According to the April 2015 issue of Best's Review, the U.S. Bureau of Labor Statistics shows the number of "claims adjusters" at 51,200, down 6.06 percent from a year earlier. (It was down over 7 percent the month before.) The number of "third-party administrators" is 160,400, up 2.43 percent from April 2014. Meanwhile, the Insurance Information Institute's Fact Book 2015 reports that "questionable claims" increased by 15.9 percent between 2011 and 2012 and in March of 2015 that "property/casualty insurance fraud amounts to about $32 billion a year, according to industry estimates." That's up from previous estimates of $29 billion. The industry estimates that fraud costs about 10 percent of the PC industry's incurred losses.
What's wrong with this picture? I asked Barry Zalma, of the Claims' Advisory Board and a frequent columnist, if it wasn't just a bit disingenuous (if not downright dishonest) for the insurance industry to claim all this loss from fraud while at the same time laying off adjusters so that the remaining staff has little or no time to investigate properly and perhaps prevent some of that loss, then pass the fraud loss onto policyholders.
Barry replied, "Reducing staff is not fraud. It is, however, stupid. No one knows how much insurance fraud takes [but] the best guesses I have seen are 3 percent of collected premium, $80 to $300 billion. You can't increase premium fast enough to cover fraud, [but] can make money refusing to pay fraudulent claims by hiring professional claims people who recognize it and know how to gather enough evidence to prove fraud."
The difference between 'fraud' and 'exaggeration'
A good field adjuster will see plenty of both real fraud and what is really just "loss exaggeration," if a claim is properly adjusted. The I.I.I. bases its figures on claims referred to the National Insurance Crime Bureau, and they also cite the Coalition Against Insurance Fraud. Some of this is guessing, and some is fraud exaggeration. There are not enough insurance fraud convictions to prove the estimates. Yet when one sees the same doctor/lawyer combination in auto, falldown or Workers' Compensation claims with the same diagnosis and prognosis day after day, as Dan Rather once said, "If it looks like a duck and walks like a duck, it's probably a duck."
One can also tell by the quack, and there are plenty of physicians out there who will be happy to testify "under oath" for a fee that the claimed injury was as serious as they come. I recall holding three medical reports from the same physician on three different claimants to the light. The reports were identical, except for the dates of treatment and the patients' names.
What can be done, if anything? When thousands of claims are simply "processed" without any real investigation, fraud loss will only continue to grow. Adding staff would not show an immediate improvement because the social culture is inured to the "claims game" of exaggeration and playing the innocent victim. We see lots of ads for plaintiff attorneys, but never insurance ads for anti-fraud, or even anti-exaggeration. The only insurance industry ads boast about lower premiums, yet without stopping fraud, those premiums will continue to mount.
In many states and even under federal laws, physicians' bills must be paid in a relatively short timeframe from when they are received. Do such rules allow insurers time to fully investigate the bill and the injury or disease behind it? Fender-bender claims are routinely handled with little more than an accident report. Nobody is going to go to the scene of a wreck any more unless there are at least two or more fatalities.
Is subrogation or comparative negligence ever taken into consideration in adjusting "routine" fast-track claims? Perhaps insurers need to return to the basics of good adjusting: investigation, evaluation and disposition/negotiation. There are probably a few hundred well-qualified, independent adjusters and experienced company adjusters who know the basics and are ready to "hit the road" to dig out the facts. So why do insurers think it is cheaper to keep them hidden in a cubicle somewhere behind a computer screen?
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