The Coalition Against Insurance Fraud estimates that insurance fraudsters steal at least $80billion worth of insurance payouts every year. Surprisingly,insurance fraud is still often viewed as a victimless offense. Inactuality, insurance fraud does not just affect insurancecompanies, but also costs the average household between $400 and$700 in increased insurance premiums annually, not including healthinsurance fraud.

The true cost of fraud is difficult to nail down because claimscould be inflated, staged or even completely fabricated. In orderto mitigate these damages, state insurance commissioners launchinvestigations into alleged fraudsters and eventually file chargesand seek their arrests. It can often take months, if not years, forlaw enforcement to track down alleged insurance fraudsters who failto appear in court.

States are working with carriers to try to combat fraud, andsome states have developed statutes making fraud a felony incertain jurisdictions. Several states have fraud departments, andencourage carriers to support state fraud actions and usestandardized forms. Some states have statutorily mandated reportingrequirements for insurance companies who detect fraud.

Insurance carriers often have Special Investigations Units(SIU). When an investigation of a potentially fraudulent claim ismerited, the members of the SIU are expected to investigate thecase thoroughly to determine if they can prove insurance fraudoccurred. Another step a few state insurance offices have taken tomitigate the cost of insurance fraud is the creation andmaintenance of an insurance fraud Most Wanted list.

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Fraudsters wanted

Insurance fraud most wanted lists are generally online listsfeaturing the names and pictures of alleged fraudsters. Thoseindividuals appearing on a list are included for failing to appearin court to answer charges of criminal insurance fraud and theft.These lists have become more valuable as use of the internetincreases.

The lists popularize the faces of fraud and generate tips fromthe public on the possible locations of fraudsters. Since the listsare on the internet, even if a person on the list has fled toanother state, he or she may still be caught because of theincreased online exposure. These lists also help to educate thepublic on the amount of insurance fraud occurring, the potentialcost to individuals, and specific actions the public can take tohelp authorities catch fraudsters.

Those on the most wanted lists have committed a wide range ofinsurance fraud such as stolen car fraud, where a fraudster eithersells a car for parts and reports it missing, or sells the caroverseas and reports it stolen. Auto accident fraud may involvelegitimate accidents where claims are inflated, or an accidentcaused by fraudsters who plan to claim property damage and bodilyinjury on an unsuspecting victim's insurance policy.

Property insurance fraud occurs when individuals destroy theirown property or make a false report of theft involving personalitems or vehicles to obtain payouts from their insurance companies.Insurers often pay more in personal property claims than theproperty would be worth at resale.

Sometimes, personal property claims are inflated to claim lesserquality or value items than were actually owned by the insureds.The most serious property insurance fraud schemes involve arsonbecause there is a greater risk of injury or death, and insurancecovers not only the burned structure, but also all of the home'scontents.

Business owners sometimes resort to arson when a company beginsto fail or is not as profitable as expected. Another popular schemeis contractor fraud, where a typically unlicensed contractorperforms substandard repairs or offers services that intentionallycheat the homeowner. Contractor fraud schemes generally target theelderly and perpetrators ask for payments up front with nocontracts to sign.

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State are getting creative with efforts to educate thepublic about repeat fraudsters. (Photo: Shutterstock)

How states use most wanted lists

Most wanted lists can be useful for identifying contractor fraudbecause it will generally happen after a local natural disaster,and the fraudsters will typically go house-to-house solicitingwork. If homeowners have seen a contractor's picture on a mostwanted list, they will be able to identify him as a known fraudsterand notify their state insurance office.

Washington State has successfully used most wanted lists.Washington's insurance commissioner has focused on ensuringconsumers have access to reasonably priced insurance products thatprovide the service promised. The most wanted list helps to achievethat goal by publicizing fraudsters, not to embarrass or harassthem, but to ensure they do not receive a benefit that costs otherconsumers. The department sends out emails identifying individualson the fraud most wanted list.

Utah has a similar most wanted list, listing about 10 of themost egregious alleged fraudsters at a time. Florida's Most Wantedlist takes a different approach, listing 50 fraudsters at any giventime. All three states receive hundreds of tips each year andattribute several arrests annually to the most wanted lists.

However, it is not just individual states monitoring insurancefraud. The National Insurance Crime Bureau (NICB) is a not-for-profit organization that works withinsurance carriers and law enforcement agencies to combat insurancefraud. After an SIU investigator concludes investigating apotential fraud case, he reports his findings to an adjuster whothen decides what to do with a claim.

If the claim is denied or reduced, he reports the insured to lawenforcement or the state department of insurance, and the NICB. TheNICB mainly focuses on motor vehicle theft, providing afree-to-the-public service called VINCheck, which allows potentialcar purchasers to ensure a vehicle has not been declared assalvage. NICB also advocates for better insurance fraud statutes incriminal codes; provides tools to help combat personal injury claimfraud; and has task forces, research results, data and crime-trendanalysis available to members.

Fraudsters also may appear on the FBI's true Most Wanted list,as insurance fraud can be very costly, involve more than one state,and include severe injury, dismemberment or even death. Theinsurance industry loses billions to insurance fraud annually. Manythink it is a victimless crime, assuming carriers have lots ofmoney, and not realizing that those losses result in higherpremiums for all.

Hannah Smith ([email protected]) is an editor withFC&S Online, the authority on insurance coverage interpretationand analysis for the P&C industry. It's the resource agents,brokers, risk managers, underwriters, and adjusters rely on toresearch commercial and personal lines coverage issues.

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