Introductions Roger Owens SIU Program Mgr. Enumclaw Insurance Group
Course Purpose The Purpose of this course is to heighten your awareness of insurance fraud by describing who commits fraud, the types of fraud and to assist you in detecting potential fraud by providing you an awareness of the causes and giving you checklists.
Course Objectives • Define insurance fraud • Understand how insurance fraud impacts insureds, agents and insurance companies • List warning signs of possible insurance fraud for Auto, Premises and Property • Understand steps you can take to minimize insurance fraud • Understand how insurance regulators and others in the insurance industry fight insurance fraud
Agenda • How BIG a Problem is Fraud? • What is Fraud & The Six Elements of Fraud • The Problem of Fraud • Why Fraud Occurs • Detecting Fraud & Fraud Checklists • The Fight Against Fraud
Agenda • What is Fraud & The Six Elements of Fraud • The Problem of Fraud • Why Fraud Occurs • Detecting Fraud & Fraud Checklists • The Fight Against Fraud
What is Fraud? An act of deceiving or misrepresenting, theft by deception or acting with reckless indifference to the truth.
The Six Elements of Fraud 1. False representation 2. Knowingly made 3. Intent to influence or deceive 4. Material fact 5. Reasonable reliance 6. Detriment
Act of Insurance Fraud 1. When a person deliberately lies. 2. When the intent of the lie is for someone to rely on the lie. 3. The other party relies on that lie. 4. As a result of the lie, damages are suffered by the party who was lied to.
Agenda • What is Fraud & The Six Elements of Fraud • The Problem of Fraud • Why Fraud Occurs • Detecting Fraud & Fraud Checklists • The Fight Against Fraud
How Big a Problem is it? 80 Billion Dollars a Year!* How big is $80 Billion? Salaries of 2.2 million American workers for a year. • All personal income taxes for 7.4 million Americans for a year • tuition for nearly 15.6 million students at U.S 4 year college/year • healthcare cost for nearly 2 out of 3 seniors aged 65 & over/year • • every CEO of America’s 500 largest companies for 16 years * Coalition Against Insurance Fraud
What else could you do with $80 Billion? build 293,000 new homes • • Launch 62 space shuttles • build 69 stealth bombers • pay for ½ of all prescriptions drugs now bought by Americans each year • fund cancer research in America for the next 13 years • buy enough oil to power every car, SUV and light truck for 7 ½ months • place 80 billion one dollar bills end to end they’ll stretch to the moon and back 16 times Fraud Inc.: If insurance crooks formed a company called Fraud Inc., it would be a • top 100 Fortune 500 company.
Who Pays the Bill? • Insurance Consumers • Insurance Agents • Insurance Companies • Employees We all pay the freight on insurance fraud !
Insurance Consumers Pay for insurance fraud through higher premiums, which are based on loss costs. When losses are inflated because of fraud, rates rise. The consumer pays for fraud!
Insurance Agent • When premiums increase, insurance agencies may lose business & Commissions • When frauds involving insurance agents receive publicity, the image of all insurance agencies suffer. • Don’t forget loss ratios and earned bonus money! The Agent pays for fraud!
Insurance Companies • Reduces profits • Reduces ability to write new business • Reduces ability to develop & offer new products needed by consumers • Reduces ability to compete in the market with other companies The Insurance Companies pay for fraud!
Employees of Affected Clients • Morale suffers • Loss of jobs • Companies go bankrupt The E mployees pay for fraud! We ALL pay the freight on insurance fraud !
Agenda • What is Fraud & The Six Elements of Fraud • The Problem of Fraud • Why Fraud Occurs • Detecting Fraud & Fraud Checklists • The Fight Against Fraud
Why is Fraud so Prevalent? Three Reasons: 1. Public Attitudes 2. Lack of Laws 3. Lack of Enforcement and Punishment
Reason 1 - Public Attitudes • Weakened moral values • Decline in ethical behavior Lack of understanding of how insurance works • • Prevalent negative public perception of Insurance • Working the insurance system for a profit does not seem like a bad idea
Reason 1 - Public Attitudes 24 % of all Americans think It is OK to pad an insurance claim to make up for past premiums* 35% of all Americans think It is OK to inflate a claim to cover a deductible* *Insurance Research Council
Reason 2 - Lack of Laws 4 factors that would help deter insurance fraud 1. Effect tougher criminal fraud penalties 2. Effect tougher civil fraud penalties 3. Obtain more cooperation/enforcement from law enforcement 4. Establish or enlarge state insurance fraud bureaus
Reason 3 – Lack of Enforcement and Punishment • Fraud is high-reward and low risk • The public percieves fraud as a “victimless crime” • Law Enforcement departments lack personnel and training for fraud enforcement
Agenda • What is Fraud & The Six Elements of Fraud • The Problem of Fraud • Why Fraud Occurs • Detecting Fraud & Fraud Checklists • The Fight Against Fraud
When Can Fraud Start? • Fraud at the time of application for insurance • Fraud at the time of claim submission
When Can Fraud Start? • Fraud at the time of application for insurance • Fraud at the time of claim submission
Remember The existence of a single suspicious circumstance or a combination of circumstances is not proof that fraud has been committed. However, the presence of suspicious circumstances may suggest the claim deserves further investigation
Claim Fraud Common Bodily Injury Schemes Slip and Falls Fake Break Yank Down Big Trip Chew and Sue
Claim Fraud - Automobile Claims Suspect Claim Submissions - Facts More than 1/3 of all auto bodily injury claims appear to involve fraud or claims padding. 25 cents of every dollar paid for bodily injury claims arises from auto. 90% of this is from opportunistic type claims. * *Insurance Research Council
Claim Fraud – Automobile Claims Suspect Claims Activity - Physical Damage Auto Schemes • Side Swipe • Drive Down • Swoop and Squat • Paper Collisions
Claim Fraud – Automobile Claims Suspect Claims Activity - Physical Damage Auto Schemes • Side Swipe • Drive Down • Swoop and Squat • Paper Collisions
Claim Fraud – Automobile Claims Types of Vehicle Theft • 30 Day Special • Export Fraud • Scapegoat Fraud • Owner give-ups • VIN Switch • Cloning
Claim Fraud – Property Claims Claims Schemes – Personal & Commercial Lines • Staged Burglaries • Scheduled Items/Rented Jewelry • Multiple Policies • Lost Not Stolen • Starting a New Business • Floor Plan
Claim Fraud – Fighting Fraud Fraud Fighting Tools 1. Industry Associations 2. Data Bases 3. NICB 4. Law Enforcement 5. Coalition Against Insurance Fraud 6. Insurance Information Institute 7. State Fraud Bureaus
Questions and Answers
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