insurance fraud the lecture
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Insurance Fraud The Lecture. Richard A. Derrig, Ph.D. OPAL Consulting LLC Visiting Scholar, The Wharton School University of Pennsylvania [email protected]. University of Illinois December 2, 2005. Agenda. What Is Fraud? How Much Fraud Is There? Who Are The Fraud Fighters? - PowerPoint PPT PresentationTRANSCRIPT
Insurance Fraud Insurance Fraud The LectureThe Lecture
Richard A. Derrig, Ph.D.OPAL Consulting LLC
Visiting Scholar, The Wharton SchoolUniversity of Pennsylvania
University of IllinoisDecember 2, 2005
AgendaAgenda What Is Fraud?What Is Fraud? How Much Fraud Is There?How Much Fraud Is There? Who Are The Fraud Fighters?Who Are The Fraud Fighters? What do Companies do about What do Companies do about
Fraud?Fraud? What is the “Lawrence” story?What is the “Lawrence” story?
Fraud DefinitionFraud Definition
PRINCIPLESPRINCIPLES
Clear and willful actClear and willful act Proscribed by lawProscribed by law Obtaining money or valueObtaining money or value Under false pretensesUnder false pretenses
Abusive/Unethical: Fails one or more PrinciplesAbusive/Unethical: Fails one or more Principles
Fraud TypesFraud Types Insurer FraudInsurer Fraud
– Fraudulent CompanyFraudulent Company– Fraudulent ManagementFraudulent Management
Agent FraudAgent Fraud– No PolicyNo Policy– False PremiumFalse Premium
Company FraudCompany Fraud– EmbezzlementEmbezzlement– Inside/Outside ArrangementsInside/Outside Arrangements
Claim FraudClaim Fraud– Claimant/InsuredClaimant/Insured– Providers/RingsProviders/Rings
FRAUD AND ABUSE FRAUD AND ABUSE THE TOP TEN DEFENSESTHE TOP TEN DEFENSES
1. Adjusters 1. Adjusters 2. Computer Technology2. Computer Technology 3. Criminal Investigators3. Criminal Investigators 4. Data and Information4. Data and Information 5. Experts5. Experts 6. Judges6. Judges 7. Lawyers7. Lawyers 8. Legislators 8. Legislators 9. Prosecutors9. Prosecutors 10. Special Investigators10. Special Investigators
10%Fraud
EasyPaid
Investigation
Routine Adjusting
DM
Target Claims
Investigative Paid
Build-upNegotiation
Civil Proceeding
Suspected Fraud SIU
Criminal Referral
ProsecutedNot Guilty
Guilty
DATA DATA
DMDatabases
Scoring Functions
Graded Output
Non-Suspicious ClaimsRoutine Claims
Suspicious ClaimsComplicated Claims
Data MiningData Mining
““Misplaced faith in black boxes: Data Misplaced faith in black boxes: Data Mining is sometimes perceived as a black Mining is sometimes perceived as a black box, where you feed the data in and box, where you feed the data in and interesting results and patterns emerge. interesting results and patterns emerge. Such an approach is particularly Such an approach is particularly misleading when no prior knowledge or misleading when no prior knowledge or experience is used to validate the results experience is used to validate the results of the mining exercise”of the mining exercise”– Exploratory Data Mining and Data Cleaning, Exploratory Data Mining and Data Cleaning, by by
Dasu and JohnsonDasu and Johnson
Red Loveseat by
Patterns, The New Data To Manage
Mae West by
DCD
Seminar on Insurance FraudBoxborough, MA
November 19, 2003
The Detail Claim Database
Auto Injury Claims Closed Since 1/1/94Auto Injury Claims Closed Since 1/1/94 Over 1,646,000 ClaimsOver 1,646,000 Claims Data: Claimant, Insured, Injury, Medical & Data: Claimant, Insured, Injury, Medical &
Legal Providers, Claim Payment, Bills, Claim Legal Providers, Claim Payment, Bills, Claim Handling IME, Med Audit, Special Handling IME, Med Audit, Special InvestigationInvestigation
On-Line Access for Company Adjusters and On-Line Access for Company Adjusters and SIU Personnel through InternetSIU Personnel through Internet
Company Oversight: Claim Committee, Company Oversight: Claim Committee, Operations SubcommitteeOperations Subcommittee
Seminar on Insurance FraudSeminar on Insurance Fraud DCD
Special Investigation (SI) Special Investigation (SI) Yes/NoYes/No
Special Investigations (SI) Special Investigations (SI) are performed on claims suspected of fraud. Special Investigations may be performed by SIU personnel or other personnel trained to handle suspicious claims using activity checks, surveillance, accident reconstruction, statements or examinations under oath. Special Investigations also includes third party expert analysis of documents associated with suspicious claims. Liability investigations are not considered to be special investigations.
SI ResultsSI Results
Report a valid Report a valid SI ResultSI Result Code: Code:
CodeCode SI Result SI Result
11 – No Change Recommended – No Change Recommended 66 – Claim Denied – Claim Denied 77 – Claim Compromised – Claim Compromised 99 - Unknown or Pending - Unknown or Pending
SIU Result by Attorney Representation
0.0
10.0
20.0
30.0
40.0
50.0
60.0
No ChangeRecommended
Claim Denied Claim Compromised Unknown or Pending
Result
Per
cen
t
Attorney No Attorney
Source: AIB/DCD 1995/1997 Accident Year
Injury Type ChangesInjury Type Changes
InjInj 8989 9696
FractureFracture 14%14% 5%5%
InpatientInpatient 7%7% 4%4%
Serious Serious VisibleVisible
14%14% 2%2%
Prior Inj.Prior Inj. 6%6% 27%27%
Source: AIB Final Report (2003)Source: AIB Final Report (2003)
The Lawrence The Lawrence Fraud ProblemFraud Problem
A Crisis Needing a A Crisis Needing a Special SolutionSpecial Solution
Lawrence Auto Insurance Lawrence Auto Insurance RatesRates
Why are rates so high?Why are rates so high? CausesCauses SolutionsSolutions
WHY ARE RATES SO HIGH?WHY ARE RATES SO HIGH?
Statewide average rateStatewide average rate $1,176$1,176
Lawrence average rateLawrence average rate $2,145$2,145
Commissioner’s rates, 2002 (BI, PIP, PD, U-1, U-2, COMP, COLL)Commissioner’s rates, 2002 (BI, PIP, PD, U-1, U-2, COMP, COLL)
WHY ARE RATES SO HIGH?WHY ARE RATES SO HIGH?
Claims Paid Per CarClaims Paid Per Car
20022002
StatewideStatewide $714 $714
Lawrence Lawrence $2,061$2,061
2002 Reported Pure Premiums (BI, PIP, PD, COMP, COLL)2002 Reported Pure Premiums (BI, PIP, PD, COMP, COLL)
WHY ARE RATES SO HIGH?WHY ARE RATES SO HIGH?
Statewide # of claims as a percentage Statewide # of claims as a percentage of policyholders of policyholders 28%28%
Lawrence # of claims as a percentage Lawrence # of claims as a percentage of policyholders of policyholders 66%66%
2002 Reported Claims (BI, PIP, PD, COMP, COLL)2002 Reported Claims (BI, PIP, PD, COMP, COLL)
WHY ARE RATES SO HIGH?WHY ARE RATES SO HIGH?
In 2002, Lawrence rates are 1.82 In 2002, Lawrence rates are 1.82 times the statewide averagetimes the statewide average– accident rate is accident rate is 1.5 X state avg.1.5 X state avg.
but...but...– PIP (no-fault) claims arePIP (no-fault) claims are 4.9 X state avg.4.9 X state avg.– BI Liability claims are BI Liability claims are 4.9 X state avg.4.9 X state avg.
2002 Reported Frequency Indices (PD, PIP, BI2002 Reported Frequency Indices (PD, PIP, BI))
WHY ARE RATES SO HIGH?WHY ARE RATES SO HIGH?
In 2002, Lawrence rates are 1.82 times In 2002, Lawrence rates are 1.82 times the statewide averagethe statewide average– accident rate is accident rate is 1.5 X state avg.1.5 X state avg.
but...but...– Collision claims areCollision claims are 1.9 X state avg.1.9 X state avg.– Theft claims are Theft claims are 10.3 X state avg.10.3 X state avg.
2002 Reported Frequency Indices (PD, COLL, COMP-theft)2002 Reported Frequency Indices (PD, COLL, COMP-theft)
WHY ARE RATES SO HIGH?WHY ARE RATES SO HIGH?
1 out of 2601 out of 260 cars insured for theft cars insured for theft in Mass. were stolen in 2002in Mass. were stolen in 2002
1 out of 251 out of 25 cars insured for theft cars insured for theft in Lawrence were stolen in 2002in Lawrence were stolen in 2002
2002 Reported Frequency (COMP-theft)2002 Reported Frequency (COMP-theft)
WHY ARE RATES SO HIGH?WHY ARE RATES SO HIGH?
For every For every 100100 accidents in the state accidents in the state 43 injuries are reported!43 injuries are reported!
For every For every 100 100 accidents in Lawrenceaccidents in Lawrence141 injuries are reported!141 injuries are reported!
2002 Number of Claims Per 100 Accidents (PIP)2002 Number of Claims Per 100 Accidents (PIP)
Similar Population SizeSimilar Population Size
Insured population relatively Insured population relatively similar in size for both townssimilar in size for both towns
# Cars Insured
0 10,000 20,000 30,000
Lawrence
Salem1993
2002
20,05323,666
19,771
26,689
Claims Very DifferentClaims Very Different
$0 $9,000,000 $18,000,000
Lawrence
Salem 1993
2002
Claims have soared in Lawrence while Claims have soared in Lawrence while only increasing slightly in Salemonly increasing slightly in Salem
$3,800,000
$7,300,000
$16,900,000
Dollar Amount of BI Claims
$5,400,000
ROOT CAUSES OF HIGH ROOT CAUSES OF HIGH RATESRATES
Auto theft out of control Auto theft out of control Disproportionate # of Disproportionate # of Injuries to Injuries to
AccidentsAccidents Network of high volume medical and Network of high volume medical and
legal professionals aggressively legal professionals aggressively ready to assist in filing your ready to assist in filing your insurance claiminsurance claim!!
PIP Average Amount BilledPIP Average Amount Billed
$2,112
$0
$500$1,000$1,500$2,000$2,500$3,000
$3,500$4,000$4,500 Statewide All
Providers
PIP Average Amount BilledPIP Average Amount Billed
$2,112
$2,846
$0
$500$1,000$1,500$2,000$2,500$3,000
$3,500$4,000$4,500 Statewide All
Providers
StatewideChiropractors
PIP Average Amount BilledPIP Average Amount Billed
$2,112
$2,846
$3,625
$0$500
$1,000
$1,500$2,000$2,500
$3,000$3,500$4,000
$4,500 Statewide AllProviders
StatewideChiropractors
LawrenceChiropractors
PIP Average Amount BilledPIP Average Amount Billed
$2,112
$2,846
$3,625
$4,123
$0
$500$1,000$1,500$2,000$2,500$3,000
$3,500$4,000$4,500 Statewide All
Providers
StatewideChiropractors
LawrenceChiropractors
Lawrence Back& Neck
Spring promotion 2001
…each time you refer a patient injured in an auto accident…”WE WILL PRESENTYOU WITH A VOUCHER WORTH $200”...
...Free transportation
...Treated 10,000 people injured in auto accidents
But Lawrence only had 7auto accidents per day!!!
The Anatomy of an The Anatomy of an InvestigationInvestigation
9/4/039/4/03 Altagracia Arias a 65-year-old grandmother, dies in a Altagracia Arias a 65-year-old grandmother, dies in a staged car accident in Lawrence. staged car accident in Lawrence.
9/11/039/11/03 Lawrence and State Police arrest Hairo L. Gomez, 26, of Lawrence and State Police arrest Hairo L. Gomez, 26, of Lawrence, charging him with manslaughter in connection Lawrence, charging him with manslaughter in connection with the fatal crash. An arrest warrant for the same with the fatal crash. An arrest warrant for the same charge is also issued for Jacinto Maldonado, 22, of charge is also issued for Jacinto Maldonado, 22, of Lawrence, who is the driver of the car in which his Lawrence, who is the driver of the car in which his grandmother was killed.grandmother was killed.
9/12/039/12/03 Eagle Tribune publishes front page story titled ”Police: Eagle Tribune publishes front page story titled ”Police: Scam crash killed grandmother.Scam crash killed grandmother.
9/17/039/17/03 Police arrest Jason Pimentel, 22, of Lawrence, a front seat Police arrest Jason Pimentel, 22, of Lawrence, a front seat passenger in the car that Altagracia Arias was killed in. passenger in the car that Altagracia Arias was killed in. He is charged with insurance fraud, under a new felony He is charged with insurance fraud, under a new felony law that carries up to five years in prison and a $10,000 law that carries up to five years in prison and a $10,000 fine. Two other passengers in the two-car crash are later fine. Two other passengers in the two-car crash are later charged with insurance fraud.charged with insurance fraud.
September 25, 2003September 25, 2003
The The Lawrence Task ForceLawrence Task Force, working with , working with several major insurance companies, several major insurance companies, launch an investigation into staged launch an investigation into staged accidents in Lawrence. They hope the accidents in Lawrence. They hope the probe will lead to dozens of arrests and probe will lead to dozens of arrests and deal a body blow to a cottage industry deal a body blow to a cottage industry of fraudulent personal injury claims of fraudulent personal injury claims that cost honest drivers hundreds of that cost honest drivers hundreds of dollars a year in added insurance dollars a year in added insurance premiums.premiums.
Lawrence Insurance Fraud Lawrence Insurance Fraud Task ForceTask Force
Lawrence Police DepartmentLawrence Police Department Attorney GeneralAttorney General Essex County District AttorneyEssex County District Attorney Insurance Fraud BureauInsurance Fraud Bureau Insurance IndustryInsurance Industry
PartnershipsPartnerships Continuous Continuous
involvement with a involvement with a designated designated prosecutorprosecutor
Partnership with Partnership with the local the local newspaper to newspaper to “keep the story in “keep the story in the news”the news”
February 26, 2004 February 26, 2004
6 people charged with staging an accident.
5 people apprehended.
5 people confess to the staged accident in another city (Methuen).
Cooperative effort with another police agency.
Leads investigators to Chiropractor Sean Nisivoccia.
March 2, 2004March 2, 2004
Chiropractor Sean Nisivoccia from Health Group of New England arrested at his place of employment for taking part in staging accidents.
March 15, 2004March 15, 2004
First conviction sends a clear message.
Doel Miranda, one of 52 people charged in a sweeping investigation that began in September 2003, pleaded guilty to three charges stemming from a fake hit & run accident in January 2003.
Sentence: One year in jail and probation for a year and a half.
September 22, 2004 September 22, 2004 Grand Jury IndictmentsGrand Jury Indictments
4 Chiropractors4 Chiropractors 3 Lawyers3 Lawyers Others working in their officesOthers working in their offices 1 insurance agency manager1 insurance agency manager RunnersRunners 16 in all!16 in all!
To Date in LawrenceTo Date in LawrenceTask Force TotalsTask Force Totals: 130 people : 130 people charged in connection with 42 cases of charged in connection with 42 cases of insurance fraud.insurance fraud.
Charges include: Charges include: ManslaughterManslaughter Motor Vehicle Insurance FraudMotor Vehicle Insurance Fraud Conspiracy to Commit Insurance FraudConspiracy to Commit Insurance Fraud PerjuryPerjury LarcenyLarceny False Report to PoliceFalse Report to Police
To Date in LawrenceTo Date in Lawrence
Task Force TotalsTask Force Totals::Seven individuals pleaded or Seven individuals pleaded or found guilty.found guilty.18 individuals continued without 18 individuals continued without a finding.a finding.
EFFECTS OF PROGRAMEFFECTS OF PROGRAM
Claims Paid Per CarClaims Paid Per Car
20022002
StatewideStatewide $714 $714
Lawrence Lawrence $2,061$2,061
2004 Reported Pure Premiums (BI, PIP, PD, COMP, COLL)2004 Reported Pure Premiums (BI, PIP, PD, COMP, COLL)
2004
$614
$951
EFFECTS OF PROGRAMEFFECTS OF PROGRAM
In 2002, for every In 2002, for every 100100 accidents in Lawrence accidents in Lawrence 141 injuries are reported!141 injuries are reported!
In 2004, for every In 2004, for every 100 100 accidents in Lawrenceaccidents in Lawrence60 injuries are reported!60 injuries are reported!
2004 Number of Claims Per 100 Accidents (PIP)2004 Number of Claims Per 100 Accidents (PIP)
EFFECTS OF PROGRAMEFFECTS OF PROGRAM
2002 insurance claims in Lawrence2002 insurance claims in Lawrence
$48.6 million $48.6 million
2004 insurance claims in Lawrence2004 insurance claims in Lawrence
$19.8 million$19.8 million
Savings $28.7 million!Savings $28.7 million!
2004 Total Loss Amount (BI, PIP, PD, COMP, COLL)2004 Total Loss Amount (BI, PIP, PD, COMP, COLL)