final working frauds in insurancel

8/4/2019 Final Working Frauds in Insurancel

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INTRODUCTION

Every risk involves the Loss of one or other kind. The function of insurance is to

spread the loss over a large number of persons who are agreed to co-operate each

other at the time of loss. The risk cannot is averted but loss occurring due to a

certain risk can be distributed amongst the agreed persons. They are agreed to

share the loss because the chances of loss, i.e. the Time, Amount, to a Person are

not known. Anybody of them may suffer loss to a given risk so; the rest of the

persons who are agreed will share the loss. The larger the number of such persons,

the easier the process of distribution of Loss.

They infact share the loss by payment of premium, which is calculated on the

probability of loss. In olden time, the contribution by the persons was made at the

time of loss. The Insurance is also defined as a social device to accumulate funds to

meet the uncertain losses arising through a certain risk to a person insured against a

risk.

Insurance may be described as a social device to reduce or eliminate risk of life and

property. Under the plan of insurance, a large number of people associate

themselves by sharing risk, attached to individual.


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DEFINITION

Insurance is a contract whereby, in return for the payment of premium by the

insured, the insurers pay the financial Losses suffered by the insured as a result of

the occurrence of unforeseen events. With the help of insurance, large number of

people exposed to a similar risk makes contributions to a common fund out of which

the losses suffered by the unfortunate few, due to accidental events, are made

good.

General definition: In the words of John Magee, Insurance is a Plan by which Large

Number of People Associate Themselves and Transfer to the shoulders of all, risks

that attach to individuals.

Fundamental definition: In the words of D.S. Hansel, Insurance may be defined as a

social device providing financial compensation for the effects of misfortune, the

payment being made from the accumulated contributions of all parties participatingin the scheme.

Contractual definition: In the words of justice Tindall, Insurance is a contract in

which a sum of money is paid to the assured as consideration of insurers incurring

the risk of paying a large sum upon a given contingency.


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FUNCTIONS OF INSURANCE

1) Insurance Provides Certainty:

Insurance provides certainty of payment at the uncertainty of loss. Better planning

and administration can reduce the uncertainty of loss. But the insurance relieves the

person from such difficult task. Moreover if the subject matters are not adequate,

the self-provision may prove costlier. There are different types of uncertainty in the

risk. The risk will occur or not, when will occur, how much loss will be there? In

other words there are uncertainty of happening of time and the amount of loss.

Insurance removes all these uncertainty and the assured is given certainty of the

payment of the loss.

2)Insurance Provides Protection:

The main function of the insurance is to provide protection against the probable

chances of loss. The time and amount of loss are uncertain and at the happening of

risk, the person will suffer loss in absence of insurance. The insurance guarantees

the payment of loss and thus protects the assured from sufferings. The insurance

cannot check the happening of risk but can provide for losses at the happening of

the risk.

3) Risk-Sharing:

The risk is uncertain, and therefore, the loss arising from the risk is also uncertain.

All the persons who are exposed to the risk share when risk takes place the loss. The

risk sharing in ancient time was done only at the time of damage or death; but

today, on the basis of probability of risk, the share is obtained from each and every

insured in the shape of premium.


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4) Prevention of Loss:

The insurance join hands with those in situation which are engaged in preventing

the losses of the society because the reduction in loss causes lesser payment to the

assured and so more saving is possible which will assist in reducing the premium.

Lesser premium invites more business and more business cause lesser share to be

assured. So again premium is reduced to, which will stimulate more business and

more protection to the masses. Therefore the insurance assist financially to the

health organization, fire brigade, educational institutions, and other organization,

which are engaged in preventing the losses of the mass es from death or damage.

5) Insurance Provides Capital:

The insurance provides capital to the society. The accumulated funds are invested in

productive channel. The dearth of capital of the society is minimized to a greater

extent with the help of investment of insurance. The industry, the business and the

individual are benefited by the investment and loans of the insurers.

6) Insurance Improves Efficiency:

The insurance eliminates worries and miseries of the losses of death and destruction

of property. The carefree person can devote his body and soul together for better

achievement. It improves not only his efficiency, but the efficiencies of the masses

are also advanced.


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WHAT IS INSURANCE FRAUD?

Insurance fraud happens when individuals deceive an insurance company or agent

to obtain money for which they are not eligible or entitled. Insurance fraud is

considered as a serious crime.

Many people think that they have the right to commit insurance fraud as they pay

high premium for so many years. People also think that it is an easy way to obtain

money without getting caught. Everyone pays high price for insurance fraud.

Insurance fraud costs the insurance company very huge sum of money. Insurance

fraud can be hard or soft.

Hard and 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.


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WHAT CONSITUTES INSURANCE FRAUD/CASFS OF INSURANCE FRAUD?

The chief motive in all insurance crimes is financial profit. Insurance contracts

provide fraudsters 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.

There are different ways in which insurance fraud is carried out:

1. Some people deliberately cause intentional collision in order to cause an accident.

2. Few people go one step further and add damage to their vehicle after the

accident. All this is done to claim money from insurance companies, for which they

are not entitled. Sometimes people also make doctors, lawyers, and mechanics to lie

so that they can claim more money from the insurance companies. Many people

also exaggerate their injuries in case of accidents.


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FRAUDS 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.

Healthcare fraud alone costs Americans $54 billion a year, the Coalition against

Insurance Fraud estimates.

WHY IS FRAUDS 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 its cheaper to pa y 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: Americas health care system is huge and

vulnerable. The sheer number of patients and treatments plus complexity of billing

attract cons that 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 Americas 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.


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Consider:

Three states still dont 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


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HOW TO PROTECT YOURSELF FROM FRAUD

The following aspects should be kept in mind in order to protect you from insurance

fraud: -

1. Make sure not to sign any blank insurance claim form

2. Watch out if the price of insurance is too low

3. Verify the license of the insurance company by contacting the state insurance

department

4. Do not disclose your insurance identification number to anyone. If someone steals

your identification number they can easily involve you in the scam.

5. Be careful while driving in order to protect you from staged automobile accidents.

6. You may contact your states insurance fraud bureau, if you want to report any

form of insurance fraud. Remember that insurance fraud can be eliminated only if

every person takes the necessary steps to avoid it.

7. The most effective way to prevent insurance fraud is to increase awar eness

among people. People should realize that any fraud is illegal and highly punishable

by law. A fraud is a fraud.

8. Many people have a notion that defrauding an insurance company is okay. This

kind of attitude must change.


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H0W TO COMBAT INSURANCE FRAUD USING LATEST

TECHNOLOGY

It is very easy to combat insurance fraud now days with the help of latest

technology. Medical trace is an innovative technology that reveals hidden or

unreported medical treatments by searching all hospitals and pharmacies where the

subject has lived. This has become a popular investigation tool among the insurance

companies to detect health insurance fraud which is the most prevalent type of

insurance fraud.

Three types of reports presented by e-medical trace are:

Hospital trace report

Pharmacy trace report

Comprehensive trace report (combination of hospital and pharmacy trace report)

Psychological profiling and lie detector are also used for fraud detection.

The widespread use of internet has also facilitated the prevention of insurance

fraud.

There are very few countries like Finland, Luxembourg, Czech Republic and Turkey

that have specific laws against insurance frauds.


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HOW TO REPORT INSURANCE FRAUD

There are insurance bureaus that detect, investigate and prevent insurance fraud of

all types. People can report fraud to these agencies and bureaus that fight against

insurance fraud.

The insurance fraud division and international association of information fraud

agencies are the popular ones. Open communication among the insurance industry

members and fraud bureaus will help in achieving this goal.

The ability of the police officers and fire bureaus to recognize insurance fraud is

highly useful, as they are the immediate respondents to any emergency situation.

Therefore the fraud bureaus provide training to these people. It is everyones

responsibility to prevent insurance fraud.

Many people tolerate insurance fraud and dont report fraud even if they are aware

of it. People have a notion that the insurance companies should bear the

responsibility of preventing these frauds. However people should realize that it is

the responsibility ofeach and every individual to fight against insurance fraud. The

insurance companies charge high premiums and extra fee in order to compensate

the cost of fraud and this in turn affects honest and innocent people. Thus People

should refrain from fraudulent activities and also should report any kind of fraud

they come across.


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LOSSESS 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 Fraud

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 10%, or about $30 billion, of losses in the property and

casualty insurance industries in the United States. The National Health Care Anti-

Fraud Association estimates that 3% of the health care industrys 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 fraudabout $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 (497.5 million USD) annually.


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TYPES OF INSURANCE FRAUD

LIFE INSURANCE

An example of life insurance fraud is the John Darwin disappearance case, 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.

Questionable Death:

Questionable circumstances surrounding reported death; staged death/false

identity.

Suspicious/False Policy Application:

Suspicious or questionable actions by applicant or policyholder (insureds health

misrepresented on application; suspicious timing of application in relation to

insureds death); potential for monetary gain from life insurance policy. Include

suspicious claims involving murder for profit and claims pertaining to viatical

settlements.

HEALTH CARE INSURANCE

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


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prevalent practice is that nearly all of the parties involved find it favorable in some

way. Many physicians 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 administratorsare 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

providers. 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 patients 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; 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.

Slip &Fall: - Suspicious Slip of the Patient! Fall Claim arising out suspici ously.


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Inflated Billing: - Inflated billing by any medical facility, doctor, chiropractor,

laboratory, etc.

Disability: - Disability claim submitted against disability insurance policy while

claimant on permanent or temporary disability and receiving continual benefits

and/or vocational benefits and/or claimant reported working or performing

activities exceeding alleged physical limitations.

Food Contamination: - Foreign object found within food/drink products.

Pharmacy: - Pharmacist or pharmacy inflates bills or falsifies billing; person illegally

obtains medical prescriptions and submits prescriptions for habitual need.

Dental: - Dentist or dental office inflates bills or falsifies billing codes.

Embezzlement: - Embezzlement of funds.

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 auto mobile

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


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not actually involved in the accident, submitting claims for medical treatments that

were not received, or inventing injuries. 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, somedrivers 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

childrens vehicles to avoid young driver premiums. Hard fraud can also occur when

claimants falsely report their vehicle as stolen. Soft fraud accounts for the majority

of fraudulent auto-insurance claims.

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 break 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


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passengers in the squat car then file a claim with the other drivers insurance

company. This claim often includes bills for medical treatments that were not

necessary or not received.

Faked Damages: - Damages to vehicle exaggerated, non-existent, pree xisting or

vehicle damaged at a later point in time.

Inflated Damages: - Damages inflated or exaggerated non-existent or pree xisting;

excessive billing of vehicle body parts or repair work.

Vehicle Theft: Vehicle or motor home theft.

Vehicle Arson: - Vehicle or motor home arson.

Auto Property/Vandalism: - Vehicle or motor home vandalism is including such

items as car rims, stereo equipment and engine parts.

Agent/Broker: - Policy backdated prior to loss date and/or theft of premium dollars

intended for payment of coverage.

Embezzlement: - Embezzlement of funds.

Trailered Watercraft/Theft Damage: - Watercraft stolen or damaged while being

transported on trailer.

Trailered Watercraft Arson: - Arson of a watercraft while transported on trailer.

Other Auto Property: - Any other auto-related circumstance not listed above

involving the presentation of false documents as proof of insurance.

PROPERTY INSURANCE


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Fraudulent activities against property insurance providers consist of the destruction

of property in order to receive insurance payments for it. 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 thatcould not otherwise be sold. According to Alfred Manes, the majority of property

insurance crimes involve arson. 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

Theft Residential: Suspicious residential theft.

Theft Commercial: Suspicious commercial business theft.

Theft Commercial Carrier: Insured reports baggage/cargo lost by commercial

carrier (airline, bus, train, and vessel).

Watercraft/Aircraft Theft: Theft or damage to watercraft/aircraft while not on a

trailer.

Watercraft/Aircraft Arson: Arson of watercraft/aircraft while not on a trailer.

Vandalism: Vandalism or malicious mischief to the interior or exterior of business

or residence.

Property Theft from Vehicle: Suspicious theft of personal property while stored in a

vehicle or motor home (commonly claimed unde r a horneovners insurance policy).

Agent/Broker: Policy backdated prior to loss date and/or theft of premium dollars

intended for payment of coverage.


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Mold Related: Mold related.

Other Property Damage: Property damage not included in other definitions.

FRAUD INCIDENCE DURING UNDERWRITING

During the underwriting of an automobile insurance application, the prospect may

resort to fraud to get a favorable underwriting decision. Either by providing false

information or incomplete information. Either way , the insurance company is at a

disadvantage since both these acts by the prospect would result in improper risk

assumption by the insurer. Typically the information that is incompletely provided

includes (a) the residential address, (b) personal & family medical history, and (c) the

occupational details. Information pertaining to (a) previous / concurrent insurance

information, and (b) the vehicle details like state of registration, the VIN number,

the mileage etc., may be incomplete. The illustration belo w shows that information

required to monitor the fraudulent intent is available from both external and

internal sources. While most of the information is available internally or from the

insurance application, monitoring of fraud also involves interfacing with externalagencies like the MIB or the MVR for obtaining certain sensitive information. An

underwriter has to use his/her due diligence by applying analytical and judgmental

capabilities before concluding on the decision to either accept or not accept the

application for Auto Insurance coverage based on the face-value of information

provided. Insurance companies can, however, identify inappropriate information

most of the times by using expert underwriting systems or technology based

solutions that result in minimizing the losses.

Systems designed by using user-defined rules and business logic based algorithms

can define multiple scenarios to assist the underwriters arrive at an accurate

decision by identifying the information inaccuracies and flagging them as


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potentially fraudulent. An example of one such flag would be a simple business rule

which notifies if the client has purchased multiple insurance from company A, but

is approaching a different insurer company B for auto insurance cover onl y Such a

behaviour suggests that the client has certain undesirable history (pertinent toautomobile insurance) and is confident about Company A NOT providing him the

auto insurance cover. He would therefore approach a different insurer. Company B

and apply for automobile insurance without disclosing the adverse information. In

such a scenario, a simple business rule designed to capture and compare all the

personal insurance details of the client should be able to alert the underwriter of

company B. This rule would be designed to interact with a centralized database

of the insurance industry and map the prospects information to the available

details. This database would be very similar to the Medical Information Bureau

(MIB) database often used by the life insurance companies. Such rules are very

basic, easy to understand and implement. Since there are a plethora of possible

combinations for verifying various information, availability of the relevant data is

very important. Predictive analytics based decision tree models are another

technology that an underwriter can depend on to make precise and consistent

decision about the prospects. These models are easily understood and are based on

a complex set of business rules that produce a fraud score. This technology

incorporates compiled information from multiple sources rather than relying on a

simple red-flag system to provide an insight on future customer behaviour. These

models are created from predefined data elements where the outcomes are

known. Any new information can therefore be run using this model to view theprobable outcome of the decision being taken.


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INSURANCE FRAUD: FAKE INSURANCE CLAIMS

Insurance industries report a possible 3% to 10% of all insurance claims are frauds.

There also are many reports of exaggeration, for instance if a thief has stolen a TV

from someone, he will usually hide his computer and radio and add it to the report.

The second ones usually are average people looking for a quick buck or have gone

the bad road because of their current financial problems, such as bankruptcy or

business failure. On the other hand we have usual criminal offenders and organized

crime. Members are already having a police record and lo oking to benefit from

insurance frauds on a regular basis. The money stolen by these fraudsters is the

money from other people who are insured and those paying premium prices for

extra security.

Auto Insurance Scam

Lets look at a professionally organized automobile insurance scam involving many

con artists. You get up, dress for work and drive through your town to your

workplace. Someone is following you, but you dont recognize it. At one time the carfollowing will over take you and next hit the brakes making a rear-end collision. You

wont even know whats going on and in panic maybe even forget the facts and

events that happened before the car crash. The driver which you ran on to will

immediately approach you, ask you what is wrong and if you need any help. is

everything okay, do you need a doctor? If you want I can call my own. No? Lets

examine the situation then. We should call a towing service and car body repair

shop; I have one stored in my cell phone. We also should make proper legal

arrangements; I will call my lawyer for us. Perfect! You think to yourself, hmm

thats the best accident Ive ever been too! What you dont know is that the Car

Shop hired the driver to run onto you on purpose. The doctor and lawyer also were


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awaiting the call, being part of the game. In the end you or your insurance will pay

the doctor, lawyer, towing fee, storage fee, car repair... If you are in a car accident,

read the fine print on every paper you will sign. Dont accept offers for services from

anyone involved in the collision.

Insured Documents Scam

Lets look at an example of fake insurance claims for travels. Even though nowadays

travelling package at airports is highly automatized and computerized, there still are

many reports on packages getting lost. Lugging baggage at airports is usually insured

for a cost much less than the one paid if the package gets lost. Organized criminals

therefore can and loose these to get money from an insurance company. More

often at jobs like this there will be an insider person cooperating with the person

who is about to lose their package. Same goes for insured papers and documents.

During their transportation they somehow get lost during the way.

Fake Paper Claims

This is pretty simple. The con artist is trying to fool the insurance by making them

believe an event that in reality never happened but only exists on the paper.

Fake or Bogus Insurances

You are starting up a small business. As usual you have a low budget on start, but if

you want to operate you have to get some insurance for your business or at least

health care insurance for yourself and the employees. You ask around, look in

newspapers, all across the internet to find a perfect deal. All of a sudden you find a

special deal at a very low rate. You call the agent and sign the papers, happy you

found this agent. Two months later one of your employees gets sick and you send


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him to your local hospital, but somehow he is denied to receive basic health care.

You figure out you have signed a false insurance and gave the money to a thief.


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AGENT AND INSURERS SCAM

The vast majority of insurance agents and companies are ethical, honest and

trustworthy. But crooked agents and bogus insurers do exist, and they can fleece

you.

The Scams

Fight Back

The Scams

Here are several scams you should watch for...

Stealing your premiums: An agent pockets your insurance premiums instead of

sending it to the insurer. Crooked agents may steal your premiums to support their

business, feed a gambling or drug habit, or buy luxury good s such as cars or

jewellery. Sometimes insiders at an insurance company loot the insurer, causing it to

go bankrupt.

Selling phony insurance: An agent or company sells you fake coverage from a phony

insurance company. Or the agent sells you bogus coverage using a legitimate

companys name or a name thats similar to a legitimate insurer. You might

receive an official-looking policy or proof of insurance thats worthless. You could

lose thousands of dollars if you suffer a loss and dont have a real policy to pay your

claim.

Selling coverage you dont want or need: Maybe the coverage is real, but its

expensive, unnecessary, and your current policy may already cover that risk. Three

examples are as follows:


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y Churning: - Dishonest agents might convince people to use the builtu p valueof their current whole life policy to buy a better policy even though their

present life coverage is perfectly suitable. The agent gets a nice commission,

but you must start building up cash value all over again.

y Sliding: - An agent or insurer slips you extra coverage you didnt ask for butdo pay for. This can easily add $100, $200 or more to your premium. The

agent cheerfully says its simply part of a package, or doesnt tell you about

the coverage at all. Motor club memberships, accidental death coverage and

guaranteed renewable life insurance are three policies that crooked agents

sometimes sell to unwitting policyholders.

y Twisting: - An agent may urge you to change policies prematurely bytwisting the truth about the downside. If you have an illness, injury or other

medical condition, for example, will that affordable new health policy refuse

to cover it because its a pre-existing condition?

W

orthless Investments: You may be urged to invest in insurance-like instruments.One is verticals, which are investments in life policies taken out on sick or terminally

ill people. Verticals can be a legitimate investment, but some can also be phony or

misleading. Another scam is promissory notes, in which agents promise quick, high

and certain returns for investing in promissory notes supposedly backed by

insurance. Often the promissory notes dont exist theyre just a sham to steal

your money.

The Price you Pay


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y You may have no insurance when you make a claim which could cost youthousands of dollars, or even your life savings.

y You may pay thousands of dollars more for unneeded or worthless policies.Fight Back

Take these common-sense steps before you buy...

y Make sure the agent and company are licensed in your state. Be especiallycareful if you dont recognize the companys name. Contact your state

insurance department, which issues licenses.

y Call your Better Business Bureau or local consumer assistance agency to see ifthe agent has complaints filed against them. Check to see how many

complaints have been filed against an insurance company in your state.

y Back off if the agent offers coverage whose price is 30-50 percent lowers thancompetitors. Shop around to find out the normal price range.

y Always pay your premiums by check or money order. In most cases, make itpayable to the insurance company, not the agent or agency.

y Be sure to get a receipt. Photocopy your check or money order for yourrecords.

y Think twice if the agent insists you pay in cash, or tries to sell coverage inunusual situations such as in a restaurant or bar.

y Be suspicious if your agent bills you for premium installments after your firstpayment. Normally your insurance company or premium finance company

handles the billing.


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y Buy coverage only after all d ocuments are completely filled out, you fullyunderstand what coverage is included, and what the cost for each coverage is.

Make sure your agent clearly explains all.

y Go slow if the agent or company rep seems evasive or cant answer yourquestions, or tries to sell you coverage without bothering your family with

the details.

y Never sign a blank insurance form or give your agent power of attorney tosign an insurance application or buy coverage for you.

y Get a copy of every form you sign. If you finance your premiums, make sureyour agent gives you paperwork that describes exactly how much you pay for

each installment, and what that payment covers.

y Watch out if the sales pitch highlights the surrender and use of cash values inolder life coverage to buy new h igher-valued policies.

y Contact the company if you havent received a policy within 60 days aftersending in your application.

y Get a second opinion if an agent tries to sell you new and more expensivecoverage even though you still have a current policy in effect. Talk to your

financial advisor or another agent. Ask the selling agent direct questions, and

get the answers in writing: Why do you need this coverage? What are the

benefits? Exactly whats covered? How much will it cost?

y Know what your current policy does and doesnt cover. Ask your agent orinsurer for a detailed explanation in plain language. Ask pointed questions if

you have any doubts about whats in your policy.


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y Make sure your insurance company is healthy and can pay claims especially ifits an unfamiliar name. Call your state insurance department to make sure

its licensed in your state.


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BE ALERT! ITS YOUR MONEY

Think twice before replacing an existing life insurance policy with a new one. The

new policy may have exclusions or waiting periods for pre-existing conditions that

are covered by your current policy. And premiums are likely to be higher because

you are older. The Insurance Department protects Consumers by requiring agents to

provide prospective purchasers with pertinent facts when that purchase will cause

the buyer to surrender, lapse, or in any way change the status of an existing life

insurance policy. Department Regulation 60 requires this full disclosure so that

prospective life insurance purchasers can make decisions in their own best interest.

To view the full text of Regulation 60,

Dont allow high-pressure salesmanship to persuade you to sign up for a type of

policy or certain coverages that you are not sure you need. Take time to decide

whats right for you.

Read your policy carefully before you sign. If you have questions, ask your agent or

broker, or your insurer. An additional Source of information and help is theInsurance Departments Consumer Services Bureau.


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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 computerized statistical analysis or by referrals from claims adjusters or

insurance agents. 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.


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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.


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TOP SWINDLERS OF 2008

A glass-eating gypsy, a teacher who faked cancer, and an insurance agent

who killed the homeless are among the top insurance swindlers of 2008.

These convicted thieves were inducted into the Insurance Fraud Hall of

Shame by the Coalition against Insurance Fraud.

An $80-billion-a-year crime, insurance fraud has grown more violent and invasive in

recent years. Reflecting that trend, this years Hall of Shame compiles the years

most brazen insurance scams.

Timothy Nicholls: Three children died when Nicholls torched his Colorado Springs,

Cob, home to steal insurance money so he could escape mounting debt. He owed a

motorcycle gang that had supplied him with methamphetamines, and his businesses

were struggling. Jay-Jay, Sophia and three-year-old Sierra died of smoke inhalation.

Nicholls received life in prison.

Ronald Evano: The self-proclaimed gypsy swallowed broken glass to shake down

insurers and business by lying that he found the shards in food and drink held

consumed. Evano said he wanted the insurance money to provide dowries for his

sons. But he wont be dancing at weddings for a while. He is serving 63 months in

prison and must cough up more than $340,000 in restitution.

Christopher Michael Robertson: The Florida gay man torched his Lakeland mobile

home in part for insurance money, but made the scheme look like a hate crime.

Robertson spray-painted Idie fagi across the front steps of the home he shared with

his partner, and then made a bogus claim for possessions he had placed in storage.

Many people rallied to support Robertson in the face of seeming bigotry. He is

serving 18 months in state prison.


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Candice Lambert: The special education teacher faked cancer to collect disability

money from a school system in suburban Albany, N.Y., and then moved to New

Hampshire to try the scheme a second time. The ruse was exposed when the

teacher is seemingly valiant struggle made the local newspaper. A New York courtsentenced her to one to three years in prison.

Robert D. Wachter: Three Missouri nursing homes run by Robert D. Wachter were

hellholes. Residents were denied water, food and sanitation while he billed

Medicare and Medicaid for many of the same services. Some residents died from

neglect. Wachter received 18 months in federal prison and lines of $750,000.


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INSURANCE CLAIMS REGISTER

The Insurance Claims Register (ICR) was established in February 1999.The ICR

enables insurance companies to check the accuracy of the data submitted with

policy applications and claims.

Why set up an insurance claims register?

Because fraud is conservatively costing honest policyholders $65 million a year. The

old adage of utmost good faith is no longer working with 15-20% of claimants. The

Insurance Claims Register (ICR) detects and prevents fraud, particularly purposeful

non-disclosure, and double dipping at claim time.

How does it work?

The ICR is an electronic register that holds a central record of all claims lodged with

participating insurance companies, so that those compan ies can access a claims

history of a client, when underwriting new business and processing claims, for the

specific purpose of checking for fraud.

What about privacy issues?

All participating insurers have adjusted their privacy wordings and advised clients

that their claims information will be lodged on the ICR. Customers have the right to

object to this happening. Insurers equally have the right not to insure customers

who object to their claims being held on the register. Ultimately, all participating

insurers will have the privacy advice on all proposals and renewals, as well as claim

forms. It is expected that agreement to having your claims on the ICR will be a

condition of doing business with insurer.


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If at claim time a customer objects to their claim information being held on the ICR,

because the privacy advice was not on the proposal or renewal form, the insurance

company will not place the claim informati on on the

ICR.

All customers who have claims on the ICR have the right to access the information

held about them at any time, and seek changes that information warranted.

In terms of security of information, only participating insurers are able to access the

ICR, and security passwords are allocated by companies so that only authorized

personnel have access to the ICR. The ICR is able to tell who are accessing the

register and what types of enquiries are being made, via electronic footprints.

What is held on the ICR?

Details include name, address, date of birth etc., and details about the claim. Claim

details include insurer, type of claim, date of claim, amount of claim and status of

claim. Insurers need access to factual claim information and enough iden tifying

information about the claimant to make sure that they do not get confused withanother Joe Brown.

Is the ICR going to slow the claim process?

No, we think it will speed it up. The ICR enables an insurer to establish very quickly

and accurately (as the claim numbers increase) whether a claim needs further

investigation or not. Those claims that have normally been investigated will

continue to be investigated.

With regard to having the claims register available at underwriting time, insurers are

better able to spot non-disclosure at this stage of the process and less likely to try


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and underwrite at the time of a claim. This means the problem of non-disclosure at

claim time is minimized considerably.


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KNOWYOUR CUSTOMER

Insurance fraud is not typically a violent crime, just a lucrative one. As consumers,

there are several common-sense steps you can take to help reduce fraud and

minimize its impact.

Be an Informed Consumer. Insurance premiums are a significant expense for most of

us. The premiums you pay are based on your individual claims history and the

degree of risk involved. Generally, speaking the greater the risk, the higher the

premium. For example, the theft premium for a Honda Accord will be far higher

than that of a Yugo quite simply because more Honda Accords is stolen. Similarly, a

tightrope walker will pay more for life insurance than a librarian, all else being equal.

Comparison Shop:

Premiums can vary significantly from insurer to insurer so it pays to shop around. To

make comparison shopping a little easier, the Insurance Department publishes

Consumer guides for auto, homeowners, long-term care and HMO/health insurance

that provide sample premiums for insurers that offer these coverages in New YorkState. In addition, the Insurance Departments Web site is also the home of an

Interactive Guide to HMOs, which allows consumers to find information about

HMOs operating within their home county.

Know Your Agent or Broker:

Consumers can often be victimized by unscrupulous agents or brokers and discover

only after they file a claim that they are without coverage for their home or their

car. If an uninsured home is damaged by fire, the owner is solely responsible for

restoring it and paying back any mortgage holders. If a driver is involved in an

accident while driving an uninsured vehicle, any personal assets are subject to


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forfeiture if that driver is sued for damages. Deal only with licensed agents and

brokers. Agents and brokers must carry proof of licensure. Ask to see it. Or call the

Insurance Departments.

Wheres the Proof?

Never pay for a premium in cash. Pay by check or a money order made out to the

insurance company directly or to the agencynot to the individual agent or broker.

In addition, always request a receipt.

Wheres the Policy?

You should receive a copy of any type of insurance policy complete with

endorsements and declarations specifically outlining your coverage and its

limitations within a reasonable period after your purchase. If you do not receive it,

question your agent or broker. If there is no satisfactory explanation for the delay,

contact the New York Insurance Department immediately. You may not have the

insurance coverage you paid for.

Are You Being Billed for Services You Have Not Received?

If you have received medical or dental treatment that is covered by an HMO or an

insurance company, you will receive an Explanation of Benefits statement listing

the services for which benefits have been paid. Review it carefully to ensure that

your health care provider has not bumped up your claim (i.e., ov erstated services

provided in order to receive a higher payment), or charged for services you did not

receive. Contact your insurer immediately if you feel there are discrepancies.

Fraudulent claims payments translate into higher insurance premiums for all of us.

What If youre Involved in an Automobile Accident?


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Call the police to the scene and make sure that the details of the accident are

documented and the identities of the occupants of the other vehicle are verified. Be

suspicious if the driver of the other vehicle insists there is no need to call the police.

That drivers insurance card may be fraudulent and his car uninsured.

Auto Insurance Fraud is a multi-billion-dollar problem nationwide. Watch out for

these common scams:

The staged accident - A vehicle filled with people will stop suddenly in front

of you, setting you up as the cause of a rear-end collision. The victims will

then file costly multiple medical and damage claims using doctors and lawyers

who are part of the scam.

Inflated claims - If you are in an automobile accident, be sure you know the

extent of the damages to your own car and the other vehicle and carefully

review claims.


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INSURANCE FRAUD INVESTIGATION

According to the FBIs Economic Crimes Unit, insurance fraud has become one of the

most prevalent and costly white collar crimes. A published study by the Coalition

against Insurance Fraud (CAIF) reports that fraud is among the most prominent cost

components escalating the costs of insurance. The CAIF has estimated the annual

loss figures relative to insurance fraud (non-health insurance) to be approximately

$26 billion. Outside of the CAIF figure, the life/disability insurance segment of the

industry opines that approximately $1.5 billion is lost each year thr ough fraudulent

schemes. The CAIF/life/disability segment loss estimates relative to insurance fraud

are broken down as follows:

y Auto $12.3 billiony Homeowners $1.8 billiony Business/Commercial $12.0 billiony

Life/Disability $1.5 billion

y Total $27.6 billionProfessional investigative services including background checks and surveillance can

reveal fraudulent claims and allow insurance companies to prevent these losses. By

performing surveillance exclusively with current and former NYPD detectives,

Financial Detectives utilizes the most effective techniques and modern technology

to help determine the validity of the claim. Our investigative experience also

includes testifying in various criminal and civil prosecutions. Therefore, we will

provide the facts of the case and if needed, the expert testimony to back it up.


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February 2009

The Insurance Information Institute estimates that fraud accounts for 10 percent of

the property/casua1y insurance industrys incurred losses and loss adjustment

expenses.

Fraud may be committed at different points in the insurance transaction by different

parties: applicants for insurance, policyholders, third-party claimants and

professionals who provide services to claimants. Common frauds include padding,

or inflating actual claims; misrepresenting facts on an insurance application;

submitting claims for injuries or damage that never occurred; and staging

accidents that have not occurred.

Prompted by the incidence of insurance fraud, 41 states and the District of Columbia

have set up fraud bureaus (some bureaus have limited powers, and some states

have more than one bureau to address fraud in different lines of insurance). These

agencies have reported increases in referrals (tips about suspected fraud), cases

opened, Convictions and Court-ordered restitution.


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RECENT DEVELOPMENTS

Auto Insurance Fraud Study: - Auto insurance fraud and claim build-up addedbetween $4.8 billion and $6.8 billion to closed auto injury claim payments in 2007,

according to the Insurance Research Council (IRC)s November 2008 study, Fraud

and Build-up in Auto Insurance Claims: 2008 Edition. Excess payments rose from an

estimated $4.3 billion in 2002 to an estimated $5.8 billion in 2007.

Excess payments under the five main private passenger auto injury coverages(bodily injury (BI), personal injury protection (PIP), medical payments, and uninsured

and underinsured motorist coverages) ranged from 13 percent to 18 percent of total

payments in 2007, according to the IRC study. Fraud increased from 9 percent of BI

claims closed with payment in 2002 to 11 percent in 2007. Fraud increased slightly

for PIP claims, from 5 percent in 2002 to 6 percent in 2007.

The IRC study found that claim build-up, the inflation of an otherwiselegitimate claim, rose from 18 percent of BI claims closed with payment in 2002 to

20 percent by 2007. For PIP claims, build-up increased from 12 percent in 2002 to 14

percent in 2007.

The study found that fraud and build-up in auto injury claims varied widely bystate and by type of liability coverage. For example, among the 12 no -fault states,

Florida had the highest rates of fraud and build-up in both BI and PIP claims while

North Dakota had the lowest for BI and Kansas had the lowest for PIP.

The IRC study examined more than 42,000 auto injury claims closed withpayment for 22 insurers representing 58 percent of the private passenger auto

insurance market. Since the study involved only claims closed with payment it most

likely underestimates the incidence of fraud and build-up in all claims filed.


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Auto Insurance Fraud Owner Give-Ups: The National Insurance Crime Bureau(NICB) released a study in October 2008 detailing owner give -ups, defined as

vehicles that were reported stolen by their owners when the Owner is infact making

a false theft report. Using data submitted by its member companies from 2004through March 2008, the NICB found that the top five cities for owner give -ups were

Houston, Texas; Las Vegas, NV; Phoenix, AZ; Los Angeles, CA; and Chicago, IL. By

state the top five were California Texas, Georgia, Florida and Arizona. The vehicles

most subject to Owner give-ups were the Dodge Ram, followed by the Ford F-150. In

addition, the NICB tracked Owner give-ups Compared with gas prices from January

2004 through December 2007 and found that give-ups increased as gas prices rose.

Indications that Owner give-up fraud may be on the rise include a report fromNew York States fraud bureau that found that give-ups rose by about a third in

2008, reports from Florida police that give-ups are increasing in Miami and a report

from Wisconsin that the state has seen an uptick in inquiries about suspicious

vehicle thefts. These findings were detailed in a September 2008 Coalition against

Insurance Fraud Survey.

Auto Insurance Fraud: National Motor Vehicle Title Information System: InJanuary 2009 the Department of Justice issued plans to implement the National

Motor Vehicle Title Information System (NMVTIS), a database that requires junk and

salvage yard operators and insurance companies to file monthly reports on vehicles

that were declared total losses. Insurers must state for every vehicle declared a total

loss the name and contact information of the insurer; the vehicle identificationnumber; the date the insurer declared the vehicle a total loss; the original vehicle

Owner; and the vehicle owner at the time the report was filed. The database was

designed to help end title washing, where unscrupulous dealers re-license a car in a

state with lenient rules concerning total losses and salvage vehicles. The database is


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required under the Anti Car Theft Act of 1992. Insurers will report the information to

a third party, such as ISO, which will transmit it the operator of the system, the

American Association of Motor Vehicle Administrators.

Consumer Attitudes Toward insurance Fraud: Four out of five Americansthink that a variety of insurance crimes are unethical, and one out of five think it is

acceptable to defraud insurance companies under certain condition, according to

the Coalition Against Insurance Fraud (CAIF). The organization released the findings

in a study, The Four Faces of Insurance Fraud, in late 2008 as an update to its 1997

study. It found that the public is consistently more tolerant of specific insurance

frauds today than it was 10 years ago. For example, 82 percent of respondents think

it is unethical to misrepresent facts on an insurance application in order to lower

their premiums, down from 91 percent in 1997. Eighty-five percent think filing a

claim for damage that occurred before the damage was covered is wrong, compared

with 91 percent ten years ago; 84 percent think inflating a claim to cover a

deductible is unethical, compared with 91 percent in 1997; and 84 percent consider

misrepresenting an incident in order to be paid for an uncovered loss unethical,

down from 92 percent 10 years ago.

The CAIF study also found that more Americans believe insurance fraud to bewidespread. Four out of five people say inflating claims to cover deductibles is

prevalent, and the same ratio think lying to be paid for an uncovered claim and to

lower their premiums are commonplace. Seven out of 10 people think falsifying

receipts or estimates and submitting a claim for damage that happened beforebuying insurance are prevalent.

Fraud Following Hurricanes: The hurricanes of 2005, especially HurricaneKatrina, resulted in cases of insurance fraud where homeowners or renters made

claims for expensive home appliances that were never purchased and where


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homeowners inflated claims for items actually destroyed. Some of the fires that

broke out in buildings in New Orleans and other affected communities after

Hurricane Katrina are suspected cases of arson, committed by flood victims who did

not have flood coverage, and thousands of flood-damaged cars were cleaned up andresold without disclosing their flood status. (See Background, Auto Insurance Fraud.)

INSURANCE FRAUD RING INVESTIGATION

BACKGROUND

Insurance fraud rings usually comprises several key players, and may include

dozens of willing participants. Obviously, the primary purpose of the ring is to

commit fraud by staging certain types of accidents, e.g., slip and falls, hit and run

accidents, swoop and squat accidents, i.e., where one member of the ring swoops in

front of the second participant, causing the second participant to suddenly break

and, thereupon, get rear-ended by an unsuspecting mark.

Typically, insurance fraud rings will target numerous insurers and may operate in

various states. Therefore, a ring that has been in operation for several years may be

responsible for hundreds of losses, and may include scores of participants and

insurers. It should be evident at this point that, in order to crack a fraud ring,

intercompany cooperation is often a vital component, and, that in order to

understand and make the connection between the rings participants and the

various claims, an organizational chart is often necessary.

Organizational charts used in the investigation of fraud rings often include the

names innocent, suspect, as well as, confirmed perpetrators As evidenced by a case

out of Oregon, the sharing of such information, while desirable, may carry some

risks.


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JAMES H. SANDERS V. CANAL INSURANCE

A federal court in Portland, Oregon recently refused to dismiss a truck insurance

broker, James Sanders, claim that Canal Insurance Company defamed him by

circulating business organizational charts linking him to participants in insurance

fraud schemes.

According to the Mr. Sanders, false and defamatory charts were spread

throughout the insurance industry by [the insurer] maliciously with the intent to

bring him into contempt and disrepute in the insurance and trucking industry. The

insurer filed a motion to dismiss, claiming in part, that Sanders complaint failed to

state a claim for relief.

The Court ruled that the charts at issue are capable of bearing a defamatory

meaning. Moreover, Canal admitted that the charts illustrate a connection between

Mr. Sanders and certain individuals, and that Mr. San ders has alleged that the

entities and individuals listed on the charts are generally known to have been

indicted in the state of Louisiana for mail fraud and money laundering in connectionwith the Home international scandal.

The Court further stated that an action to secure damages for an injury to

reputation caused by the publication of a defamatory statement is an action for

defamation, regardless of whether the publication was intentionally, negligently or

inadvertently made.

DEFAMATION DEFINED

As a matter of information, under the common law defamation is defined as a

communication which tends to injure reputation in the popular sense: to diminish

the esteem, respect, goodwill or confidence in which the plaintiff is held, or to excite


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adverse, derogatory or unpleasant feelings or opinions against him .It is well

recognized that truth of the alleged defamatory statement is considered to be a

defense to suit. Also, it is generally agreed that it is not necessary to prove the literal

truth of the accusation in every detail, and that it is sufficient to show that theimputation is substantially true, or, as it is often put, to justify, the gist, the

sting, or the substantial truth of the defamation.

CONCLUSION

The Courts assertion in Sanders that the organizational chart was capable of

bearing a defamatory meaning emphasizes the extreme care that must be taken by

insurers in preparing and labelling an organization chart with the roles of the

innocent, suspected, and confirmed participants in the fraud ring, and emphasizes

the care that is required and the good faith that must be displayed when sharing an

organizational chart or other information with fellow insurers.


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CASE STUDY

Policyholder forges documents in the course of making a valid cla im Insurers

wrongly attempt to avoid entire policy

Mr. H was a self-employed plumber. In January, his home was burgled and he made

a claim under his home insurance policy, which the firm duly paid. In May, his van

was broken into and a number of personal possessions were stolen, including the

tools he used for his work. He made another claim to the firm under the personal

possessions section of his home contents policy.

During the course of its enquiries the firm loss adjusters insisted that Mr. H

substantiate all his losses with original purchase receipts. Mr. H was unable to find

all the receipts, so he asked a friend to fake one for him.

When the firm discovered the forged receipt, it avoided the policy in other

words, cancelled it from the start. The firm not only refused to pay for the items

stolen from the van, it also tried to recover the money it had previously paid out to

Mr. Fl for his earlier burglary claim. After complaining unsuccessfully to the firm, Mr.

H came to us.

Complaint up Held:

The firm accepted that the theft from the van was genuine. Mr. H had been foolish

to obtain a forged receipt but he was not dishonestly trying to obtain something to

which he was not entitled. The loss adjusters had, in fact, been rather overzealous in

insisting on strict proof of purchase for all the items stolen.


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We applied the rationale of The Mercandian Continent case which concerned the

principle of utmost good faith. Ultimately, the case held that insurers should only

be able to avoid a policy for fraud where the insurers ultimate liability was

affected, or when the fraud was so serious it enabled the insurer to repudiate thepolicy for fundamental breach of contract.

Following this rationale, we concluded that the fair and reasonable solution w as for

the insurer to reinstate the policy and pay the claim. In any event, it was unlikely

that the firms ultimate liability would be affected by the fraud, as Mr. Hs work

tools were specifically excluded from the home policy. Home policies often exclude

cover for contents or possessions that are for business rather than personal use.

We also pointed out to the firm that even if Mr. H had been guilty of fraud, it would

only have been entitled to forfeit the policy from the date of the current claim,

leaving the earlier burglary claim intact. It was not entitled to recover previous

payments for valid claims.

Policyholder supplies misleading and fraudulent documents in the course ofmaking a valid claim insurers able to forfeit policy from the date of the claim

Miss J made a claim under her general household policy for escape of water

damage. As the damage was reasonably limited, the firm simply asked her to send in

repair estimates. She provided three. The firm discovered that all three estimates

purporting to come from different contractors were fraudulently produced by

one contractor who had carried out extensive works for Miss J in the past. The firm

considered Miss J to be guilty of fraud. It cancelled her policy and refused to deal

with the claim. Miss J then bought her complaint to us.

Complaint Rejected:


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Miss J had already admitted supplying false information to the firm, and in an

attempt to resolve the matter, had produced further genuine estimates from

independent contractors. However, these merely served to show the extent to

which the prices quoted in the fraudulent estimates had been exaggerated.

Once again, we applied the principles of The Mercandian Continent. If the fraud

had not been discovered, the firm would have ended up paying more in

compensation than was properly required of it, and more than Miss J was legally

entitled to. To this end, the fraud affected the firms ultimate liability and was a

fundamental breach of contract.


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Policyholder purposefully gives wrong details of stolen items insurers able to

forfeit policy from the date of the claim

Mr. G made a claim for goods stolen from his home during a burglary. Among the

many items he claimed for were some Star Wars DVDs. This alerted the firms loss

adjusters to the possibility of fraud, since at the time of the burglary the films in

question had not been released on DVD. The firm rejected the claim and forfeited

Mr. Gs policy from the date of his claim. Mr. G complained to us, arguing that he

must have mistakenly claimed for pirated copies of the DVDs, and that this mistake

did not warrant forfeiture of the policy.

Complaint Rejected:

We were satisfied that this was a clear attempt to defraud the firm. There was

evidence that showed beyond reasonable doubt more than the usual civil

requirement of balance of probabilities that Mr. G was claiming for something

that he could never have owned. This higher standard of proof indicated that Mr. G

would still be guilty of fraud, even if the pirated DVDs did ex ist, since he hadattempted to claim for legitimate copies.

The value of the DVDs was relatively small compared with the overall size of the

claim, but we did not feel this was a case of innocent and minimal exaggeration.

Mr. G had dishonestly claimed for something he was not entitled to. This went to

the very root of the insurance contract, and was a breach of the policyholders duty

to act in utmost good faith when submitting a claim.


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CONCLUSION

Measuring insurance fraud will never be easy, and likely will remain controversial.

Reaching consensus on definitions and methods will be hard. Especially when

people focus narrowly on their own operations instead of keeping the big picture in

mind.

But such consensus is essential if effective measurement programs are to help

spotlight the damage caused by this crime, and ultimately convincing the public and

decision-makers how much insurance fraud affects the U.S. economy and lives of

Americans everywhere.

A unified, all-industry approach to measurement is needed if we expect to prove

that the fraud-fighting community is serious about managing this responsibility

diligently, and that, indeed, insurance fraud is a severe social and economic problem

in the United States.