The Coalition Against Insurance Fraud's recentlyreleased interim survey of state insurance fraud bureausincludes some predictable stuff, and a couple of surprises. Forinstance, it's no surprise that the bureaus reported that all typesof insurance fraud were up, and that their operating budgets weredown.

What did surprise me, though, was that agent fraud isthe third most prevalent form of fraud being reported by thebureaus, right behind bogus health insurance and drugdiversion:

Suspect cases involving insurance agents increased substantiallyyear-to-date in 2009. A total of 69% of respondents said agentcases were up slightly higher or much higher so far in 2009, whilea quarter reported no change. Only one bureau said the number ofcases involving agents had fallen in 2009.

We contacted CAIF's DennisJay, who minced no words:

Let me be clear upfront: The vast majority of agents arehonest and committed to their clients' best interests. Buta small and disturbingly growing minority are painting the entireprofession as a bunch of crooks. .

Survey results and CAIF's own database of agent fraud casesculled from news stories and other sources shows a steady increasein agent cases since 2007 through 2009. “This suggests agent fraudcases may be rising, but also may reflect increased crackdowns byinsurers, fraud bureaus, state AGs and other fraud fighters tobetter detect agent scams,” Jay said. “Or it may reflect bothtrends. At bottom, agent scams are a significant consumer problem,and constant headache for insurers and state regulators alike.”

Stealing premiums without buying the promised coverage is one ofthe most common forms of agent fraud. “It's easy to commit, and canleave clients dangerously uncovered when they have a claim,” Jaysaid. “Some agents are selling bogus health coverage, which isspreading rapidly around the U.S. We're also seeing producersselling overpriced life products clients may not need, want orunderstand. Seniors especially are frequent victims of annuitiesscams. “

Crooked agents also are selling “shady investments innon-insurance areas far out of their insurance expertise, and oftenwithout a license,” Jay said. “Smaller businesses in high-riskoperations also have been sold fake liability coverage or hadpremiums stolen. They're vulnerable because liability premiums tendto be high and coverage isn't always easy to find.”

Agent fraud is the Mr. Hyde opposite of the Dr. Jekyll ofagent-as-expert-consultant, with wise guys using their industryknowledge to exploit the average Joe, Jay said. “Dishonestproducers coldly exploit their position of trust. They'reauthorities in a highly complex, technical arena that most peopledon't easily understand. So average, trusting consumers tend tobelieve whatever agents tell them. This is especially true ofseniors, who've built up larger portfolios that crooked agents tryto drain. The profession's leadership and carriers also keep urgingthe public that agents are professionals that people can trust. Sowhen people believe the marketing messages, trust their agent andthen get swindled, that leaves a bad taste in the public'smouth.”

To avoid public backlash, Jay recommended that the industry getbehind some serious housecleaning.

The agency community's associations across all lines should bechallenged to aggressively help weed out the bad actors beforestate legislators take punitive actions and the agency profession'spublic image among customers plummets lower. If people think theycan't trust producers, their first temptation might be to trydirect writers. There's so much at stake competitively that theentire agency community, especially the leadership, shouldaggressively clean out its closet.