Insurance Fraud 101: Sometimes a hunch is all it takes

There is no question that insurance fraud costs Americans billions of dollars annually.   According to the Coalition Against Insurance Fraud, this industry is an estimated $80 to $120 billion annually.  Of course, this translates into increased insurance premiums that has a negative impact on not only the consumer, but the economy in general.  

According to most sources, the problem is only getting worse.   For instance, the Insurance Information Institute studies show that “staged accidents” increased 52% in the state of Florida from 2009 to 2010.  CBS Evening News just ran a special report exposing not only the fraud, but just how easy it is to pull off.

During a recent presentation of non industry professionals, I shared some statistics related to fraud, such as Florida drivers paying $549 in additional premium specifically as the result of staged accidents.   As industry veteran’s, many of us have become attuned to the problem not recognizing that most outside the world of claims don’t know that it even exists.    My audience was shocked to hear that 32% of all billings for auto accident related injuries in the state of Florida are for services never even rendered!

Staged accidents, swoop and squats, run downs, cappers and pill mills are foreign to the average vernacular, but are a significant problem that must be dealt with. 

As discussed in Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary, it is incumbent upon adjusters to not only dig, but dig deeper.   A large part of the solution to fraudsters is better trained, highly motivated staff with an insatiable curiosity for the truth. 

I began my adjusting career a number of years ago in South Central Los Angeles, which at the time, was the nation’s epicenter for insurance fraud and staged accident rings.   The  Los Angeles County District Attorney opined then that as many as 50% of local auto claims contained elements of fraud. 

The problem has only gotten worse, expanding to cities of all sizes from coast to coast.   To think that staged accidents are limited to Miami, L.A. or New York is simply not true.   While the propensity for fraud may be higher in some jurisdictions than others, the magnet of easy money is universal. 

Improving claims processes to proactively identify potential red flags is critical to reducing fraud.   At the highest level it takes insurers working with law enforcement and the courts to create effective deterrents.   The law enforcement community must have the teeth necessary to investigate, while insurers are held harmless from unscrupulous trial lawyers who use bad case law to force payments for claims that never even occurred. 

But this is all meaningless unless there is an acute focus to basic blocking and tackling by adjusters, who must have the fundamental knowledge and skills to identify, investigate and report fraud.   Far too often, these skills are missing as the cultural focus of some insurers has moved away from investigation to merely claims processing.  

You may recall the movie Double Indemnity, a 1944 thriller about Barton Keyes, a savvy, take no prisoners claims manager.    In the movie, Keyes becomes suspicious when a policyholder is killed and the wife seeks to collect on a double indemnity clause relating to an “accident death” when her husband allegedly fell off of a train.  

In the end it is the savvy of Keyes that unravels the caper with such quotes as, “Now look, Walter. A guy takes out an accident policy that’s worth $100,000 if he’s killed on the train. Then, two weeks later, he IS killed on the train. And, not from the train accident, mind you, but falling off some silly observation car. You know what the mathematical probability of that is? One out of, oh, I don’t know how many billions. And after that, the broken leg. No, it just, it just can’t be the way it looks. Something has been worked on us!”

By his own admission, Keyes was guided by his “little man” which was a reference to his heart.   This  gave him intuitive ideas, or hunches,  that helped him solve cases of insurance claims.   As discussed in Re-Adjusted, insurance claims is not a career for just anyone as it takes a unique set of skills, not the least of which is intuition, to effectively investigate and resolve claims.  

Hiring the right people is the foundation, training them how to properly investigation is a means to success, but at the end of the day it does come down to one’s ability to have the perception necessary to seek out the truth in an increasingly complex world.   

By re-emphasizing the investigative aspects of insurance claims investigations, carriers can go a long way towards not only attacking the growing problem of fraud, but towards gaining a competitive edge in the marketplace.   While once a mainstream approach to claims, this now seemingly outside the box paradigm is precisely what can take an organization from ordinary to extraordinary. 

 

Christopher Tidball is an executive claims consultant and the author of multiple books, including Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary!  He is an industry veteran who has held multiple jobs in claims, management and executive leadership for multiple Top 10 P&C carriers.  To learn more, please visit www.christidball.com or email chris@christidball.com