The average person may think insurance fraud does not hurt anyone, but the 2023 CLM Focus Conference session, “Victimless Crime? Think Again: Insurance Fraud and Understanding the Issues,” showed its audience otherwise.
Presenters Andy Guerra, director of construction defect and litigation, Charles Taylor Adjusting & Technical Services; Bryant Hall, casualty general adjuster, Engle Martin; Jennifer Provost, partner, Wood Smith Henning & Berman LLP; and Nick Sansone, attorney, Turner, O’Mara, Donnelly & Petrycki PC, discussed what fraud is, the different types of fraud, how it impacts the industry, and why it is not a crime without victims.
Insurance fraud, according to the panelists, costs anywhere from an astonishing $40 billion to $60 billion per year—not including medical insurance fraud, which would bring the number to $100 billion per year. The money, said Sansone, ultimately comes from the insurance company, or premiums paid by policyholders, leading to an increase in rates for everyone. “The FBI has estimated that every person’s insurance…goes up an average $400 to $500 per year,” noted Sansone.
Two Main Types of Insurance Fraud
Sansone described two main types of insurance fraud: hard fraud and soft fraud. An example of hard insurance fraud would be staging an accident. “Hard fraud is actual fraud,” explained Sansone. “No accident happened. You have two people claim they were in an accident [and] nobody saw it. A make-pretend slip- or trip-and-fall. A make-pretend workers’ comp injury. The doctor who pretends…to treat [a patient] 13 times over four days. That type of insurance fraud is hard.”
An example of soft insurance fraud, on the other hand, would be a false claim involving pain. He described an example of someone claiming he injured his back in an accident, but it is discovered that he had a history of herniated disks unrelated to the accident.
Between the two, soft insurance fraud is 15 times more likely to occur than hard insurance fraud. “I call [soft fraud] opportunistic fraud,” explained Sansone. “It’s an opportunity…to take advantage and obtain a benefit to which you are not entitled. It does not necessarily have to be money. For example…lying on a policy application…. You’re not obtaining money by saying you don’t smoke on a policy application; you get a lower rate and a higher possible payout benefit for your funds.”
Fraud Explained
The number one type of insurance fraud on the FBI’s list is staged accident claims. In the most common scenarios fraud perpetrators involve an innocent party. “And that innocent party is going to get dragged into this because you have somebody who is going to stop short or back into someone and say they got rear-ended. We’ve seen it all,” said Sansone.
He described a case he had in Philadelphia in which a bicyclist squeezed between a car and a parked car, hit the mirror with his handlebar, threw his bike down, and laid on the ground. The police wrote it down as a bicycle-car collision, and Sansone tried the case. He subpoenaed one of the attorneys who he knew had the bike. “After the plaintiff testified that my client hit him in the back tire, smashed the back tire, and damaged the frame, the bike comes in…[without] a scratch, [except for on] the handlebar.” Despite initial issues with the jury, Sansone and his client ultimately won.
Lack of Consequences
Hall shared an example of a false injury fraud claim to which he was assigned. The claimant stated that her microwave exploded and badly burned her son, and she slipped and hurt her back. He passed the photographs she sent to him around the audience, and it soon became apparent that they were taken from the internet. In fact, some of the images had copyright watermarks still on them, along with “istockphoto.com” links. In a quick reverse Google search, Hall was able to find the images and easily prove fraud. He also discovered that the woman’s son shot another child in the stomach during an argument over marijuana, which meant that he was allegedly burned while in prison. In reality, he went to the hospital after being beaten up. No burns were recorded, nor were there records of the fire department responding to a fire.
In the end, the mounting evidence showed that insurance fraud was clearly being committed. However, no charges were pressed. This, Sansone explained, is the biggest problem with this type of insurance fraud claim—it simply isn’t worth prosecuting. As a result, there is a big incentive to commit it, because “even if you’re caught, insurers [simply say] ‘we’re just going to deny your claim.’”
The seven other types of insurance fraud include dishonesty on life insurance applications, in which people claim to be completely healthy when they aren’t; damage to property (and then claiming it was due to uncontrollable forces such as weather, etc.); attorney fraud claims; falsifying claims; workers’ comp; inflated medical bills; and failure to properly pay a claim.