Combating Insurance Fraud The Continuing Fraud Fight

By Howard Goldblatt Insurance fraud is considered the second largest financial crime in the U.S., behind only tax fraud. Estimates vary, but insurance fraud steals at least $80 billion a year. This is the Coalition Against Insurance FraudaEUR(TM)s estimate, which is conservative and widely accepted as a reasonable figure. Exact figures remain elusive. Still, fraud without question steals tens of billions of dollars a year and causes untold harm to the lives of consumers. So why is fraud so large?
  • The health system is an easy target. Medical providers exploit automated billing systems with cleverly disguised treatment claims.
  • Low-risk crime. Insurance fraud is viewed as a low-risk, high-reward gambit. Drug dealers and organized crime syndicates commit insurance fraud schemes to help fund their other criminal activity.
  • Insurers back off. Most insurers actively combat insurance fraud. Yet some still pay certain suspicious claims, believing this is cheaper than going to court.
  • Low legal priority. Prosecutors often give higher priority to combating drugs, violence and other high-profile crimes.
  • Too much tolerance. Some people mistakenly think insurance fraud is a harmless prank.
Honest consumers, businesses and communities pay for this crime. Money is stolen, premiums are higher and lives, families, and businesses are wrecked. Some people even are killed. At one point insurers viewed fraud merely as the passalong aEURoecost of doing business.aEUR? Most insurers have taken a far-more-assertive stance in combating this crime in recent years. The Coalition Against Insurance Fraud is Formed The Coalition was created in 1993 because a stronger effort was needed to strengthen state insurance fraud laws, and increase consumer awareness and buy-in. Insurers alone could not convince state lawmakers that insurance-fraud laws were needed, in part because insurer involvement was viewed as a self-serving effort. Several major insurers partnered with the Consumer Federation of America to create the Coalition to help move the needle in anti-fraud efforts. This new alliance drove home the message that consumers are the real victims of insurance fraud. The Coalition is a national alliance of insurers, government agencies and consumer groups combating all forms of insurance fraud through legislation, consumer education, research and collaboration. We are a national clearinghouse, providing fraud fighters more tools and keeping the spotlight on this crime. The Coalition unites all stakeholders. We are recognized as a leading voice for anti-fraud efforts across the U.S. Very few states made insurance fraud a specific crime when the Coalition opened its doors. Most prosecutors went after fraudsters by using state laws such as theft by deception. Those laws usually meant insurers had to pay a phony claim before a crime was committed. Not anymore. The Coalition works with insurance regulators through the National Association of Insurance Commissioners (a founding member of the Coalition) and individual state insurance departments to strengthen anti-fraud efforts. We also advise the National Conference of Insurance Legislators. The CoalitionaEUR(TM)s first job was to craft a broad state model insurance-fraud law. A key element of this is a broad definition of fraud. It includes scams against insurers and consumers. The penalty varies with the amount of the fraud. The model also was the first to include a strong civil remedy. This broadens the options of state regulators to go after ringleaders who insulate themselves against criminal prosecution. Today all states have made insurance fraud a specific crime except two aEUR" Virginia (even though the state has an insurance fraud unit based in the state police to investigate the crime of what would be insurance fraud) and Oregon. More than 20 states used our model to enact their own fraud laws. Importantly, attempting to commit an insurance scam also is considered the same as committing the scheme. An insurer does not need to pay a fraudulent claim to report a crime. Most states have a specific insurance fraud law aEUR" and often multiple statutes addressing fraud from different angles. The vast majority of states also have created bureaus that investigate and prosecute insurance fraud. These fraud bureaus generally are housed in the Insurance Department, though some are in the State Attorney GeneralaEUR(TM)s office or the State Police. Several states have a fraud law yet still need a fraud bureau to provide an infrastructure for combating this crime. This gap leaves insurers and other fraud fighters scrambling to figure out who to contact in government to investigate and prosecute fraud in those states. Strengthening anti-fraud efforts goes beyond pushing for stronger laws and regulations. Combating this crime requires educating legislators and regulators about the high cost society pays for insurance schemes. Consumers also need educating to deter them from inadvertently committing fraud, and to empower them to avoid being scammed by insurance predators. The CoalitionaEUR(TM)s consumer outreach through the news media, social media, videos and other efforts have helped increase consumer understanding about fraudaEUR(TM)s cost and who really pays for it.

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