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INSURANCE FRAUD

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					WELCOME TO TENNESSEE
 THE Tennessee Department Of
  Commerce And Insurance wishes to
  provide a “Welcome To Tennessee” to
  the Casualty Actuarial Society.
 We trust you will have a pleasant stay
  and hope you will enjoy the program
  prepared for you today.
INSURANCE FRAUD

   FRAUD & SPECIAL INVESTIGATIONS
   INSURANCE DIVISION
   DEPARTMENT OF COMMERCE &
   INSURANCE
   STATE OF TENNESSEE
WHAT IS INSURANCE FRAUD?




      In order to combat insurance fraud it is first
      necessary to be able to define and identify it.
    INSURANCE FRAUD
 Insurance fraud is any deliberate
  deception perpetrated against, or by,
  an insurance company or agent for the
  purpose of unwarranted financial gain.
 Insurance fraud occurs during the
  process of buying, using, selling and
  underwriting insurance.
     INSURANCE FRAUD
 Insurance fraud has been defined as
  being the second largest economic
  crime in America.
 It is reported as being second only to
  income tax evasion.
     INSURANCE FRAUD
 Whether committed by sophisticated
  criminals, otherwise honest consumers
  or by insurance company employees or
  owners-is an increasingly expensive
  burden on the U. S. economy.
 Money is taken out of the pockets of all
  citizens.
       INSURANCE FRAUD
   This illegal activity diverts vital
    resources away from businesses, law
    enforcement, the civil justice system,
    regulatory agencies and local
    emergency services.
     INSURANCE FRAUD
 Are there any easy solutions to this
  problem?
 No, there are not.
 We, consumers, legislators, regulators,
  and insurers, must work together to
  create an environment that either
  prevents or detects insurance fraud
  easily when it happens.
    What Are The Types Of
      Insurance Fraud?
   “HARD” FRAUD              “SOFT” FRAUD
   Usually a deliberate      Sometimes called
    attempt either to          “opportunity fraud”,
    stage or invent an         occurs when a
    accident, injury,          policyholder or
    theft, arson, or           claimant
    other type of loss,        exaggerates a
    that would be              legitimate claim.
    covered under an
    insurance policy.
 INSURANCE FRAUD

The following slides will provide
more information on these two
   types of insurance fraud.
               Hard Fraud
   Extremely complex         These schemes are
    schemes, often             one of the most
    involving medical          costly forms of
    practitioners,             insurance fraud and
    lawyers and their          are widespread.
    patients or clients,      Millions of dollars
    are employed.              may be lost to a
                               single crime ring.
          Hard Fraud
 This is also committed by executives
  and employees within the insurance
  industry.
 Examples:
 An employee of an insurance company
  accepting bribes or kickbacks.
 An insurance agent who accepts
  premium payments, and fails to remit
  the funds to the insurance company.
          Hard Fraud
  Also included are phony insurance
  companies set up by con men.
 Premiums are collected from unsus-
  pecting consumers and claims are rarely
  or never paid.
 When too many claims are filed the con
  artist disappears with the company
  assets.
           Soft Fraud
 One example is the inflation of an auto
  claim to cover the deductible or the rise
  in insurance premiums.
 This also occurs during the underwriting
  process when an applicant provides
  false information to lower insurance
  premiums or increase the likelihood of
  acceptance for insurance.
    Soft Fraud-Examples
 1. Underreporting the number of miles
  driven either to and from work or on an
  annual basis.
 2. Giving a false location where the car
  is garaged.
 3. Failing to report an accurate medical
  history when applying for health
  insurance.
    Soft Fraud-Continued
 4. Exaggeration of the amount and
  value of items stolen from a home or
  business.
 5. Failing to report the correct number
  of employees for workers’
  compensation insurance coverage.
 6. Providing a false report of income or
  inventory to lower the insurance
  premium for a business.
What is the scope of insurance
            fraud?
  The true extent of insurance fraud is
   difficult to determine as so much of it is
   undetected.
  Comprehensive research to make an
   accurate estimate of the extent of fraud
   has not been done.
  Studies focusing on specific aspects of
   insurance fraud suggest the cost is
   enormous.
Coalition Against Insurance
           Fraud
 This organization estimates the annual
  cost to be more than $85 billion per
  year---
         ----and growing.
 These estimates are the basis for the
  statement that “Insurance Fraud is the
  second largest economic crime in
  America-exceeded only by tax evasion.”
EXTENT OF INSURANCE
       FRAUD

Individual studies have provided
   evidence as shown in the
        following slides:
A Study In Massachusetts
         Showed

Some aspect of fraud or abuse
was found in 48 percent of injury
claims resulting from auto
accidents.
       An Audit In Florida
   Of workers’ compensation insurance
    policies, indicated 46 percent of
    employers underreported the level of
    their payroll or misclassified employee
    occupations.
     Company Insolvencies
   At least 30 percent of 302
    property/casualty insurance company
    insolvencies between 1969-90 were due
    to fraudulent activities.
       A 1995 Rand Study
   A Rand Institute study for Civil Justice
    concluded more than 35 percent of
    people hurt in auto accidents
    exaggerate their injuries, adding $13-
    $18 billion to the nation’s annual
    insurance bill.
1996 Tennessee Claims Fraud
           (est)
 L in e               Am ount            F a m ily C o s t

 A u to               $ 2 2 8 .4 m il.   $ 1 3 6 .0 0

 H o m e o w n e r s $ 3 4 .1 m il.      $ 2 0 .3 3

 C o m m e r c ia l   $ 1 6 9 .2 m il.   $ 1 0 0 .5 8

 H e a lt h           $ 9 3 6 .2 m il    $ 5 5 7 .0 1

 T o t a ls           $ $ 1 .4 b il.     $ 8 1 3 .9 2
1996 United States Claims
      Fraud (est)
L in e       Am ount      Per Cap        H ouse         F a m ily

A u to       $ 1 4 .3 b   $ 5 3 .8 0     $ 1 4 1 .4 9   $ 1 7 0 .0 0

Hom e        $ 2 .1 b     $ 8 .0 4       $ 2 1 .1 5     $ 2 5 .4 1

Com m .      $ 1 0 .6 b   $ 3 9 .7 9     $ 1 0 4 .6 4   $ 1 2 5 .7 2

H e a lt h   $ 5 8 .4 b   $ 2 2 0 .3 4   $ 5 7 9 .4 8   $ 6 9 6 .2 6

T o t a ls   $ 8 5 .4 b   $ 3 2 1 .9 6   $ 8 4 6 .7 6   $ 1 0 1 7 .4 0
    Why has insurance fraud
          increased?
 Public attitudes-many think it is a
  victimless crime.
 Insurer claims practices-many
  suspicious claims are paid rather than
  fighting them.
 High-risk insurance-many companies
  are unwilling to provide this and the
  market is open to “bogus” insurers.
Increased Fraud-Continued
 Medical economics-large numbers of
  uninsured and/or underinsured patients.
 Insufficient penalties- insurance fraud is
  perceived as high reward/low risk crime
 Low law enforcement priority-top
  priority is given to reducing drugs and
  violence thus shifting manpower away
  from white collar crimes.
What is Being Done About
   Insurance Fraud?

    How is this problem being
            combated?
   The following slides will show
  some means being used at this
               time.
      Insurance Regulators
   The NAIC has created model legislation
    for states to enact that makes it harder
    for con artists to set up insurance
    companies. In many states, regulators
    are increasing insurer oversight. There
    is interest in making white collar crime
    a federal crime. In 1994 the omnibus
    crime bill set penalties for anyone
    convicted of submitting false financial
    data to state insurance regulators.
    Insurance Companies
 Special Investigation Units-created
  within the companies to detect and
  investigate suspicious claims.
 National Insurance Crime Bureau-
  created by insurance companies in
  1992, dedicated to fighting insurance
  fraud.
 Creation of insurance fraud database
  networks accessible online.
    Other Possible Solutions
 Enactment of stiffer penalties and
  extending current laws attacking
  Medicare and Medicaid fraud.
 Enact additional legislation to combat
  the problem at the state level.
       The States Can:
 Make insurance fraud a specific crime,
  with appropriate penalties, including
  restitution.
 Require administrative action against
  licensed individuals or businesses-body
  shops, doctors, lawyers, etc.-upon
  conviction of insurance fraud.
 Require all insurers to establish, and
  use, anti-fraud plans.
      States-continued
 Require claims forms and insurance
  applications to carry insurance fraud
  warnings.
 Provide immunity to insurers, and
  others, reporting insurance fraud and
  sharing information.
 Require inspection of automobiles
  before granting insurance coverage.
    Is There Any Progress?
 Yes, the per family cost has dropped
  from $1,032 to $1,017 in 1996.
 Health insurance fraud dropped from
  $710 per family to $696.
 Workers’ Compensation has consistently
  dropped for the past five years. It has
  dropped from $2.9 billion to $2.1 in
  1996.
    MEDICARE ANTI-FRAUD
          REPORT
 The Department of Health and Human
  Services has reported that, since 1996,
  anti-fraud efforts have resulted in a
  savings of $11 billion. The bad news?
 Remaining improper payments are
  $12.6 billion.
 More good news-many criminals have
  gotten the message and have closed
  their illicit Medicare operations.
Is Insurance Fraud Whipped?
    No, it is not yet time to ease off our
     efforts. It does appear that our years
     of work is paying off. There has been,
     for the first time, virtually no actual
     increase in the amount of insurance
     fraud annually while, with population
     increase, there has been a lowering of
     the average cost to consumers for the
     first time.
    Can We Ever Relax?
 No, and the following example, which is
  based upon a true story, will serve to
  illustrate why we must always maintain
  our vigilance against fraud.
 In one of our western states a “swap
  meet” was being conducted. There
  were a number of dealers who were
  engaged in selling merchandise.
       Relax-Continued
 A very lovely young woman appeared.
  She was dressed in a macramé bikini.
  Needless to say, she received a lot of
  attention.
 The young woman went around the
  dealers trading $20 bills for change.
 Apparently, no one thought to ask why
  she needed so much change.
       Relax-continued
 Finally, someone realized all the $20
  bills were identical.
 Now-they realized why she needed so
  much change.
 She was exchanging counterfeit $20
  bills for $20 in good money.
 The macramé bikini was a diversionary
  tactic on her part.
     Relax-continued

She probably would have gotten
away with it if the bills had been
     printed on both sides.
         CONCLUSION
 We must never let down our guard.
  The fight against insurance fraud is a
  permanent battle which will never be
  won in its entirety.
 One major part of the battle is public
  education. We must show the
  consumer that insurance fraud costs
  them and they must aid in the battle.
       Credits Due

Thanks are due to the National
Insurance Crime Bureau and to
The Coalition Against Insurance
Fraud for providing information
 and for their assistance in the
  preparation of this program.
        THE END

BUT ONLY THE BEGINNING IN
    THE FIGHT AGAINST
    INSURANCE FRAUD!

				
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posted:5/10/2012
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