Educating about Insurance Fraud and Insurance Scam

The Airbag Car Insurance scams

2008-03-25T11:37:00.001-07:00

The Airbag auto insurance scams
Here are several scams you should watch for...
The pullout. A dishonest body shop pulls out your airbag so it seems like the bag deployed during the accident. The mechanic then inserts a cheap knockoff bag after your insurer finishes the estimate for replacing the original airbag. Or worse, the mechanic stuffs old rags, cardboard or beer cans into your empty airbag space. The body shop bills your insurer full price for "replacing" the bag – up to $2,000 or more – even though your original is long gone.
The switch. The body shop removes your un-deployed airbag and installs another deployed one to make it seem the original bag inflated during the accident. The mechanic then puts back your original bag after the insurance company makes a repair estimate. Or, the mechanic may simply insert rags and other junk, then sell your original bag on the black market.
Used & salvaged vehicles. Maybe you're buying a used or salvaged vehicle (which was rebuilt after the insurer declared it totaled). Be careful.You may have a hard time tracing exactly what's happened to the vehicle, who repaired it, and whether they tampered with your airbags. You may only have an unsafe used or cheap knockoff bag. Or just rags and beer cans.
Cars that were totaled in a flood may still have the original airbags, but they may not open properly if the module was soaked.

The price you pay for car insurance
Pay higher premiums. Airbag fraud also takes hard-earned money out of your pocket. The swindles raise auto premiums for every honest driver because insurance companies must pass the cost to all policyholders.
Your own auto premiums also might go up even faster, since an airbag scam against you unfairly inflates claims against your own auto policy.

Fight back car insurance fraud
Unless you have X-ray vision, you can't easily tell if a dishonest body shop tampered with the airbag while your vehicle was being repaired. The airbag compartment is tightly sealed, and hard for you to reach.
Same with that used or salvaged car you're thinking of buying. If the vehicle's history is altered, missing or incomplete, you don't know if the airbag is safe – or if you even have one.
Get a mechanic. When in doubt, have an outside mechanic you trust check out your airbag. Make sure the mechanic is certified, or seek a reputable airbag technician.
Watch for these warning signs...
Dashboard light works? Newer cars have a dashboard light that comes on for a few seconds when you start the car. This signals that the airbag system is working properly. If the light stays on, starts flashing or doesn't flash on at all, your airbag system probably isn't working. But watch out: Crooked body shops can install devices that make the airbag light flash properly even when the airbag is gone.
Invoice in order? Check the body shop's invoice to make sure the shop bought the airbag from a car manufacturer, dealer or recycler.
Any complaints? See if the body shop has a history of consumer complaints – before you get repairs. Check the shop's complaint history with the Better Business Bureau.
Fake airbag cover? The body shop might place a real-looking cover over the airbag space to hide the theft. But fake airbag covers rarely have your vehicle's logo imprinted. The color also may be slightly off, even if it does fit well.
Vehicle history ok? Thinking about buying a used vehicle? Get its history report from commercial services. If the report shows the vehicle was in a major crash or flood, you should have a certified mechanic or airbag technician check it out before buying.
Avoid tampering. Don't try to open the airbag compartment yourself. You could be injured, and also damage an expensive airbag system.
Support airbag legislation. Urge your state legislators to support tough penalties for body shops that commit airbag scams.

Why Is Insurance Fraud So Big?

2008-03-24T07:19:00.001-07:00

What is Insurance Fraud?

Insurance fraud occurs when people deceive an insurance company or agent to collect money to which they aren't entitled. Similarly, insurers and agents also can defraud consumers, or even each other. Insurance fraud can be "hard" or "soft."
Hard Fraud. Someone deliberately fakes an accident, injury, theft, arson or other loss to collect money illegally from insurance companies. Crooks often act alone, but increasingly, organized crime rings stage large schemes that steal millions of dollars.
Soft Fraud. Normally honest people often tell "little white lies" to their insurance company. Many people think it's just harmless fudging. But soft fraud is a crime, and raises everyone's insurance costs. Consider…
A car owner inflates a fender bender claim to cover her deductible, or she understates how many miles she drives annually to lower her auto premium… A homeowner inflates the value of his stereo equipment stolen during a robbery… Or a printing business lists fewer employees than it really has in order to pay lower workers compensation premiums.

Insurance Fraud is Big

Insurance fraud is hard to measure because so much goes undetected, and complete research has yet to be done. Still, we have enough evidence to know that fraud is widespread — and expensive.
More than one third of people hurt in auto accidents exaggerate their injuries. Nearly one third of doctors exaggerate the severity of a patient's illness to help the patient avoid early discharge from a hospital, according to the Journal of the American Medical Association.

Why Is Insurance Fraud So Big?

Insurers sometimes back off. Most insurance companies take a tough stand against fraud, but some companies unwittingly encourage fraud by paying suspicious claims too easily. These companies believe it's cheaper to pay some smaller suspect claims than fight in court, and a quick payoff also may avoid multimillion-dollar lawsuits for bad faith.
Health system is an easy target. America's health care system is huge and vulnerable. The sheer number of patients and treatments plus complexity of billing attract cons who are skilled at looting our overworked health care system. The pressure to control costs also encourages many doctors or health firms to cheat so they can recoup lost profits or meet rigorous treatment quotas.
Immigrants are vulnerable. Insurance cheats consider America's large and growing immigrant groups easy targets. Asian and Hispanic communities, for example, report extensive insurance fraud as con artists prey on immigrants' trust, lack of English skills and ignorance of how insurance works.
Low-Risk Crime. Insurance cheaters view insurance fraud as a low-risk, high-reward game, and far safer than drug trafficking or armed robbery. Consider:
Three states still don't have specific insurance fraud laws, thus discouraging many prosecutors from tackling tough fraud cases.
Courts are getting tougher on convicted schemers, but too often jail sentences still are light, with courts often reserving space in overcrowded prisons for people convicted of more-violent crimes.
Professional societies overseeing doctors and lawyers often are reluctant to discipline peers convicted of insurance fraud.
Low Legal Priority. Prosecutors often give top priority to combating drugs, violence and other high-profile crimes. Though prosecutors are tackling more fraud cases than in the early 1990s, too many prosecutors still believe insurance crimes often are too complex and technical to successfully prosecute.
People Tolerate Fraud. Too many consumers believe insurance fraud is justified. This environment of tolerance makes it much easier for con artists to operate safely. Research by the Coalition Against Insurance Fraud reveals:
As many as one of three Americans tolerate insurance fraud to varying degrees.

Fighting insurance fraud and the value of investigation outsourcing

2008-03-23T10:03:00.001-07:00

Fighting insurance fraud and the value of

Special Investigative Unit outsourcing

Insurance fraud has likely existed from the time the first insurance company, the

Friendly Society, opened its doors in 1732 in Charles Town (now Charleston), South Carolina.

Today, however, the problem has escalated to an alarming magnitude. Insurance fraud is the

second largest economic crime in the U.S. after tax evasion, according to the National

Insurance Crime Bureau (NICB).1

While some perceive insurance fraud as a "victimless" crime, its impact on society is far

reaching, costing not only insurers but also consumers billions of dollars every year.

According to research firm Conning & Company, insurance fraud cost consumers $96.2 billion

in higher premiums in 1999 and more than $530 million in higher prices for good and

services.2 It estimates that all types of insurance fraud cost the average American household

nearly $5,000 a year in the form of higher premiums and higher cost of goods and services.3

Insurance fraud has proliferated in the U.S. because of the myriad challenges insurers face in

fighting it. Despite these challenges, however, insurers have become increasingly proactive

in implementing anti-fraud programs. Many of these programs involve the establishment of

Special Investigative Units (SIUs) to detect and investigate fraudulent claims. How these

units are run varies—some insurers keep them in house while others outsource them. This

paper explores the benefits of outsourcing SIU functions in terms of both preventing fraud

and improving bottom line performance.

Challenges in fighting fraud

Combating fraud is an uphill battle. Stung by staggering fraud-related losses, insurers

readily acknowledge the seriousness of fraud and their responsibility to take the offensive in

eradicating it. Their anti-fraud efforts, however, are often stymied by enormous challenges

on all battlefronts.

Public tolerance.

Research shows that a high percentage of people believe some forms of insurance fraud are

acceptable. Surveys, for example, reveal that as many as one in four adults think it is okay to

exaggerate a claim. Common justifications include making up for a deductible or making up

for paid premiums when no claims were filed. A negative perception of insurance companies

is partly to blame for the public's tolerance of fraud. According to the Coalition Against

Fraud, two out of five people blame unfair insurers for the fraud crisis and two out of three

believe premiums would continue to increase regardless of fraud.4

Costs and risks of fighting.

Fighting fraud is a very expensive proposition for insurers. Trained investigators are required

to properly identify and investigate suspicious claims, resulting in high costs for salaries,

benefits and job-related expenses. Insurers must also invest in fraud investigation tools and

technologies, which are rapidly evolving. From a cost-benefit perspective, many insurers,

especially small to mid-size companies, take the view that it is cheaper to pay fraudulent

claims than to investigate them. Insurers also run the risk of liability for bad-faith lawsuits

for failing to pay suspicious claims.

Elusive and sophisticated criminals.

Fraud perpetrators vary widely in age, income, occupation, race, religion and other

demographic and psychological attributes, making them difficult to categorize. In addition,

their profiles closely mirror those of honest citizens: they hold jobs (many in highly

respected professions), are married with children, have higher educations, volunteer in the

community, regularly attend church, etc. These criminals are also becoming increasingly

sophisticated in their methods, devising more complicated fraud schemes and taking

Insurance companies began to lobby for stronger anti-fraud legislation and tougher law

enforcement. They also invested in their own anti-fraud initiatives, including SIUs to

investigate and crack down on fraud. Before the 80s, few insurers had SIUs but, by the 90s,

a majority of companies had them.

Increasing awareness of the high cost of fraud to the public also motivated state legislators

to get involved in the fight against fraud. Today, most states have passed laws that

specifically define insurance fraud as a crime and make it a felony as opposed to a

misdemeanor. Laws have also been enacted to increase monetary penalties and set prison

sentences. In addition, most states have established fraud bureaus and imposed anti-fraud

requirements on insurers. In general, these requirements cover fraud plans, mandatory

reporting, fraud warnings, auto inspections and SIUs. SIUs are no longer an option for most

insurers: they are now a legal mandate in 38 states.

Today, insurers cite fraud deterrence as their number one priority and SIUs are the key

weapon in their anti-fraud arsenals. Most P&C insurers have an SIU program in place and 40

percent of all insurance companies have increased their SIU spending over the last three

years.5 Several studies reflect an average return of $3 for every SIU dollar spent while others

indicate a much higher rate of return.

The types of SIU programs vary. Some insurers handle the job in house while others contract

with an outside vendor. In-house SIU functions are typically managed in one of three ways:

by a small team of SIU advisors that guide claims adjustors on how to detect and investigate

fraud (advisory SIUs), by claims adjustors who have received additional fraud investigation

training and handle investigations in addition to their adjusting responsibilities (adjusting

SIUs), or by a large team of specially trained SIU investigators who concentrate solely on

investigating suspicious claims (investigative SIUs).