Short History of Antifraud Efforts
Fraud in insurance has undoubtedly existed since the industry’s beginnings in the seventeenth century, but it received little attention until the 1980s because law enforcement agencies had other priorities and were reluctant to provide the training needed to investigate and prosecute cases of insurance fraud. And, given the fine line between investigating suspicious claims and harassing legitimate claimants, some insurers were afraid that a concerted effort to eradicate fraud might be perceived as an ant consumer move. In addition, the need to comply with the time requirements for paying claims imposed by fair claim practice regulations in many states made it difficult to adequately investigate suspicious claims
But by the mid-1980s the rising price of insurance, particularly auto and health insurance, together with the growth in fraud committed by organized criminals, prompted many insurers to reexamine the issue. Gradually, insurers began to see the benefit of strengthening antifraud laws and more stringent enforcement as a means of controlling escalating costs – a pro-consumer move – and they found ready allies among those who been adversely affected by fraud. These included consumers, who were paying for fraud through their insurance premiums; the people used by organized fraud groups to file false claims, often the poor, who sometimes found themselves on the wrong side of the law; and chiropractors and other medical professionals who were concerned that their reputation as a group was being tarnished by organized fraud ringleaders who had recruited their members to make fraudulent claims for treatment.
In their fight against fraud, insurers have also been hampered by public attitudes. Ongoing studies by the Insurance Research Council show that significant numbers of Americans think it is all right to inflate their insurance claims to make up for all the insurance premiums they have paid in previous years when they have had no claims, or to pad a claim to make up for the deductible they would have to pay. In addition, insurance fraud must compete with violent and large-scale white collar crime for prosecutors’ attention and resources. Prosecutors commonly use a dollar threshold before they will allot resources to trying fraud cases without investigating the merits of a case.
Antifraud activity on the part of state fraud bureaus and SIUs (special investigative units within insurance companies) increased in the 1990s. Heightened antifraud activity along with growth in funding for fraud-fighting personnel resulted in increased prosecutions. Successful prosecution not only blocks future fraudulent activities by individuals who are repeat offenders, but news of prosecutions also acts as a deterrent to others who may be contemplating committing fraudulent acts.
While the focus initially was on auto insurance fraud, antifraud efforts also encompass workers compensation fraud, where investigations are directed toward employers who, to obtain a lower premium, misrepresent their payroll or the type of work carried out by their employees. These two factors impact premiums. Payroll is important because workers compensation insurance provides for lost wages and insurers need to know the maximum they would have to pay if all employees were injured in the same accident; the type of work carried out by the firm affects the likelihood of injuries. Workers that use cutting tools, for example, are more likely to get injured on the job than office workers. Some employers also apply for coverage under different names to foil attempts to recover monies owed on previous policies or to avoid detection of their poor claim record, which would put them in a higher rating category. Medical care abuse is also a problem. Some medical care providers “up code” – exaggerate treatment provided to injured workers. Claimants may also abuse the system by over-utilizing medical care to keep receiving lost income (indemnity) benefits.