INSURANCE FRAUD

By :Gaurav Gopal Savlani Tybbi 49. MMK COLLEGE (BANDRA)

WHAT IS INSURANCE FRAUD?

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

MEANING OF INSURANCE FRAUD

Insurance fraud is any deliberate deception perpetrated against, or by, an insurance company or agent for the purpose of unwarranted financial gain. Insurance fraud occurs during the process of buying, using, selling and underwriting insurance.

DEFINATION OF INSURANCE FRAUD

An illegal act on the part of either the buyer or seller of an insurance contract. Insurance fraud from the issuer (seller) includes selling policies from non-existent companies, failing to submit premiums and churning policies to create more commissions. Buyer fraud includes exaggerated claims, falsified medical history, post-dated policies, viatical fraud, faked death or kidnapping, murder and much more.

INSURANCE FRAUD
Are there any easy solutions to this problem? No, there are not. We, consumers, legislators, regulators, and insurers, must work together to create an environment that either prevents or detects insurance fraud easily when it happens.

What Are The Types Of Insurance Fraud?

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

SOFT FRAUD Sometimes called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim.

Hard Fraud

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

These schemes are one of the most costly forms of insurance fraud and are widespread. Millions of dollars may be lost to a single crime ring.

Hard Fraud
This is also committed by executives and employees within the insurance industry. Examples: An employee of an insurance company accepting bribes or kickbacks. An insurance agent who accepts premium payments, and fails to remit the funds to the insurance company.

Hard Fraud
Also included are phony insurance companies set up by con men. Premiums are collected from unsuspecting consumers and claims are rarely or never paid. When too many claims are filed the con artist disappears with the company assets.

Soft Fraud
One example is the inflation of an auto claim to cover the deductible or the rise in insurance premiums. This also occurs during the underwriting process when an applicant provides false information to lower insurance premiums or increase the likelihood of acceptance for insurance.

Soft Fraud-Examples
1. Underreporting the number of miles driven either to and from work or on an annual basis. 2. Giving a false location where the car is garaged. 3. Failing to report an accurate medical history when applying for health insurance.

Soft Fraud-Continued
4. Exaggeration of the amount and value of items stolen from a home or business. 5. Failing to report the correct number of employees for workers compensation insurance coverage. 6. Providing a false report of income or inventory to lower the insurance premium for a business.

What is the scope of insurance fraud?

The true extent of insurance fraud is difficult to determine as so much of it is undetected. Comprehensive research to make an accurate estimate of the extent of fraud has not been done. Studies focusing on specific aspects of insurance fraud suggest the cost is enormous.

Why has insurance fraud increased?

Public attitudes-many think it is a victimless crime. Insurer claims practices-many suspicious claims are paid rather than fighting them. High-risk insurance-many companies are unwilling to provide this and the market is open to bogus insurers.

Increased Fraud-Continued
Medical economics-large numbers of uninsured and/or underinsured patients. Insufficient penalties- insurance fraud is perceived as high reward/low risk crime Low law enforcement priority-top priority is given to reducing drugs and violence thus shifting manpower away from white collar crimes.

Indian Case Studies

Mr. Ashish, a resident of Bandra, was injured in an accident when his two-wheeler hit by an auto-rickshaw. Investigation revealed that he was allegedly driving under the influence of alcohol and fell off his bike.

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

What is Being Done About Insurance Fraud?

How can this problem be solved? Lets See

Insurance Regulators

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

Insurance Companies
Special Investigation Units-created within the companies to detect and investigate suspicious claims. National Insurance Crime Bureaucreated by insurance companies in 1992, dedicated to fighting insurance fraud. Creation of insurance fraud database networks accessible online.

Other Possible Solutions

Enactment of stiffer penalties and extending current laws attacking Medicare and Medicaid fraud. Enact additional legislation to combat the problem at the state level.

The States Can:

Make insurance fraud a specific crime, with appropriate penalties, including restitution. Require administrative action against licensed individuals or businesses-body shops, doctors, lawyers, etc.-upon conviction of insurance fraud. Require all insurers to establish, and use, anti-fraud plans.

States-continued
Require claims forms and insurance applications to carry insurance fraud warnings. Provide immunity to insurers, and others, reporting insurance fraud and sharing information. Require inspection of automobiles before granting insurance coverage.

Is There Any Progress?

Yes, the per family cost has dropped from $1,032 to $1,017 in 1996. Health insurance fraud dropped from $710 per family to $696. Workers Compensation has consistently dropped for the past five years. It has dropped from $2.9 billion to $2.1 in 1996.

MEDICARE ANTI-FRAUD REPORT

The Department of Health and Human Services has reported that, since 1996, anti-fraud efforts have resulted in a savings of $11 billion. The bad news? Remaining improper payments are $12.6 billion. More good news-many criminals have gotten the message and have closed their illicit Medicare operations.

Is Insurance Fraud Whipped?

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

Can We Ever Relax?

No, and the following example, which is based upon a true story, will serve to illustrate why we must always maintain our vigilance against fraud. In one of the western states a swap meet was being conducted. There were a number of dealers who were engaged in selling merchandise.

Relax-Continued
A very lovely young woman appeared. She was dressed in a macram bikini. Needless to say, she received a lot of attention. The young woman went around the dealers trading $20 bills for change. Apparently, no one thought to ask why she needed so much change.

Relax-continued
Finally, someone realized all the $20 bills were identical. Now-they realized why she needed so much change. She was exchanging counterfeit $20 bills for $20 in good money. The macram bikini was a diversionary tactic on her part.

CONCLUSION
We must never let down our guard. The fight against insurance fraud is a permanent battle which will never be won in its entirety. One major part of the battle is public education. We must show the consumer that insurance fraud costs them and they must aid in the battle.

THE END
BUT ONLY THE BEGINNING IN THE FIGHT AGAINST INSURANCE FRAUD!