There is no question that insurance fraud costs Americans billions of dollars annually. According to the Coalition Against Insurance Fraud (CAIF), the business of fraud costs the industry an estimated $80 to $120 billion each year. Of course, this translates to increased insurance premiums, which has a negative impact on not only the consumer, but also on the economy in general.
According to most sources, the problem is only getting worse. For instance, the Insurance Information Institute (I.I.I.) studies show that “staged accidents” increased 52 percent 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 statistics related to fraud, such as Florida drivers paying $549 in additional premium specifically as the result of staged accidents. As industry veterans, many of us have become so attuned to the problem that we do not realize that most outside the world of claims are unaware of its existence. My audience, for example, was shocked to learn that 32 percent 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 nevertheless part of a significant problem that needs to be addressed.
As discussed in “Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary,” it is incumbent upon adjusters to dig, and dig deeper. A large part of the solution to identifying and preventing fraud 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, Calif. At the time, the area 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 percent 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 a fallacy. While the propensity for fraud may be higher in some jurisdictions than others, the magnet of easy money is universal.
Spot the Signs
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 must contend with unscrupulous trial lawyers who use bad case law to force payments for claims that never even occurred.
This all virtually 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 true 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 I have discussed, insurance claims is not a career for just anyone. 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, and training them how to properly conduct a thorough investigation is a means to success. At the end of the day, however, it comes 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, carriers can go a long way toward not only attacking the growing problem of fraud, but also 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.