INSURANCE FRAUDINSURANCE FRAUD

By :-By :-

Gaurav Gopal SavlaniGaurav Gopal Savlani

Tybbi – 49.Tybbi – 49.

MMK COLLEGE MMK COLLEGE (BANDRA)(BANDRA)

WHAT IS INSURANCE WHAT IS INSURANCE FRAUD?FRAUD?

In order to combat insurance fraud it is first necessary to be able to define and identify it.

MEANING OF INSURANCE MEANING OF INSURANCE FRAUDFRAUD

Insurance fraud is any deliberate Insurance fraud is any deliberate deception perpetrated against, or deception perpetrated against, or by, an insurance company or agent by, an insurance company or agent for the purpose of unwarranted for the purpose of unwarranted financial gain.financial gain.

Insurance fraud occurs during the Insurance fraud occurs during the process of buying, using, selling process of buying, using, selling and underwriting insurance.and underwriting insurance.

DEFINATION OF DEFINATION OF INSURANCE FRAUDINSURANCE FRAUD

An illegal act on the part of either the buyer or An illegal act on the part of either the buyer or seller of an insurance contract.seller of an insurance contract.

Insurance fraud from the issuer (seller) includes Insurance fraud from the issuer (seller) includes selling policies from non-existent companies, selling policies from non-existent companies, failing to submit premiums and churning policies failing to submit premiums and churning policies to create more commissions.to create more commissions.

Buyer fraud includes exaggerated claims, Buyer fraud includes exaggerated claims, falsified medical history, post-dated policies, falsified medical history, post-dated policies, viatical fraud, faked death or kidnapping, murder viatical fraud, faked death or kidnapping, murder and much more.and much more.

INSURANCE FRAUDINSURANCE FRAUD

Are there any easy solutions to this Are there any easy solutions to this problem?problem?

No, there are not.No, there are not. We, consumers, legislators, regulators, We, consumers, legislators, regulators,

and insurers, must and insurers, must work together work together to to create an environment that either create an environment that either prevents or detects insurance fraud prevents or detects insurance fraud easily when it happens.easily when it happens.

What Are The Types Of What Are The Types Of Insurance Fraud?Insurance Fraud?

““HARD” FRAUDHARD” FRAUD Usually a deliberate Usually a deliberate

attempt either to attempt either to stage or invent an stage or invent an accident, injury, accident, injury, theft, arson, or theft, arson, or other type of loss, other type of loss, that would be that would be covered under an covered under an insurance policy.insurance policy.

““SOFT” FRAUDSOFT” FRAUD Sometimes called Sometimes called

“opportunity “opportunity fraud”, occurs fraud”, occurs when a when a policyholder or policyholder or claimant claimant exaggerates a exaggerates a legitimate claim.legitimate claim.

Hard FraudHard Fraud

Extremely Extremely complex complex schemes, often schemes, often involving medical involving medical practitioners, practitioners, lawyers and their lawyers and their patients or patients or clients, are clients, are employed.employed.

These schemes These schemes are one of the are one of the most costly forms most costly forms of insurance fraud of insurance fraud and are and are widespread.widespread.

Millions of dollars Millions of dollars may be lost to a may be lost to a single crime ring.single crime ring.

Hard FraudHard Fraud

This is also committed by executives This is also committed by executives and employees within the insurance and employees within the insurance industry.industry.

Examples:Examples: An employee of an insurance company An employee of an insurance company

accepting bribes or kickbacks.accepting bribes or kickbacks. An insurance agent who accepts An insurance agent who accepts

premium payments, and fails to remit premium payments, and fails to remit the funds to the insurance company.the funds to the insurance company.

Hard FraudHard Fraud

Also included are phony insurance Also included are phony insurance companies set up by con men.companies set up by con men.

Premiums are collected from Premiums are collected from unsus-pecting consumers and unsus-pecting consumers and claims are rarely or never paid.claims are rarely or never paid.

When too many claims are filed When too many claims are filed the con artist disappears with the the con artist disappears with the company assets.company assets.

Soft FraudSoft Fraud

One example is the inflation of an auto One example is the inflation of an auto claim to cover the deductible or the claim to cover the deductible or the rise in insurance premiums.rise in insurance premiums.

This also occurs during the This also occurs during the underwriting process when an underwriting process when an applicant provides false information to applicant provides false information to lower insurance premiums or increase lower insurance premiums or increase the likelihood of acceptance for the likelihood of acceptance for insurance.insurance.

Soft Fraud-ExamplesSoft Fraud-Examples

1. Underreporting the number of 1. Underreporting the number of miles driven either to and from miles driven either to and from work or on an annual basis.work or on an annual basis.

2. Giving a false location where 2. Giving a false location where the car is garaged.the car is garaged.

3. Failing to report an accurate 3. Failing to report an accurate medical history when applying for medical history when applying for health insurance.health insurance.

Soft Fraud-ContinuedSoft Fraud-Continued

4. Exaggeration of the amount and 4. Exaggeration of the amount and value of items stolen from a home or value of items stolen from a home or business.business.

5. Failing to report the correct number 5. Failing to report the correct number of employees for workers’ of employees for workers’ compensation insurance coverage.compensation insurance coverage.

6. Providing a false report of income 6. Providing a false report of income or inventory to lower the insurance or inventory to lower the insurance premium for a business.premium for a business.

What is the scope of What is the scope of insurance fraud?insurance fraud?

The true extent of insurance fraud is The true extent of insurance fraud is difficult to determine as so much of it difficult to determine as so much of it is undetected.is undetected.

Comprehensive research to make an Comprehensive research to make an accurate estimate of the extent of accurate estimate of the extent of fraud has not been done.fraud has not been done.

Studies focusing on specific aspects of Studies focusing on specific aspects of insurance fraud suggest the cost is insurance fraud suggest the cost is enormous.enormous.

Why has insurance fraud Why has insurance fraud increased?increased?

Public attitudes-many think it is a Public attitudes-many think it is a victimless crime.victimless crime.

Insurer claims practices-many Insurer claims practices-many suspicious claims are paid rather suspicious claims are paid rather than fighting them.than fighting them.

High-risk insurance-many companies High-risk insurance-many companies are unwilling to provide this and the are unwilling to provide this and the market is open to “bogus” insurers.market is open to “bogus” insurers.

Increased Fraud-Increased Fraud-ContinuedContinued

Medical economics-large numbers of Medical economics-large numbers of uninsured and/or underinsured patients.uninsured and/or underinsured patients.

Insufficient penalties- insurance fraud is Insufficient penalties- insurance fraud is perceived as high reward/low risk crimeperceived as high reward/low risk crime

Low law enforcement priority-top priority Low law enforcement priority-top priority is given to reducing drugs and violence is given to reducing drugs and violence thus shifting manpower away from white thus shifting manpower away from white collar crimes.collar crimes.

Indian Case StudiesIndian Case Studies Mr. Ashish, a resident of Bandra, was injured in an Mr. Ashish, a resident of Bandra, was injured in an

accident when his two-wheeler hit by an auto-rickshaw. accident when his two-wheeler hit by an auto-rickshaw. Investigation revealed that he was allegedly driving Investigation revealed that he was allegedly driving under the influence of alcohol and fell off his bike.under the influence of alcohol and fell off his bike.

Father and son succeeded in receiving Father and son succeeded in receiving compensation of Rs. 3,55,000/- and Rs. 1,52,000/- compensation of Rs. 3,55,000/- and Rs. 1,52,000/- for the alleged injury sustained while proceeding in for the alleged injury sustained while proceeding in a motorcycle, which was dashed by a car, actually a motorcycle, which was dashed by a car, actually they are operating their own tractor, which jilted they are operating their own tractor, which jilted into a ditch as result of which the occupants into a ditch as result of which the occupants slipped down and sustained injuriesslipped down and sustained injuries . .

What is Being Done About What is Being Done About Insurance Fraud?Insurance Fraud?

How can this problem be How can this problem be solved?solved?

Let’s See…Let’s See…

Insurance RegulatorsInsurance Regulators

The NAIC has created model legislation for The NAIC has created model legislation for states to enact that makes it harder for states to enact that makes it harder for con artists to set up insurance companies. con artists to set up insurance companies. In many states, regulators are increasing In many states, regulators are increasing insurer oversight. There is interest in insurer oversight. There is interest in making white collar crime a federal crime. making white collar crime a federal crime. In 1994 the omnibus crime bill set In 1994 the omnibus crime bill set penalties for anyone convicted of penalties for anyone convicted of submitting false financial data to state submitting false financial data to state insurance regulators.insurance regulators.

Insurance CompaniesInsurance Companies

Special Investigation Units-created Special Investigation Units-created within the companies to detect and within the companies to detect and investigate suspicious claims.investigate suspicious claims.

National Insurance Crime Bureau-National Insurance Crime Bureau-created by insurance companies in created by insurance companies in 1992, dedicated to fighting insurance 1992, dedicated to fighting insurance fraud.fraud.

Creation of insurance fraud database Creation of insurance fraud database networks accessible online.networks accessible online.

Other Possible SolutionsOther Possible Solutions

Enactment of stiffer penalties and Enactment of stiffer penalties and extending current laws attacking extending current laws attacking Medicare and Medicaid fraud.Medicare and Medicaid fraud.

Enact additional legislation to Enact additional legislation to combat the problem at the state combat the problem at the state level.level.

The States Can:The States Can:

Make insurance fraud a specific crime, Make insurance fraud a specific crime, with appropriate penalties, including with appropriate penalties, including restitution.restitution.

Require administrative action against Require administrative action against licensed individuals or businesses-body licensed individuals or businesses-body shops, doctors, lawyers, etc.-upon shops, doctors, lawyers, etc.-upon conviction of insurance fraud.conviction of insurance fraud.

Require all insurers to establish, and Require all insurers to establish, and use, anti-fraud plans.use, anti-fraud plans.

States-continuedStates-continued

Require claims forms and insurance Require claims forms and insurance applications to carry insurance applications to carry insurance fraud warnings.fraud warnings.

Provide immunity to insurers, and Provide immunity to insurers, and others, reporting insurance fraud others, reporting insurance fraud and sharing information.and sharing information.

Require inspection of automobiles Require inspection of automobiles before granting insurance coverage.before granting insurance coverage.

Is There Any Progress?Is There Any Progress?

Yes, the per family cost has dropped Yes, the per family cost has dropped from $1,032 to $1,017 in 1996.from $1,032 to $1,017 in 1996.

Health insurance fraud dropped Health insurance fraud dropped from $710 per family to $696.from $710 per family to $696.

Workers’ Compensation has Workers’ Compensation has consistently dropped for the past consistently dropped for the past five years. It has dropped from $2.9 five years. It has dropped from $2.9 billion to $2.1 in 1996.billion to $2.1 in 1996.

MEDICARE ANTI-FRAUD MEDICARE ANTI-FRAUD REPORTREPORT

The Department of Health and Human The Department of Health and Human Services has reported that, since 1996, Services has reported that, since 1996, anti-fraud efforts have resulted in a anti-fraud efforts have resulted in a savings of $11 billion. The bad news?savings of $11 billion. The bad news?

Remaining improper payments are Remaining improper payments are $12.6 billion.$12.6 billion.

More good news-many criminals have More good news-many criminals have gotten the message and have closed gotten the message and have closed their illicit Medicare operations.their illicit Medicare operations.

Is Insurance Fraud Is Insurance Fraud Whipped?Whipped?

No, it is not yet time to ease off our No, it is not yet time to ease off our efforts. It does appear that our years efforts. It does appear that our years of work is paying off. There has been, of work is paying off. There has been, for the first time, virtually no actual for the first time, virtually no actual increase in the amount of insurance increase in the amount of insurance fraud annually while, with population fraud annually while, with population increase, there has been a lowering of increase, there has been a lowering of the the average costaverage cost to consumers for the to consumers for the first time.first time.

Can We Ever Relax?Can We Ever Relax?

No, and the following example, which No, and the following example, which is based upon a true story, will serve is based upon a true story, will serve to illustrate why we must always to illustrate why we must always maintain our vigilance against fraud.maintain our vigilance against fraud.

In one of the western states a “swap In one of the western states a “swap meet” was being conducted. There meet” was being conducted. There were a number of dealers who were were a number of dealers who were engaged in selling merchandise.engaged in selling merchandise.

Relax-ContinuedRelax-Continued

A very lovely young woman A very lovely young woman appeared. She was dressed in a appeared. She was dressed in a macramé bikini. Needless to say, macramé bikini. Needless to say, she received a she received a lotlot of attention. of attention.

The young woman went around the The young woman went around the dealers trading $20 bills for change.dealers trading $20 bills for change.

Apparently, no one thought to ask Apparently, no one thought to ask why she needed so much change.why she needed so much change.

Relax-continuedRelax-continued

Finally, someone realized all the Finally, someone realized all the $20 bills were identical.$20 bills were identical.

Now-they realized why she needed Now-they realized why she needed so much change.so much change.

She was exchanging counterfeit She was exchanging counterfeit $20 bills for $20 in good money.$20 bills for $20 in good money.

The macramé bikini was a The macramé bikini was a diversionary tactic on her part.diversionary tactic on her part.

CONCLUSIONCONCLUSION

We must never let down our guard. We must never let down our guard. The fight against insurance fraud is a The fight against insurance fraud is a permanent battle which will never be permanent battle which will never be won in its entirety. won in its entirety.

One major part of the battle is public One major part of the battle is public education. We must show the education. We must show the consumer that insurance fraud costs consumer that insurance fraud costs them and they must aid in the battle.them and they must aid in the battle.

THE ENDTHE END

BUT ONLY THE BEGINNING IN BUT ONLY THE BEGINNING IN THE FIGHT AGAINSTTHE FIGHT AGAINST

INSURANCE FRAUD!INSURANCE FRAUD!