Taking a bite out of insurance fraud

December 13, 2010 at 10:42 am Leave a comment

According to the National Insurance Crime Bureau, Insurance fraud has risen nearly 50% since the onset of the Great Recession.   Perhaps this should come as no surprise, as perpetrators are rarely prosecuted and even when they are tend to get nothing more than a slap on the wrist.   Couple that with increased unemployment, dire financial straights and rising foreclosures and you have a perfect storm for get rich quick schemes with little risk. 

Since my earliest days as a field adjuster some twenty years ago, I have been attuned to the costs of insurance fraud on our society.  According to the Insurance Research Institute, more than 10% of annual premiums are the direct result of fraud, such as staged accidents, while an even higher percentage can be attributed to exaggerated claims.  

In layman’s terms a staged accident is precisely that.   Typically two vehicles, either previously damaged or purposely rammed together, are involved.   The organizers of such scams are called “cappers” and will utilize people off the street as “pawns” who will be paid a sum of money for their time.   In return, the pawns will complete sign in sheets at medical clinics which will get a cut of the final settlement.   The capper then brokers the case to the highest bidding attorney who presents injury claims to the insurer of the at fault vehicle.    The medical clinic doctors up bills for each of the dates that the pawns allegedly treated at the clinic and the attorney uses the bills to present a demand for “pain and suffering”.

There are number of variations on the traditional staged accident, with some ploys such as swoop and squats being used to target innocent drivers of high dollar vehicles who typically have large policy limits.   The most common scenario involves two vehicles, the swooper and the squatter.   The squatter will position themselves in front of the target while the swooper cuts off the squatter, forcing them to suddenly stop which causes the target to rear-end them. 

The scenarios and creativity are endless.  As a young adjuster investigating claims in South-Central Los Angeles, an area known for crime, gangs and illegal immigrant opportunism,  it was often estimated by law enforcement that more than 50% of auto claims were fraudulent.   According to a number of District Attorney’s, this percentage holds true be it L.A., Brooklyn, Miami, Chicago or Detroit.  Despite the prevalence of fraud, most of these claims end up being paid. 

This is due to several factors that range from adjuster work load, lack of expertise and cost of litigation to the unbridled power that trial lawyers often wield over the judicial process and lack of meaningful punishment for committing insurance fraud.   Unfortunately, our society ends up paying more than $80 billion dollars annually in the form of higher insurance premiums.

The foremost authority on insurance fraud remains the National Insurance Crime Bureau, or NICB, who state that staged accidents are becoming more common and are often targeting innocent drivers.   It is important that anyone involved in an accident relate to their insurance company if they are in any way suspicious of the circumstances that gave rise to the crash.  Even then, without absolute proof of an intentional scam, insurance companies may be forced to pay which often leads to further increases in your premiums as you get charged with an at fault accident. 

There are a number of opportunities for insurance adjusters to aggressively investigate potential frauds.   Arguably the best ways involve face to face interactions with those who were allegedly injured.   When pressed, claimants often cannot relate what happened in the accident or will pull out a “script” provided to them by the capper.    Others won’t be able to describe their doctor or the clinic at which they are allegedly treating.  From my own experience, I always kept an array of pictures of friends and co-workers dressed in scrubs and asked the claimants if they recognized anyone.  Invariably the answer was yes, which tended to cases being dropped by attorney’s opting to focus on the less savvy.  Having claimants draw a map from their home to their clinic is another creative way to determine the level of integrity of the party with whom you are dealing.  But getting to this level of detail will require the initiative of the claims adjuster to do the due diligence expected of any fiduciary, and may take some coaxing on your part.  

Not all insurers are equal when it comes to investigating claims.  While some have extensive resources, special investigation units and top of the line training, others have very limited expertise resulting in many claims being paid that, had they been thoroughly investigated, could have been denied.  But with some training, guidance and established procedures by which suspicious claims are investigated, any carrier has the potential to not only fight back and kick the bad guys to the curb, taking a bite out of crime which will improve their bottom line while reducing policyholder premiums. 


Chris Tidball is the author of Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary and has spent more than twenty years in the insurance industry as an claims adjuster, manager, director and consultant.   His innovation solutions help insurers improve their claims processes and bottom line results, giving them a competitive edge in the marketplace.  For information on how to  improve your claim processes, please visit www.christidball.com.


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Chris Tidball is a claims and revenue management consultant and author of the "20 Essential Rules" series of self and organizational improvement books. You can ask him a question at chris@christidball.com

Kicked to the Curb

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