Agents Fight Fraud On The Front Line

Industry officials battling insurance fraud say that the role of the independent agent is critical to their efforts and that producers are a first line of defense to stop such criminal behavior.

But more must be done to involve agents in the anti-fraud effort, these sources say.

Under the best-case scenario, a diligent, properly trained agent can recognize the signs that fraud is being committed and can either report the incident to law enforcement officials or prevent it by not writing the policy. In the worst-case scenario, industry representatives say, agents can be lax or even orchestrate the fraud.

“Agents tend to be honest and want to do a good job, otherwise they will not be in the industry for long,” said Thomas M. Regan, an attorney and senior member of Cozen OConnor in Philadelphia.

A former district attorney, Mr. Regan has spent the last 20 years representing insurance companies in fraud matters and also represents the firm on privacy issues.

One common type of fraud an agent can be instrumental in preventing, Mr. Regan said, deals with misinformation on policy applications.

Among the responsibilities agents and brokers have is to make sure information on the application is filled out and transmitted correctly to the underwriter, Mr. Regan said. But their role, he insisted, goes beyond just transmission of information when the agent is aware of prior loss information not listed in the application.

An agents knowledge of a commercial account applicant that changed the name of the company after a loss would be understandably crucial to the insurer, Mr. Regan said, adding that the agent has an obligation to transmit that knowledge.

Even after the client receives insurance, the producer is obligated to report new information as it becomes available. This applies whether it is because of a mistake in the application on the agent's part or because of a condition the agent was unaware of at the time of the application, Mr. Regan said.

There is a need for a more coordinated effort between insurance companies and the agents to halt fraud, according to Marty Nevrla, director of insurance fraud investigations for the Arkansas Department of Insurance, who chairs the National Association of Insurance Commissioners' Anti-Fraud Task Force.

He said he finds some independent agents to be uncooperative with investigators, preferring to relay information to insurers.

While he described the majority of agents as ethical and honest, he noted that when they do report fraud, they relay the information to companies. Part of the problem, Mr. Nevrla noted, is that few states have strong reporting requirements on fraud.

Another fraud problem, he said, is agents who overlook suspicious items on an application.

In part, the problem is that agents do not want to get “a black eye” in the industry, and when they are troubled by fraud, they will be more likely to report it anonymously, Mr. Nevrla observed.

He also blamed companies that either keep sloppy records and do not follow-up on fraud cases, or “turn a blind-eye” to a problem in an agency when the agent is a good producer.

Mr. Nevrla noted that a growing fraud problem is agent involvement in illegal investment schemes that bilk clients out of their savings. In some cases, agents become unwitting participants; and in others, they are the culprits.

James Quiggle, director of communications for the Coalition Against Insurance Fraud in Washington, said that because agents are trying to diversify their incomes and have growing opportunities in the financial arena, they sometimes allow themselves to get into schemes that spell disaster.

The legal system is holding agents to a high degree of accountability, Mr. Quiggle noted. Agents have to properly investigate an investment to make sure it is legitimate and ensure they are not getting in over their heads.

“A well-intentioned agent can be scammed just as easily as a trusting client can be,” said Mr. Quiggle.

No one can say for certain how many agents get involved in some kind of fraud, according to James Spiller, executive vice president of the National Insurance Crime Bureau in Palos Hills, Ill. However, a key to reducing agent's involvement in fraud is through companies working closely with them and educating them on what to look for and what to do if they spot potentially fraudulent activity.

Mr. Spiller said one anti-fraud educational initiative under development is the National Insurance Crime Training Academy. The online program is being put together by the National Association of Independent Insurers, based in Des Plaines, Ill., as well as the FBI.

Nicole J. Larouere, industry and member communications manager for the Alexandria, Va.-based Independent Insurance Agents of America, said the group is planning to target fraud as an important issue this year in conjunction with Future One, the IIAAs industry coalition. The coalition is planning to explore the issue to determine what it needs to do to assist in the fight against fraud, she said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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