Archive for August, 2015

What Coverage’s should you have on your vehicle?

What Coverage’s should you have on your vehicle?

The coverage’s that an individual needs is highly dependent upon their personal and financial situation.   The key to getting the right coverage’s is to understand them and to make an informed decision.   Most states have minimal requirements for liability coverage, and a few have requirements for personal injury protection.   Let’s examine each coverage and its applicability.

Bodily Injury Liability or BI coverage will provide protection to your or anyone meeting the definition of an insured under your policy.  It is important to read the policy definitions to understand who will be covered while driving your vehicle.   BI coverage is typically provided on a per person and a per occurrence basis, such as $25,000 per person and $50,000 per accident.  This means that the most the insurer will pay is $25,000 per person but not more than $50,000 in totality.   Policies can also be purchased as a combined single limit, such as $300,000CSL.   This means that the insurer will pay up to $300,000 in total, irrespective of the parties involved with no individual limit up the purchased amount of coverage.

Property Damage or PD coverage will provide protection in the event that you or anyone meeting the definition of an insured under your policy.   Most states have a requirement for a minimum amount of property damage coverage.   This coverage is provided on a per occurrence basis, such as $10,000 per accident.   It is important to note with the rising prices of vehicles, state minimums are often insufficient, so it is recommended that you consult with an agent to secure the appropriate amount of coverage.

Uninsured Motorist Coverage protects you or others as defined in your policy in the event that an uninsured driver causes an accident resulting in injury to you or other covered parties.   Like liability, this coverage will generally have split limits on a per person and per occurrence basis, although some carriers also offer combined single limits.   In some states this coverage can be offered as stacked versus non stacked.  Stacked means that your UM coverage can be multiplied by the number of vehicles on the policy.   For example, if you had $25,000/$50,000 UM stacked on four insured vehicles your coverage would be $100,000/$200,000.    Non stacked means that your coverage’s are what you purchased and the other insured vehicles would not come into consideration.

Under-insured Motorist coverage or UIM protects you or others as defined in your policy in the event that someone with limited liability coverage causes an accident resulting in injury.  Consider a situation where a person has minimal limits of $25,000/$50,000 but your injury is far more severe.   If you had UIM coverage of $100,000/$300,000, it would kick in to cover portions above the underlying at fault party coverage.   In some states you would be entitled to the full amount of your coverage, in others there may be an offset for underlying liability coverage.

Uninsured Motorist PD and Under-insured motorist PD, or UMPD/UIMPD, provides coverage to your vehicle in the event that an uninsured or under insured motorist causes property damage.    These coverage’s vary by state and availability should be determined through a local agent.

Collision provides insurance to your vehicle in the event of an accident, irrespective of fault.   This coverage typically has a deductible that is applied in the event of a crash.    If you have a $2000 dollar estimate for damages and your deductible is $500, your net proceeds from the insurer would be $1500 dollars.

Comprehensive provides insurance to your vehicle for damages other than collision such as theft, vandalism or floods.   Filing a claim under comprehensive is not considered a chargeable accident.   There is typically a deductible.   Some carriers provide specified perils only coverage as opposed to comp, so it is important to understand what those specified perils cover.

Personal Injury Protection or PIP provides coverage to the insured and others as defined in the insurance policy for medical expenses and related costs as the result of an accident.   It will coverage reasonable medical expenses and in some cases things like lost income, replacement or substitute services.   Only 13 states require PIP coverage.  In other states it is optional.  The coverage limits vary by state.

Medical Payments Coverage provides coverage to the insured an others as defined in the insurance policy for medical costs associated with an auto accident.   Medpay is available in most jurisdictions and can be purchased in some PIP states to coverage out of pocket deductible and copays.

Aftermarket Equipment provides coverage for non factory add ons to your vehicle such as new rims, a high end stereo or vehicle customization.    It is important to understand that an insurer is covering only what comes out of the factory in most situations.   If you have add on equipment, you will need to consider adding this coverage.

Rental coverage provides a daily amount, typically reimbursable, for rental charges incurred when your vehicle has been involved in an accident.  In some situations, there may be rental available through your carrier when the insured vehicle is inoperable.   This should be verified with your agent or insurer.

Towing Coverage will provide reasonable reimbursement in the event of a vehicle breakdown.   Coverage’s and limitations will vary by policy.

Roadside Assistance may also be available depending on the insurance carrier.

The big question now is how much coverage is needed and that depends on your individual situation.   It is recommended that you speak with a licensed agent or direct seller of insurance to determine exactly what is needed to protect your assets.   As a final disclaimer, the content of this blog should not be construed as legal advice.  If you have a legal question, please consult with an attorney.

ee insurance carrier.

The big question now is how much coverage is needed and that depends on your individual situation.   It is recommended that you speak with a licensed agent or direct seller of insurance to determine exactly what is needed to protect your assets.

August 21, 2015 at 9:15 am Leave a comment

Cartel Connection: The link between insurance fraud, drug cartels and terrorism

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Insurance fraud is a growing global phenomenon. In the United States alone, it is estimated that insurance fraud is an $80 billion dollar industry, second only to narcotics trafficking. Not surprisingly the two are often connected. According to the Coalition Against Insurance Fraud, there has been an increase in organized transnational crime rings using insurance fraud as a vehicle to fund illegal activities. Compounding matters, it appears that terrorists are also capitalizing on these crimes to make a quick profit.

According to CAIF, growing symbiotic connections among cartels trafficking drugs, terrorists, cyber thieves, mob syndicates and organized insurance fraud are utilizing one another’s skill sets to profit in the belly of the underworld. These syndicates often base their operations in third world nations with broken laws and corrupt officials where they can have unfettered access to a lawless environment. Insurance fraud, even in developed countries, provides a relatively easy, low risk and highly profitable means by which international drug cartels and terrorist organizations can make money to fund other enterprises.

According to Fraud Magazine, “there is a significant link between insurance fraud and terrorist activities. The threat of terrorism has become the principal security concern in the United States since 9/11. Some might perceive that fraud isn’t linked to terrorism because white-collar crime issues are more the province of organized crime, but that perception is misguided. Terrorists derive funding from a variety of criminal activities ranging in scale and sophistication – from low-level crime to organized narcotics smuggling and fraud.”

For those who have read my latest thriller, Swoop & Squat, you saw firsthand the impact of fraud on our society. While a work of fiction, the book is based upon real life experiences occurring over the course of my career in claims. In a recent investigative article, the Florida Times-Union used the book as a backdrop for the very real problem of insurance fraud in Florida. The reality is that fraud is not a fictional topic and comes in all shapes and sizes, from credit card and wire fraud to identity theft and insurance scams.

During a recent meeting with a global claims leader I was asked to explain just how these frauds are perpetrated. While there are a number of ways, let’s examine the basic process of pulling off a scam and laundering the funds in a post 9/11 world.

The first thing to recognize is that criminal enterprises have expenses. It is estimated that the 2005 London bombings cost about $15,600. The 2000 bombing of the USS Cole is estimated to have cost between $5,000 and $10,000. Al-Qaida’s entire 9/11 operation cost between $400,000 and $500,000, according to the final report of the National Commission on Terrorist Attacks upon the United States.

Both drug cartels and terrorist organizations require significant funds to create and maintain an infrastructure of organizational support. To give the appearance of legitimate activities, these criminal syndicates will often set up shell companies in order to launder proceeds.

The key to gaining the upper hand is to recognize how these frauds are perpetrated. A simple example of a fraud may be a vehicle owner giving up their vehicle and then claiming it was stolen. In the vehicle give up, the person receiving the vehicle may either chop it up for parts or send it overseas with an altered vehicle identification number. These types of claims are hard to prove and insurers often end up paying the policyholder the value of the vehicle. On the other end of the deal, the buyer could range from an unsuspecting customer purchasing a car for less than retail to someone who has more sinister intentions.

In more complicated schemes, there may be rings of associates who perpetrate staged accidents. In these scenarios, there is often a capper involved. The capper is the person who orchestrates the accidents, provides the cast of low paid participants to play accident victims with scripts and then brokers the claims to unscrupulous lawyers and medical providers.
In a simple scenario, two cars are brought together in a vacant parking lot of alley. They may be run into one another, or they may have previous damage. There will be one person who will play the role of the insured. They will have a policy, which is usually new and with lower insurance limits. The other car will then have three or four occupants who will all claim injury. Each person is given a script of what to say to the insurance company.

The occupants who feign injury are paid a paltry sum for their cooperation. The capper gets a larger sum and the unscrupulous attorney can retain what is left over. Some or all of these funds may find their way into bank accounts that funnel money to more sinister operations.

While there are defense mechanisms, such as OFAC, or the Office of Foreign Asset Control, in place to flag potential terrorists and drug lords, the high profile persons that might get flagged often use lower level associates for which there is no record.

In a Department of Justice Report it is stated that at a federal level steps have been taken since 9/11 to combat fraud through the enactment and modification of laws and rules, such as the USA PATRIOT Act, Border Security and Visa Entry Reform Act, and federal fraud statutes. All of these legal vehicles deal with crimes that have been traditionally referred to as white-collar crimes, including money laundering, identity theft, credit card fraud, insurance fraud, immigration fraud, illegal use of intellectual property, and tax evasion. Reasons behind this approach to counter-terrorism include the belief that terrorist activities require funding, not only for weaponry, but also for training, travel, and living expenses. These activities require various acts of deception, such as the creation and use of false identifications.

Even though the nexus between fraud and terrorism is undisputed, there’s concern at state and local levels that law enforcement professionals lack specialized knowledge on how to detect the fraud-terror link because they’re more apt to investigate and prosecute violent crimes. The same can often be said of insurance claims investigators working for a variety of insurers who may be confronted with fraudulent claims.

Fraud comes in two types; hard fraud and soft fraud. Hard fraud is an outright and orchestrated fraud. It may be a staged accident, an owner giving up a vehicle, or a faked death. This type of outright fraud accounts for about 10% of all claims in the United States. Soft fraud involves legitimate claims that are exaggerated. This could be anything from burying a deductible to medical buildup and deceptive billing practices such as upcoding, unbundling or modifier abuse. It is estimated that about one third of claims fall into this category. These can be very difficult claims to identify and even more difficult to prosecute.

How does the typical soft fraud work? An unscrupulous attorney will refer a patient to an unscrupulous provider who will perform a significant amount of medically unnecessary procedures, up to and including surgery. The insurance carrier is then billed for substantial medicals, and often times accepts the bills as incurred when settling personal injury claims.
Given the propensity of hard and soft fraud, and the challenges in prosecuting such claims, what is an insurer to do? To get ahead of the problem, the industry must come together and demand lawmakers take critical steps to reign in fraud. There need to be serious penalties for committing insurance fraud and law enforcement and insurers need to be given the teeth to take a bite out of this crime.

There should also be an educational outreach to the public, who generally are unaware of the vast network of criminal syndicates behind organized insurance fraud rings. If the public were fully aware of how much of their hard earned money is spent on illegitimate claims there would be outrage. These expenses go well beyond just premiums, as there is an embedded tax on goods and services as the result of rising costs associated with fraud against merchants. This doesn’t even include the hidden litigation tax that consumers are hit with to pay for the cost of frivolous litigation.

This is an epic problem that can be contained, but it will take a unified front to effectively lobby lawmakers for change. In most jurisdictions, insurance fraud is a crime prosecuted by the state. In some states it is classified as a felony, in others a misdemeanor. There are some circumstances when it can rise to a federal crime under federal mail or wire transfer statutes. A good first step would be to increase the severity of insurance fraud to a felony across the board and then provide significant fines, penalties and forfeiture laws.

Given the interstate dealings of many insurers, increased use of the internet, and the transfer of funds, perhaps more cases should be pushed to the federal court system with investigating agencies such as the Department of Justice, Treasury Department, FBI and ICE given wider latitude in investigating and prosecuting these claims with a fast track for deportation of any non-US citizens involved in perpetrating insurance fraud.

With insurance fraud on the rise, it is essential that more focus be put on this epidemic. It will take a collective effort between the insurance industry, consumer groups, elected officials and federal, state and local law enforcement to effectively bring about meaningful change. While some states have taken initial steps to stem this problem, far more needs to be done. The time is now to collectively work to bring about meaningful tort and legal reforms.

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Christopher Tidball is a claims consultant and author of multiple books including Swoop & Squat and Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary To Extraordinary. His career has spanned more than twenty five years in adjusting, management and executive roles for multiple Top 10 P&C carriers. To learn more, please visit http://www.christidball.com

August 20, 2015 at 7:59 am Leave a comment


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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

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