www.InsuranceFraud.org SPRING 2008 CHIRO LANDS CRASH VICTIMS Florida and Maryland close o crash reports WITH FULL THROTTLE PHONING? Police accident reports provide Cold-calling of victims may reach new levels of efﬁciency often-easy targets for swindlers who exploit crash victims to bilk Texas chiropractor Michael Kent Plambeck may have virtually insurers with bogus injury claims. mechanized the illegal recruiting of crash victims for bogus injury claims against auto Recruiters comb for names, insurers with a corporate efﬁciency rarely seen for this kind of insurance scheme. addresses and phone numbers, His suspected gang allegedly used aggressive telemarketing phone banks that then phone or knock on victims’ convinced victims to obtain bogus treatments from dozens of clinics he operated in four doors to seek treatment at states. Cold-calling victims for schemes isn’t new, nor is contacting victims necessarily crooked clinics. crooked. But Plambeck may have done for sleazy recruiting of victims what Henry Ford But Florida and Maryland, for did for assembly-line car manufacturing. example, limit outsider access to “To the best of my knowledge it’s unusual, and actually it’s the ﬁrst time I’ve heard police reports, says Howard Gold- blatt, the coalition’s head of gov- of someone that would go to this extreme,” says Frank Orlando, director of New York ernment affairs. Only the victims, State’s fraud unit. their representatives and journal- “We’ve always seen that stuff (phone ists can see reports for the ﬁrst recruiting of crash victims) but nothing 60 days after an accident. Some that sophisticated,” agrees Anthony swindlers pretend they’re journal- DiPaolo, chief of investigations for the ists, even creating ofﬁcial-looking Massachusetts fraud bureau. “We’ve publications to show police. seen occasional mailings that go And Texas just deleted victim out, but nothing like this.” phone numbers from the reports. But more, Plambeck “(Recruiters) are today’s lazy allegedly combined a sprawling ambulance chasers, doing it all clinic network and sophisticated by phone. We are trying to put telemarketing machine into a a stop to these calls, or at least coordinated, MBA-style marriage of crooked medicine and full-throttle phone slow them down,” says Mark marketing that’s unusual for suspected insurance schemes such as these, seasoned Hanna, with the Texas Committee on Insurance Fraud, which helped investigators say. spearhead the change. Churned out calls Plambeck allegedly cost Allstate so much money that the insurer is trying to gut his operation with a $10-million federal lawsuit recently ﬁled in Dallas. His headquarters, INSIDE Chiropractic Strategies Group, is based in nearby Arlington. Plambeck runs about 39 chiropractic clinics sprinkled throughout Texas, Louisiana, 3 Fraud News Ohio and Alabama. He also set up a Louisiana marketing operation called Media States squelch fake insurance ________________________________ Placement that churned out most of his phone pitches. 4 Pro le Callers were carefully trained. Using ofﬁcial accident reports, they dialed up crash Secret economy fuels comp schemes ________________________________ victims in several states. Callers urged them to visit one of Plambeck’s clinics for a free 6 Crime Watch exam — even when victims felt no pain or other injury symptoms, Allstate says. Alleged crash ring a family affair ________________________________ Callers funneled hot prospects to the nearest clinic and even arranged the 7 Legislative Monitor appointments, Allstate says. Worthless and phantom treatment and tests allegedly Budget crises could stiﬂe fraud bills ________________________________ followed, and Plambeck’s clinics then bombarded Allstate with dirty claims. 8 Perspective Attitudes about insurers declining continued on next page COVER STORY Board of Directors D S , C -C Full-Throttle Phoning State Farm Insurance Companies J B , C -C continued from page 1 Center for Consumer A airs University of Wisconsin-Milwaukee One of Allstate’s strongest charges is that Plambeck’s telemarketers D A ,T sometimes said they were Allstate or “insurance company” reps who wanted Farmers Insurance Group S P ,S victims to visit a nearby Plambeck outﬁt. If true, that’s an unusual bit of strong- National Association of Insurance Commissioners arming that also sets Plambeck apart, fraud ﬁghters say. Allstate Insurance E J. M “Recruiters don’t usually say they’re working for an insurance company. American Council on Consumer Interests Usually they say they’re working for the clinic,” says Steve Smith, a captain from J B American Family Insurance S S the fraud unit of Florida’s Department of Financial Services. American Insurance Association P F “At this point it’s the exception to what we normally see. It may be CNA T W Consumer Action K M E something new,” adds Dana Levitt, who oversees investigation of suspicious Consumer Alliance D R injury claims for Hanover Insurance Group. Consumer Federation of America But Hanover is probing a chiro outﬁt that also may use pretext: Someone S B Consumer Federation of the Southeast phoned a crash victim, claiming he was a doctor employed by Hanover, and W D urged her to get treatment at a speciﬁc chiro clinic in Tennessee, says Levitt. Erie Insurance D R Farmers Insurance Group D A The clinic receptionist told the victim not to contact Hanover, assuring her Fireman’s Fund Insurance P S the clinic would handle all insurance details, Leavitt says. But the woman grew Florida Consumer Action Network B N Hanover Insurance Group F S suspicious and contacted Hanover’s fraud hotline. Hanover still is investigating Hartford Insurance Group J M G the chiro’s operations, including victim-marketing efforts. International Association of Insurance Fraud Most recruiting of crash victims is Agencies M M Liberty Mutual Group G D. W more loosely organized and smaller-scale Louisiana State Police L . A C Many accident than Plambeck’s alleged multi-state Main Street America Group C M D telemarketing, says Orlando. MassMutual B MetLife, Auto & Home J C S gangs avoid recruiting Recruiters show up at crash scenes, National Association of Consumer Agency Administrators E O tactics such as high- wait until the police leave, then badger National Association of Insurance Commissioners victims to get treatment at a ring-afﬁliated H .S P National Conference of Insurance Legislators gear telemarketing clinic, Orlando says. They also phone crash victims at home: Pretending to be H .B K National Criminal Justice Association that might attract hospital employees, recruiters urge victims C C. C National District Attorneys Association M G nosey fraud to get treatment at a clinic that’s part of the scheme. Some miscreants hang ﬂyers National Insurance Crime Bureau R National Urban League R M A B investigators. on lampposts or monitor police radio Nationwide Insurance D B dispatches. O ce of Attorney General, Pennsylvania H .T C In a newer tactic, hospital employees text-message recruiters when accident OneBeacon Insurance D N victims come to emergency rooms, Orlando says. Pennsylvania Insurance Fraud Prevention Authority In fact, many accident gangs avoid elaborate recruiting tactics such as high- R B Progressive Insurance J M gear telemarketing that might attract nosey fraud investigators, Orlando says. Prudential Insurance H G “I think they’re trying to keep these things lowkey,” he notes. SAFECO S F Sentry Insurance J D. K Staged-accident rings, with schemers maneuvering their own cars into Travelers Insurance K J crashes, are more prevalent than gangs trying to recruit real accident victims. Unum Group R D Still, Allstate’s $10-million suit underscores that alleged fraud losses still can be Zurich North America B W sizable. Fraud ﬁghters thus deploy a variety of counter-measures in addition to criminal prosecutions. Florida limits access to police accident reports that rings often use to ﬁnd Sta crash victims (see sidebar). “We do believe the law has been having an effect. It’s D J Executive Director H G Director of Government A airs made it much tougher for them to recruit,” says investigator Steve Smith. J Q Director of Communications K S Executive Assistant Civil suits by insurers also can deliver serious ﬁnancial body blows. Huge ﬁnes The Coalition Against Insurance Fraud is an independent, can bankrupt ring members, and the burden of proof in civil cases also is lower nonpro t alliance of consumers, government agencies and insurers dedicated to combatting all forms of insurance fraud than criminal cases. Insurers also can move fast, without waiting for lengthy through public information and advocacy. Fraud Focus is criminal prosecutions. published four times a year. Material may be reproduced with proper attribution to the Coalition Against Insurance Fraud. If Allstate takes down Plambeck, the insurer will shore up Smith’s belief that Contact Information: 1012 14th Street, NW, Suite 200, Washing- ton DC 20005; phone 202-393-7330; fax 202-318-9189; email even the most-elaborate auto-fraud rings can take a long, hard fall. “They’re not firstname.lastname@example.org. as sophisticated as they think they are,” Smith says. 2 Spring 2008 ! FRAUD FOCUS FRAUD NEWS States put kibosh on sale of worthless coverage In Brief Several state have shut down a bogus insurer peddling fake discounted health coverage to small businesses and consumers. Florida slapped New York state’s fraud the National Trade Business Alliance of America with a cease-and-desist ﬁghters recently made their order after nearly 800 residents had lost at least $100,000 in unpaid claims 1,000th workers comp fraud arrest since 1996. The anti- since 2006, the department of ﬁnancial services says. The coverage was marketed via blast faxes fraud effort has saved more promising health coverage well below market rates. Consumers called a tollfree number to make than $312 million…An agent the purchase. Callers provided their credit-card info or faxed a copy of a check to cover their forged competing quotes premiums. At least 123 people in North Carolina also lost $20,000 to the New Jersey-based to dupe the Mescalero Apache outﬁt, North Carolina’s insurance department says. The company was unlicensed and left many tribe into overpaying millions policyholders with unpaid claims. The Arizona and Massachusetts insurance departments are in premiums, the tribe says in among others to crack down. A large wave of bogus health insurers bilked thousands of small a lawsuit in New Mexico…The businesses around the U.S. from about 2000 to about 2004 before regulators shut down the vast deserts around Bar- swindlers. Insurance departments today are urging consumers to contact the regulators to verify stow, Calif. are graveyards insurers before buying coverage. for vehicles the owners have dumped for insurance money, Coalition working to foreclose looming foreclosure arsons ofﬁcials say. Helicopters scan for vehicles in especially re- Arsons by desperate homeowners facing foreclosure, airbag scams mote spots…Two men posed and crooked dentists are among the fraud trends the coalition brought as insurance adjusters to the nation’s attention recently. “Untold thousands of homeowners who ripped off victims of the are struggling with ballooning subprime mortgage payments, and wildﬁres in South Lake Tahoe, fraud ﬁghters are watching closely for a spike in arsons by desperate Calif. last summer. The insur- homeowners who can no longer afford their home payments,” the ance department ﬁned Steve coalition said in a recent issue of Fortune Magazine…Airbag scams are a life-threatening Lepcevic and Matthew Todd danger, the coalition also warned the public: “Many cars now on the road could have no $200,000...Plans are afoot airbags or nonworking ones,” the coalition says in a consumer column sent to newspapers to launch an international around the U.S. “Crooked body shops illegally removed or replaced them to steal insurance database to target insur- money. But drivers and passengers won’t know until they’re in a crash and their airbag fails ance fraud globally. About 140 to open.”…Dental patients also should watch out: “We’re seeing a disturbing spike in the nations are expected to take warning signals that there may be an increase in fraud by crooked dentists,” the coalition said part, allowing insurers to share on Good Morning America. A Pennsylvania dentist did jawbone grafts, tooth extractions and fraud data internationally… Corruption is so wide- root canals on perfectly healthy patients, the show noted. spread among Los Angeles- area medical-equipment ﬁrms Tampa a center of fraud-fueled abuse of prescription drugs that nearly 1,000 ﬁrms bilked Overdoses of prescription drugs, often obtained by insurance fraud, Medicare out of $21 million in soon will overtake car crashes as the Tampa Bay area’s leading cause of just one year, says a federal accidental deaths, local ofﬁcials say. The region is fast becoming one of report. One bogus ﬁrm even Florida’s leading problem areas for the abuse of addictive painkillers and listed an art gallery as its other prescription drugs. Overdoses of painkillers such as OxyContin and address. Investigators have anti-anxiety drugs are on a pace to kill 550 local residents. The death rate is uncovered $300 million in po- tentially bogus claims over two 70 percent higher than the state as a whole, ofﬁcials say. Deaths statewide have risen 40 percent years…Former insurer exec in three years, news reports say. Many areas around the U.S. are wrestling with a prescription Joe Wehrle has been appoint- epidemic, and insurance fraud fuels this fast-growing trend, the coalition warns in a new report, ed the chief operating ofﬁcer Prescription for Peril. Bogus prescription drug claims by doctor-shopping addicts, pharmacies and of the National Insurance doctors have made insurance fraud perhaps the trend’s leading ﬁnancier and enabler, the report Crime Bureau. Wehrle was says. More states must install databases to track prescriptions, the report urges. Florida has weak president of USAA Property tracking systems, making it easy for addicts and dealers to illegally obtain multiple prescriptions, and Casualty, and deputy chief says Dr. Rafael Miguel, a professor at the University of South Florida. of staff in the Air Force. Send Us Your News Let us know how your organization is combating insurance fraud. Send your news to: Fraud Focus, More Fraud News 1012 14th St. NW, Suite 200, Washington DC 20005 or fax to 202-318-9189 or email to at news@InsuranceFraud.org news@InsuranceFraud.org. Spring 2008 ! FRAUD FOCUS 3 PROFILE Digging up the underground economy Corrupt builders cheat workers comp insurers out of premiums and exploit workers BY DAVE THOMAS & JAMES QUIGGLE Driven to dodge expensive competitors, thus costing jobs and raising Employers in high-risk California workers compensation premiums, prices. industries may hide 75 percent of their companies in high-risk and low-wage Corrupt builders deploy a large variety payroll for those dangerous jobs. This industries such as construction ﬂeece of ruses, often camouﬂaging workers costs insurers up to $3.8 billion in lost insurers out of billions a year by hid- comp premiums annually, says a ing employees in the shadowy neth- 2007 study by University of Califor- erworld of America’s underground nia Berkeley researchers. economy. California’s state-run workers Corrupt garment makers, restau- comp insurer has 109 premium- rants and businesses in many other fraud investigations and prosecu- industries also milk comp insurers. tions underway. More than $100 But construction ﬁrms are especially million in potential premium losses large players in a vast, subterranean are on the line, and most cases job world that both exploits vulner- involve construction ﬁrms, says able workers by paying substandard Rick Plein, the insurer’s bureau wages, and bilks governments by chief. avoiding many taxes. At least 50,000 construction In this parallel ﬁnancial universe, workers in New York City alone millions of workers — often illegal — one of four — are employed immigrants toiling long hours in inside dizzyingly complex bookkeeping off the books or misclassiﬁed as dangerous conditions — pound nails high cons. Increasingly, for example, employ- independent contractors, says the Fiscal on roofs of housing sites, pour concrete in ees are stashed in shell ﬁrms, mislabeled Policy Institute. Those cons milked $489 rising ofﬁce buildings, or erect drywall in as independent contractors, and paid in million in comp premiums, taxes and condo complexes. cash off the books (see sidebar). If em- other expenses in 2005 and could reach ployees don’t exist — at least on paper — $557 million this year, the Institute esti- High-risk work then workers comp insurers can’t charge mates. More than 39,500 employers also Nearly every state requires employers premiums for them. misclassify workers throughout the state to carry workers comp coverage, but the each year, a study by Cornell University urge to cheat is strong. Construction is Little data researchers reveals. high-risk; employees often are injured and Credible national data are in scarce Meanwhile down South, premium sometimes even killed. Workers comp supply. But states with large Hispanic schemes are the “largest organized premiums thus can be high, and bite into populations and hot construction markets ﬁnancial crime in the state of Florida,” a builder’s proﬁts. Premium schemes can such as California, Florida and New York says Geoffrey Branch, investigator with save a dishonest builder up to hundreds are cauldrons of workers comp premium the fraud unit of the state Department of of thousands of dollars in comp premiums schemes. Financial Services. a year. “Premium fraud and tax evasion with- Premium cons are diverse. In Califor- But the ruses also leave injured work- in the underground economy is a serious, nia, Mayer Rooﬁng lied that most of its ers without coverage, bilk insurers of costly crime throughout California,” says 450 workers were managers or high-level premium income, and leach taxes. The Dominic Dugo, head of fraud grants for employees instead of roofers. Mayer was sizable premium savings also give dishon- the San Diego DA’s ofﬁce and a leading ordered to repay the state workers comp est contractors an unfair edge over honest expert on comp premium fraud. insurer more than $3 million. 4 Spring 2008 ! FRAUD FOCUS A Florida builder shaved more than $4 million in premiums by providing more Premiums schemes fueled by illegal shell companies than 300 workers fake workers comp in- A growing trend in workers comp premium-evasion schemes is to bury employees in surance certiﬁcates. The ﬁrm also created shell ﬁrms set up solely for illegally laundering of hidden payroll into cash, usually to un- bogus payroll records, paychecks and IRS documented immigrant workers, says Geoffrey Branch, Florida state fraud investigator. reporting documents. “A facilitator sets up a shell company, usually in a false name or name of someone In New York, a ﬁrm called Complete who is or will be out of the country. The facilitator incorporates, obtains a general oc- Construction Consortium avoided nearly cupational license for the company, then obtains the smallest work comp policy they $800,000 in comp premiums by alleg- can,” he says. edly creating four shell companies for The shell has a vanilla name such as “DM General Services.” The owner rents its paying employees off the books. CCC name, occupational license and workers comp certiﬁcate to ﬁrms that want to hide wrote checks to the shells, then listed payroll from comp insurers and tax agencies, Branch says. the checks as “materials” on its general When the building project is done, the general contractor cashes a check at a ledger and tax returns, prosecutors say. check-cashing store that’s in cahoots with the con. The shell ﬁrm and store take their Commercial check cashers also allegedly cut, and the rest goes to the ﬁrm and its workers. helped CCC pay some workers in cash At least three check outﬁts drove across Florida with vans, allegedly cashing under the table. checks for crooked builders, Branch says. Pronto Cash, La Bamba and Atlantic Check California roofer Michael Amzie Hol- Cashing have been busted, Branch says. ley allegedly avoided more than $700,000 in premiums by lying that he had no em- ployees. He paid workers cash under the California roofers also must carry to exploit a rule exempting certain sole table, mislabeling them as subcontrac- comp coverage whether or not they have proprietors from comp premiums. tors, and leasing some from other ﬁrms, employees, according to a 2007 law. Premium schemes also will be prosecutors say. Insurers also must audit roofer clients’ inﬂuenced by how the next U.S. payrolls annually. There were 6,000 president deals with the ﬂood of immi- Scams unopposed licensed roofers in California in 2006. grants who fuel the underground econo- State and federal agencies are striking That number had dropped by half in early my, the coalition’s Jay notes. Unabated, back with growing force. Until recent 2007, according to news reports. illegal immigration could encourage the years, many premium scams went unop- conditions that allow premium fraud posed because many ofﬁcials were intimi- to thrive. So U.S. immigration policy dated by their complexity, and didn’t grasp Unabated, illegal thus must consider the impact on premium fraud’s ﬁnancial and social costs. costly societal problems such as premium “Crackdowns are gaining much-need- immigration could fraud. ed steam,” says Dennis Jay, executive director of the Coalition Against Insur- encourage the conditions That need grows even more urgent because fraud ﬁghters often ﬁnd it’s ance Fraud. “It’s not enough to cherry that allow premium nearly Mission Impossible to stay ahead pick bogus injury claims by employees. of the large volume of dishonest builders Premium fraud, abetted by the under- fraud to thrive. plying America’s underground economy. ground economy, also imposes intolerable As for having enough resources, costs on insurers, society and workers.” “the short answer is no…” says Geoffrey States such as California, New York, A grand jury plus a task force of local, Branch, Florida’s fraud investigator. “A Florida, Illinois, New Jersey and Texas state and federal ofﬁcials are focusing on task force of local, state and federal law have made workers comp premium fraud premium schemes in Florida. enforcement ofﬁcers could work for years a speciﬁc felony. Frequent worksite sweeps catch and not get to all the facilitators and County and regional task forces are wrongdoers. Florida issued more than construction companies involved.” springing up in California to investigate 2,500 stop-work orders and imposed “Despite billions of dollars in workers suspected schemes and develop broader more than $75 million in ﬁnes in ﬁscal compensation fraud in California, law clampdown strategies. San Diego County year 2006-2007, says the state division of enforcement is only provided $49 million started the ﬁrst task force in 1996, and workers compensation. annually to investigate and prosecute others have sprung up more recently. A Florida law also makes it harder for these crimes,” adds Dugo. “To signiﬁcant- Helicopters swoop down on worksites for ﬁrms to avoid comp premiums by lying ly reduce the level of workers compensa- site inspections in Riverside County, for that employees are sole proprietors or in- tion fraud in California, law enforcement instance, in a program called CON Air. dependent contractors. Crooked ﬁrms try needs additional resources.” Spring 2008 ! FRAUD FOCUS 5 CRIME WATCH In Brief Suspected crash ring is family a air led by grand dad Arson Fed up with mold A staged-accident ring’s 20-year crime wave screeched to problems, Lorinda Sutton a halt when 40 people were rounded up around Los Angeles, police say. torched her home by stack- Three generations of one family allegedly were involved — including a ing paper towels on a hot grandfather, sons, daughters and grandchildren. The suspected gang raked in mil- stove burner. The Hanover, lions in bogus injury and collision-repair claims. It was one of California’s largest and Ohio woman received three longest-running staged-accident operations, ofﬁcials say. One claim alone ﬂeeced years…Insurer An adjuster State Farm for nearly $137,000, ofﬁcials say. Grandfather and suspected ringleader for Western Agricultural Farm Curtis H. Connor picked up battered old cars at auctions, then bought coverage for inﬂated 120 injury crash claims each car from several insurers using aliases or stolen identities — including a home- to steal nearly $587,000 from bound quadriplegic who couldn’t even drive, prosecutors say. Connor family members his employer. Joel John Jalovec and buddies posed as fake passengers who lied they were hurt in rear-end collisions intercepted checks at his ofﬁce or had them sent to a mailbox. that actually never happened, police say. Ring members gave insurers photos of cars The Scottsdale, Ariz. man that were damaged before Connor even had bought them. The “injured” victims went received six months…Auto to his daughter — a chiro — for worthless treatment. Connor’s lawyer cronies then Daniel Turocy claimed someone allegedly submitted bogus medical claims. Inﬂated repair claims were funneled through stole his 2005 Cadillac. But the his South Los Angeles body shop, police say. Norwalk, Conn. man torched it for insurance money. How did Jobless agent allegedly steals police know? His crony left the identities to stay employed gas can sitting on the ruined Insurance agent Darrius Wright didn’t know car’s front seat…Insider when — or how — to quit, Ohio prosecutors allege. Florida personal-injury lawyer The Cincinnati-area man sold too many policies Patrick Joseph Dooley alleg- that insurers refused to accept. Unable to repay edly stole $254,166 in client insurance checks by forging his insurers their commissions, Wright’s reputation their names to the checks and soon fell into disrepair and he couldn’t ﬁnd agency work. So he simply stole another pocketing the money, or simply agent’s identity and kept selling policies anyway, ofﬁcials allege. The Ohio insurance refusing to pay the clients… department found out, and yanked Wright’s license. Undeterred, he allegedly stole the Workers comp Bryan Rose identities of two other agents and landed work as a contractor with other unsuspecting said he hurt his back working agencies. Then to inﬂate his commissions, Wright then secretly bought more-expensive for UPS. But the Sacramento- policies than he quoted to clients, prosecutors say. Insurers soon discovered the sus- area man was caught playing pected scheme and asked the real agents to repay the extra commissions. What extra Wifﬂe ball, coaching football commissions, the surprised agents asked? Wright allegedly pocketed up to $20,000 in teams and lifting a heavy commissions from 10 insurers. He faces up to 32 years in prison if convicted. laundry basket. He must repay $20,000…Health An Atlanta- Huge comp scheme steals $75 million, harms workers area doc injected patients with Hundreds of thousands of employees had no workers comp protection when four commercial-grade weed killer men stole more than $75 million in premiums by providing fake workers comp cover- then disguised the treatments age to unsuspecting professional employer organizations (PEOs). The gang convinced to steal $650,000 in insurance PEOs to offer the coverage for small businesses that had hired the PEOs to provide money. Totada Shanthaveer- appa repaid the money…Med- workers comp coverage and other services. The gang used the names of purported icaid Baltimore-area clinical insurers and offshore companies to create an air of legitimacy. They also hired insur- social worker Tammy Smith ance brokers to peddle the bogus coverage, further bolstering the scheme’s seeming billed Medicaid for patient legitimacy. The human toll was severe: One uncovered worker lost both legs in a con- therapy when she was hospital- struction accident and couldn’t even afford a second prosthetic leg so he could walk. ized, for 42 hours of treat- Truck driver Mitchell Powell suffered brain damage from a work injury but received no ment on one day, and for nine salary or hospital beneﬁts; he lost his home and wife. Another woman lost her home months of treating someone and lived in her car because of mounting medical bills. Five other families had no she never saw. death beneﬁts after fatal job accidents. Donald Touchet, Robert Jennings and Richard CRIME NEWS Standbridge face up to life in federal prison when sentenced in May, and could have every business day at to give up $78 million in assets. They’re also forfeiting luxury cars and at least one www.InsuranceFraud.org Picasso painting. Jerry Brewer, the suspected ringleader, is on the run. 6 Spring 2008 ! FRAUD FOCUS LEGISLATIVE MONITOR Budget crises bureau, and raising current penalties for In Brief comp-fraud convictions. may slow down Kansas and Mississippi are tack- fraud measures ling diversion of addictive prescription Louisiana is debating a bill making it a speciﬁc crime to forge More states than normal are facing drugs such as the painkiller OxyContin. insurance documents such as auto- potentially serious budget shortfalls, with Both states are on the verge of creating insurance cards…New Hampshire no help from the shaky economy. prescription-monitoring programs. These is expected to increase the ﬁne im- Many fraud bills thus may be delayed central databases let pharmacies and posed on insurers that fail to report or totally shelved while harried legisla- others track people’s prescription histories suspected frauds to the insurance tors focus on balancing tight budgets and spot patterns of drug fraud and abuse. department, as now required…“Why this year. This is especially true of larger Such programs have proven effective in can private citizens simply walk into fraud bills that would take serious effort other states against a drug trend that is a police department and purchase in- formation that describes an accident to pass. Many legislators won’t have the heavily ﬁnanced by insurance schemes. and may include personal private time, attention span, patience or political Florida is debating imposing stiffer information of the victims?” the will unless a fraud bill speaks to an urgent penalties against agents who bilk seniors coalition’s Howard Goldblatt crime problem that can’t wait. by conning them into needlessly selling asked in a recent National Under- The legislative year still is getting life policies that have built-up cash value. writer story about swindlers buying underway in most states, and it’s too early accident reports to recruit patients to say if 2008 will be largely a wash. But Smaller reforms on tap for phony injury claims…New so far, fewer major fraud bills are heading Many other fraud bills, however, are Mexico’s legislative session already toward the pipeline than normal. Some fairly low-impact procedural measures. has shut down. A bill would’ve let states may pass only smaller procedural But at least upgrading America’s anti- courts impose stricter fraud penalties reforms if budget crises keep occupying so fraud machinery can be helpful, even if by lumping together several smaller much time. Call it anti-fraud lite. meatier reforms are off the table for now. bogus claims into one larger sum — a Utah passed a bill making it easier for bigger theft would’ve meant a bigger Some fraud bureaus also may take insurers to share case information without sentence…Hawaii once again is budget hits. Arizona’s legislature, for in- considering expanding the fraud stance, is considering reducing the fraud being sued. Tennessee and New Jersey bureau’s jurisdiction beyond its sole bureau’s budget. The unit likely would lay are considering similar measures. focus on auto fraud…Kentucky and off investigators if money is taken away, Iowa and New Hampshire are dis- West Virginia’s legislatures closed coalition sources say. cussing expanding the suspected frauds for 2008 without passing bills limiting that insurers must report to the insurance outsider access to the data in vehicle Protect crash victims department. event data recorders (so-called black Here are the more-substantive re- Maryland appears on the verge of boxes)…West Virginia effectively forms on tap, though the future of many requiring insurers to print fraud warn- banned controversial stranger-owned is unclear. ings on claim checks, policies and other life settlements (called STOLIS), in Minnesota is considering protecting documents that that up in the hands of which people invest in life policies of victims of vehicle accidents from preda- consumers. people they’ve never met…A nation- tory medical providers who solicit them Exhaustion will slow reforms in ally known fraud expert now heads for bogus treatment at insurer expense. up Maine’s insurance department. Florida, which needs more laws to clamp Former assistant university professor A bill would prohibit chiros and other down on rampant staged-accident rings. Mila Kofman worked closely with the providers from contacting crash vict- Florida went through a bruising battle coalition to expose fake health plans ims directly without the victim’s to reinstate its lapsed no-fault auto insur- several years ago…The National permission. ance system last fall. So for now, few legis- Association of Insurance Com- Dishonest body shops may take a lators have the stomach for more high- missioners will hold its summer hit in Rhode Island, where lawmak- stakes insurance drama. Much-needed meeting May 31-June 3 in San ers are considering a measure yanking bills clamping down on rampant staged Francisco. Visit www.naic.org…The the licenses of shops that pay customers accident rings thus likely won’t happen National Conference of Insur- illegal rebates or discounts to offset their this year. ance Legislators will hold its sum- auto-policy deductibles. But the body Illinois is debating setting strict licens- mer meeting July 10-13 in New York. shop lobby is formidable, so the outcome ing rules for public insurance adjusters, Visit www.ncoil.org...The National is anything but certain. Insurance Crime Bureau will host and allowing the insurance department to an Illinois fraud summit May 21. Visit Vermont is taking on substantive yank the licenses of adjusters who violate www.nicb.org. workers comp reforms. Lawmakers are de- the license requirements or are convicted bating opening up a workers comp fraud of a crime. Spring 2008 ! FRAUD FOCUS 7 PERSPECTIVE Insurers must show how costly schemes are money to buy new Toyotas. The ads treated fraud as a parlor game that’s BY DENNIS JAY fun for the whole family. With fraud being normalized in I’ve never subscribed to the sim- is hurt or the scheme is widespread, the America’s popular culture, small plistic idea that people commit insurance study also shows. wonder people can so easily dredge up fraud just to “get back” at their insurer for And fewer than one of four adults rationales for bilking insurers. charging high premiums, denying an earlier think highly of insurers. Positive attitudes Further fueling America’s edgy claim, or some other unpopular decision. toward the insurance industry overall have moral climate, insurers are targets of People make moral choices for many dropped from 53 percent a decade ago to public ire simply because they wield reasons. Peer pressure, economic down- 37 percent today. so much power over people’s lives. Toyota’s ill-advised TV commercials turns, ease of committing the scam, and The Toyota ads were popular, in part, during the last holiday season reﬂected — low chances of getting caught are some of because insurance is a business Ameri- and reinforced — those backsliding public the many reasons people bilk insurers. cans love to trash. attitudes. The widely viewed spots showed Often we make an unethical choice Deservedly or not, insurer credibil- and then ﬁnd an intellectual reason to ity also took a hit over controversies Positive Perceptions of Industry about the handling of Katrina claims. justify it, psychologists say. Our inner voice 80 might say, “Well, I’m a good person but I 1997 And withdrawals from territories, 70 2007 unreasonably high premiums, unfair inﬂated that burglary claim because my premiums are too high.” Or, “Everybody 60 claim denials and other actions have does it, so why not me?” inﬂamed consumers for years. The bid- Whatever people’s motives, their at- 50 rigging scandals may have tarnished titudes toward insurance fraud and insurers all insurers as well, even though only a 40 few were involved. are growing worse. Each problem feeds the 30 Larger moral ﬁssures also continue other, so both must be addressed forcefully. opening in society at large. Enron-style Left to fester, they could snowball and seri- 20 scandals, for example, may have erod- ously cost insurers and society. 10 ed people’s trust in all corporations. More people tolerate insurance fraud Insurers thus have little margin of today than 10 years ago, reveals the coali- 0 Insurance Your Insurance Your Insurance error in this incendiary environment. tion’s recent national study of consumer Industry Company Agent But who says life is fair? The question attitudes. is, what are insurers doing about it? Insurance fraud also can be acceptable average Americans wrecking their cars Not nearly enough. if the dollar amount isn’t too high, nobody so they could illegally collect insurance At one time, property-casualty in- surers worked harder to teach Ameri- cans about the value insurance brings FIRST CLASS to society. Insurers showed consumers U.S. POSTAGE PAID how the industry made America safer PERMIT NO. 5659 by creating Underwriters Laboratories, 1012 14th Street, NW • Suite 200 ALEXANDRIA, VA promoting airbags and seatbelts, and Washington, DC 20005 funding training for ﬁreﬁghters. Insurers of all lines have a credible story to tell. Life in America would Please fax label be harder for nearly everyone without corrections to insurance protection. 202-318-9189 Why aren’t insurers more aggres- sively telling this story? Why aren’t insurers trying harder to convince Americans that fraud is a costly and corrosive crime? Taking action will be expensive. But the cost of inaction is unthinkable. ______________________________ Dennis Jay is executive director of the Coalition Against Insurance Fraud.