Insurance Fraud


A new report from the National Insurance Crime Bureau (NICB) has found a strong correlation between organized crime and staged auto accidents.

Covering the period from January 1, 2008, through June 30, 2012, analysts reviewed 13,014 questionable insurance claims.

Questionable claims (QCs) are claims that NICB member insurance companies refer to NICB for closer review and investigation based on one or more indicators of possible fraud. A single claim may contain up to seven referral reasons.

For this report, just QCs with a referral reason of “organized group/ring activity” (OGA) were identified.

Overall, there were 13,014 OGA QCs referred to NICB during this period. The top five states that generated the most were: Florida (3,530), California (2,679), Michigan (1,080), Texas (1,050) and New York (765).

The top five cities generating the most were: Los Angeles (752), New York (595), Miami (575), Detroit (545) and Tampa (545).

The insurance policy type most represented in the NICB analysis was “personal automobile,” accounting for 10,659 referrals. NICB says:

This suggests a rather strong correlation between the kinds of alleged fraud schemes most perpetrated by OGAs —staged and caused accidents.”

Further proof of this connection is evident when looking at these QCs by loss type. The referral reason most often coupled with the OGA referral was by far “staged/caused accident” — indicated 4,347 times. The loss type with the most referrals was bodily injury with 4,401 referrals.

NICB notes:

The results of this QC analysis correlate with what NICB agents and analysts are seeing in their cases—particularly in the no-fault, personal injury protection (PIP) states like Florida, Michigan and New York.”

The NICB defines organized crime groups as “any specific group made up of entities and/or individuals who systematically and repeatedly conduct pre-planned activities for the purpose of generating fraudulent insurance schemes.”

Staged/caused accidents are perpetrated by individuals who are skilled in committing insurance fraud. Those “accidents” set the stage for subsequent acts of fraud ranging from faked or exaggerated injuries to unnecessary or excessive medical treatment.

Check out this I.I.I. backgrounder for more info on no-fault insurance fraud, and insurance fraud in general.

It’s been commonly understood that insurance fraud accounts for up to 10 percent of property/casualty insurance industry losses, but a new survey of U.S. insurers indicates that fraud may be much more prevalent.

Some 45 percent of insurers responding to the FICO and Property Casualty Insurers Association of America (PCI) survey estimated that insurance fraud costs represent 5-10 percent of their claims volume, while 32 percent said the ratio is as high as 20 percent.

The survey also found that more than half (54 percent) of insurers expect to see an increase in the cost of fraud this year on personal insurance lines, while less than three percent of insurers expect to see a decline in the cost of fraud on personal lines.

Insurers responding to the survey said they expect the most significant increase in the cost of fraud will affect personal property, workers’ compensation and auto insurance. The majority (61 percent) attribute the increases in fraud to sustained economic hardship by policyholders.

While only 17 percent of insurers attributed the expected increase in fraud to a rise in the sophistication of criminal gangs, 60 percent expect a rise in workers compensation fraud rings, and 61 percent expect a rise in auto fraud rings.

The survey also found that 76 percent of insurers believe there is increased risk of fraud in no-fault states compared to states with tort systems.

When asked about fraud-fighting initiatives that can have the greatest impact on insurance fraud, predictive analytics was identified as the most effective by 45 percent of respondents.

Insurers also included the use of anti-fraud teams for specific books of business (37 percent), link analysis for detecting fraud (31 percent), business rules for stopping known fraud types (29 percent), and external databases (29 percent) as other useful approaches to fight fraud.

In a press release, Russ Schreiber, who leads FICO’s insurance practice, says:

The insurance fraud problem is estimated to exceed $40 billion globally and is showing no signs of abatement. The findings of the FICO PCI Insurance Survey demonstrate that insurers recognize the problem and are looking to improve ways to detect and prevent fraud earlier in the claims process.”

Insurance Journal has more on this story.

Check out I.I.I. facts+statistics on insurance fraud.

Insurers and drivers awoke to some not so good news this morning. According to new findings from an Insurance Research Council (IRC) study of auto injury claim trends, insurance claim costs countrywide have recently increased, reversing previous trends of declining or relatively stable costs.

The IRC reports that although injury claim severity (the average cost of injury claims) has been increasing steadily in the last several years, much of the increase has been offset by declining claim frequency, producing relatively stable injury claim costs per vehicle.

However, recent data indicate that claim frequency on a countrywide basis is no longer decreasing.

In the case of personal injury protection (PIP) claims, the effect of rising claim severity has been magnified by a simultaneous increase in claim frequency. PIP claim costs per insured vehicle countrywide increased by more than 18 percent from 2008 to 2010, the IRC said.

For bodily injury (BI) liability claims, the effect of rising claims severity has been mitigated somewhat by stabilization, rather than an increase, in claim frequency. However, 2010 marks the first year since 1994 that BI claim frequency did not decline.

Elizabeth Sprinkel, senior vice president of The Institutes, summed up the findings:

While we hope these findings represent temporary conditions, we can’t be sure that is the case and can’t afford to ignore the factors driving rising claim costs.”

The IRC notes that much of the deterioration in PIP trends has been concentrated in three of the largest states with no-fault approaches to compensating auto injuries – Florida, Michigan and New York.

In Florida, the average PIP claim cost per insured vehicle in the state jumped 62 percent in just two years (2008-2010).

PIP costs per vehicle in Michigan have been increasing rapidly for several years now – rising more than 120 percent over the last decade, while the New York system has been on a roller coaster of rising and falling costs driving by a surge in suspected claim abuse.

Check out the I.I.I. issues update on no-fault auto insurance.

Florida is a hotbed for auto insurance fraud and the problem is growing worse, according to a new study from the Insurance Research Council (IRC).

The IRC findings confirm recent Insurance Information Institute (I.I.I.) analysis that staged accidents, excessive or unnecessary medical treatment and inflated or questionable claims are driving up the cost of auto insurance for Florida drivers.

Elements of fraud appeared in 10 percent of all Florida no-fault auto insurance claims – known as personal injury protection (PIP) claims – closed in 2007, according to the IRC.

Almost one in every three no-fault auto insurance claims closed in Florida in 2007 appeared to involve the exaggeration of an injury or to be inflated by unnecessary or excessive medical treatment. The IRC sums up the problem:

The apparent amount of fraud and excessive billing by some health care providers in Florida is growing rapidly. Although these findings describe conditions of more than three years ago, indications are that the situation has continued to deteriorate.”

The IRC found that average no-fault claim losses per insured vehicle grew 55 percent in just the last two years, from $100 in 2008 to $155 in 2010. Claim fraud and abuse were major factors in that growth.

Some 30 percent of Florida claims appear to involve either overbilling or excessive utilization of medical services, known as claims buildup.

I.I.I. analysis recently found that no-fault fraud has already cost Florida vehicle owners and their insurers an estimated $853 million since 2008. The cumulative costs from 2009 through 2011 could exceed $1.5 billion if current trends continue.

I.I.I. Florida representative Lynne McChristian has more on this story in her Straight Talk blog.

Check out the I.I.I. white paper No-Fault Auto Insurance In Florida.

Check out further I.I.I. information on insurance fraud.

Preliminary findings from a new study confirm that the New York City metro area is a hotbed for auto insurance fraud and drivers are paying for it.

Analysis by the Insurance Research Council (IRC) finds that no-fault auto insurance claims costs are far higher in the NYC metro area than in the rest of the state and there is significant evidence of increased utilization of medical care.

Elements of fraud appeared in 22 percent of all NYC metro area no-fault auto insurance claims (known as personal injury protection (PIP) claims) closed in the fall of 2010, while another 14 percent appear to involve either overbilling or excessive utilization of medical services.

In contrast, when IRC looked at PIP claims filed in the rest of the state, only 4 percent of closed claims appeared to be fraudulent, while signs of claims buildup were seen in just 4 percent of upstate PIP claims.

Auto injury claimants in the NYC area are seeing more doctors and going for more visits.

The IRC found that some 44 percent of NYC area PIP claimants visited four or more health care providers in 2010, whereas only 14 percent of claimants elsewhere in the state did the same.

NYC claimants were also much more likely to seek treatment from chiropractors, physical therapists, and acupuncturists than their upstate counterparts.

The typical PIP claims payout for claimants in the NYC area in 2010 was nearly double the payout for claimants in the rest of the state.

The Wall Street Journal’s Metropolis blog has more on this story.

As we’ve noted before, when claim costs rise due to fraud, policyholders are forced to pay for it through higher premiums.

Insurance Information Institute (I.I.I.) analysis shows that fraud in the New York no-fault system accounts for roughly 20 percent of every no-fault claim paid – or about $1,561 per claim.

As a result, in 2009 policyholders paid the equivalent of a $229 million tax on their auto insurance policies due to these unethical and often fraudulent activities.

Check out further I.I.I. information on insurance fraud.

Sad, but true. When claim costs rise due to fraud, policyholders are forced to pay for it through higher premiums.

A good example is New York State’s no-fault auto insurance fraud crisis. New data shows that the problem of excessive billings by medical mills in the Empire State is growing.

During the first six months of 2010, questionable liability insurance claims involving excessive medical treatment in New York surged 42 percent to 431, up from 304 in the first half of 2009, according to the New York Alliance Against Insurance Fraud (NYAAIF).

Many of these questionable liability claims referred by insurance companies to the National Insurance Crime Bureau (NICB) for investigation involved no-fault auto insurance claims submitted by medical mills, NYAAIF reports.

These fraudulent claims submitted to auto insurers are for treatment that was either excessive or not necessary, and in some instances the treatments are never even performed.

Fraud and abuse pushes up the total cost of claims and in turn the cost of insurance. Insurance Information Institute (I.I.I.) analysis shows that fraud in the New York no-fault system accounts for roughly 20 percent of every no-fault claim paid – or about $1,561 per claim.

As a result, in 2009 policyholders paid the equivalent of a $229 million tax on their auto insurance policies due to these unethical and often fraudulent activities, I.I.I. estimates.

For more information, check out an I.I.I. backgrounder on no-fault auto insurance and an I.I.I. presentation on the issue of no-fault insurance fraud.