the insurance money...
- The Invisible Bankers: Everything the Insurance Industry Never Wanted You to KnowThe Invisible Bankers: Everything the Insurance Industry Never Wanted You to KnowInvisible Bankers: Everything the Insurance Industry Never Wanted You to Know is a 1982 book on the insurance industry. It was written by financial journalist Andrew Tobias who became famous for his earlier book The Only Investment Guide You'll Ever Need. It covers the financial details of life,...
(book) - Viaene S. & Dedene G. Insurance fraud: issues and challenges. Geneva Papers on Risk and Insurance. 29 (2) : 313 -333, 2004 (article)
External links
- Insurance Information Institute. Insurance Information InstituteInsurance Information InstituteThe Insurance Information Institute is a U.S. industry organization which exists "to improve public understanding of insurance -- what it does and how it works."The I.I.I...
. - Coalition Against Insurance Fraud. Coalition Against Insurance FraudCoalition Against Insurance FraudThe Coalition Against Insurance Fraud is a coalition of insurance organizations, consumers, government agencies and legislative bodies working to enact anti-fraud legislation, educate the public, and provide anti-fraud advice...
. - National Health Care Anti-Fraud Association. National Health Care Anti-Fraud Association.
- National Insurance Crime Bureau. National Insurance Crime BureauNational Insurance Crime BureauThe National Insurance Crime Bureau is a North American non-profit membership organization located in Des Plaines, Illinois. It was created by the insurance industry to address insurance-related crime and works closely with law enforcement agencies. Much of NICB's focus is on motor vehicle theft....
. - Insurance Bureau of Canada. Insurance Bureau of Canada.
- UK Insurance Fraud Bureau.
- U.S. Fire Administration
- Insurance Research Council. Insurance Research Council.
- 2009 Florida report: Impacts of the Economy and Insurance Fraud