By Ted Gotsch
Insurance fraud is a growing problem affecting companies and consumers alike, experts agree—one that must be challenged head-on through education and enforcement.
Addressing the issue as part of a June 28 webinar sponsored by the Academy, authorities said regulators, insurers, and the public can no longer afford to ignore the issue. A report released last year by the Coalition Against Insurance Fraud estimated insurance fraud costs Americans $308.6 billion annually, and that increase is being passed on to ratepayers.
COVID-19 offered a new opportunity for schemers. Matthew Smith, executive director of the Coalition Against Insurance Fraud, said there was a 600% increase in stolen identity complaints during the pandemic, which led to the filing of numerous fraudulent unemployment and health care claims. Much of this was part of a concerted effort to defraud insurers.
Key Webinar Highlights
- Inflation-adjusted cost of insurance fraud in U.S. has doubled since 1995.
- What once was a locally focused problem has gone global.
- Organized crime rings play a significant role in running scams.
- Law enforcement and industry need to clamp down more on fraudsters.
- Younger people are more likely to see fraud as a victimless crime.
- Better understanding of the costs of insurance fraud is essential.
“One of the sad things we see is the organized crime growth in insurance fraud,” Smith said. “A person in southeast Asia or Africa can commit insurance fraud as easily as someone across the street.”
Trinidad Navarro, Delaware’s insurance commissioner, became a victim of fraud himself during this time when an unemployment claim was filed under his name. It is a growing problem that must be curbed, he stated. “Anyone with a laptop and an internet connection can do this,” he said.
But it is not just people trying to swindle money from insurers. It can also be providers or even insurance companies themselves that don’t honor their commitments to policyholders.
Rose Barrett, an Academy member who serves on the Property & Casualty Committee on Equity and Fairness, gave one such example. As an actuary in the workers’ compensation space in California, she has seen a spate of cases involving health care providers conducting unnecessary procedures so they can double-bill insurers. In one instance, a Long Beach, Calif., hospital defrauded insurers of some $600 million, she stated.
Meanwhile, Navarro and Smith noted several examples of insurance companies refusing to pay all or parts of claims they were legally required to cover.
It is both those kinds of activities that Navarro, as chair of the National Association of Insurance Commissioners’ Anti-Fraud (D) Task Force, is trying to end. The panel serves as a liaison between local, state, and federal authorities on such issues, but also works with industry to address ongoing concerns through the detection, monitoring, and appropriate referral for the investigation of insurance crime. Navarro said prosecutors need to get serious about cracking down on insurance fraud. In Delaware, for example, the state just hired a new assistant attorney general who is focused on the issue.
There is also an important role for insurers and actuaries to play, Barrett added. Too many insurance providers are happy to settle nuisance claims and just pass along the added expense that fraud brings to their customers. “Insurers need to have this incentive that if you start holding the line on this stuff, it will prevent a lot of future activity,” she said. Actuaries at insurance companies should make corporate higher-ups aware of these costs.
The fight to cut down on fraud faces other challenges. A recent survey conducted by the Coalition Against Insurance Fraud found greater acceptance of such activity by younger Americans. For example, while less than 2% of those aged 65+ said they felt “envious or motivated” to commit insurance fraud if someone they know had gotten away with it, nearly 27% of those 18-to-24 felt similarly.
Additionally, nearly 74% of those over age 65 responded that they are personally affected by insurance fraud, compared to just under 37% of those aged 18-to-24.
Smith said there is a real need to change the hearts and minds of the American public on the issue. “All of us have a duty to stop insurance fraud,” he said. “And all of us have a neighbor, a friend, or a family member who does it, and we just snicker.”
Education is essential. There are several instances where staged accidents and arson fires led to the deaths of innocent bystanders or public safety officials. Navarro said Delaware has an ongoing public service campaign that lets residents know about the dangers of insurance fraud. But more has to be done.
“It’s not going to be easy,” he said.
The webinar recording and slides are available free of charge to all Academy members. To access them, log in to your member profile.
TED GOTSCH is the Academy’s senior policy analyst for content and publications.