According to a recent study by the Insurance Research Council, an estimated $319 and $432 million in bodily injury liability payments in California were attributable to claim fraud and buildup in 2002. That means almost one in three auto claims in the state contain some sort of fraud.

The study classified fraud into two categories: misrepresentation and buildup. The appearance of fraud (misrepresentation of key facts of claims) was found in almost one in ten paid California BI claims (9 percent). The appearance of buildup was more common and was found in more than one in five paid California BI claims (22 percent). Buildup refers to the exaggeration of injuries, the application of excessive medical treatment, or the intentional inflation of lost wages by an insured.

While this report shows that claim abuse in California is a significant financial problem, the percentage of claim fraud found in the state was comparable to the percentage found nationwide. The prevalence of BI claim buildup in the state was four percentage points higher than the corresponding national percentage, making the national percentage of claims containing fraud somewhere near 25 percent.

Los Angeles demonstrated even higher percentages of BI claim fraud and buildup: increased claim abuse is typical in many large metropolitan areas in the United States. More than one in ten BI claims in Los Angeles (12 percent) contained the appearance of fraud, compared to eight percent in the rest of the state. Also, nearly three in ten BI claims in Los Angeles (29 percent) contained the appearance of buildup, compared to 19 percent in the rest of the state. The percentage of BI claim buildup in Los Angeles was seven percentage points higher than the percentage found among all metropolitan areas countrywide.

The recently released IRC study Fraud and Buildup in California Auto Injury Insurance Claims examines detailed claim information from 72,354 claims that closed with payment in 2002. Thirty-two insurers, representing 58 percent of the 2002 private passenger auto insurance market in the U.S., participated in the study. The number of closed California BI claims in the sample totaled 4,034. The study asked the insurers to indicate whether any elements of fraud or buildup appeared to be present in the claims. Because the study did not include claims closed without payment, the results do not reflect claims that were denied payment because of clear evidence of claim abuse.

The Insurance Research Council is a division of the American Institute for CPCU and the Insurance Institute of America. More information is available at www.ircweb.org.

Special Reports /

IRC: One in Three California Auto Claims Fraudulent

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