Insurance Fraud Expert Admits Insurance Industry Makes Up Statistics
I received a comment to a recent blog regarding a perception among many of my colleagues that insurance companies are fabricating the amount of insurance fraud that goes on in the United States. I think the comment is important to highlight because it is an admission that the insurance industry fabricated those statistics. Barry Zalma wrote in part:
Although insurance fraud exists and is recognized by insurers and police agencies, no one really knows how extensive it is because most frauds succeed and are never recognized; others are recognized and paid by the insurer who is unwilling to get into a long and drawn out fight with the fraud perpetrator; and a very few are caught and prosecuted.
This was exactly my point of my blog---the insurance industry has only a few examples of fraud it can prove, yet it claims a significant number of all its customers are crooks. Zalma's logic and that of the insurance industry is similar to the logic of McCarthyism prevalent in the 1940's and 1950's. Then, thousands of Americans were accused of being Communists or communist sympathizers. They became the subject of aggressive investigations and questioning before government or private-industry panels, committees and agencies. The suspicions were often given credence despite inconclusive or questionable evidence. Here, the insurance industry cites some specific examples of wrongdoing and then somehow extrapolates those very few examples to justify ridiculous statistics. Zalma claims that most successful frauds are never recognized. Thus, the industry then makes up "suspicious" claims which others, such as Zalma, cite to be actual fraud:
I don't know, nor does anyone know, how much insurance fraud costs the insurance industry since most fraud perpetrators succeed. Everyone who puts out numbers bases it upon scientific studies like that recently reported by the Insurance Research Council (IRC) that estimates that claim fraud and buildup added between $4.8 billion and $6.8 billion in excess payments to auto injury insurance claims closed with payment in 2007.
Our firm does not have the IRC study cited by Zalma, but it is being ordered. The study has nothing to do with homeowners or commercial property insurance claims, only automobile claims. The Insurance Research Council is made up of large insurance companies. Their website lists its 2008 members as follows: Allstate Insurance Company American Family Insurance Group Farmers Insurance Group The Hartford Financial Services Group, Inc. Liberty Mutual Group National Association of Mutual Insurance Companies (NAMIC) Property Casualty Insurance Association of American (PCI) Safeco Insurance Companies State Farm Insurance Companies United Services Automobile Association These large insurance companies are often responsible for the propaganda I criticize. They use these statistics in the hope that nobody will actually question their accuracy. They hope those figures can be asserted as fact to influence cultural public policy in a similar manner that others have used propaganda (like that spewed in the McCarthy era) to influence public perception and legislation. Each of these carriers is not acting alone. They are in concert, sharing information and strategies, to influence perceptions that will help them be more profitable. One must question why this type of activity is not being investigated as collusion among competitors.
Again, insurance fraud is wrong. It exists and is a problem for all of us. Barry Zalma and other insurance defense attorneys that do this very specialized practice of law should be applauded for teaching methods of fraud detection. I believe there is a very real need for SIU departments and fraud investigators within the insurance industry because fraud, by the nature of it being a hidden scheme, can be difficult to detect. Heck, we have terminated clients because of fraudulent activity. The bottom line is that I believe insurance fraud is very rare compared to the large number of legitimate claims, and the insurance industry is making up these statistics for propaganda. Indeed, if one were to define "insurance fraud" as the underpayment of an insurance claim, most would agree that the insurance industry would be found guilty substantially more than its customers.
I challenge anyone to look at the data and compare it with your conclusion that insurance fraud is "very rare." State insurance fraud bureaus receive 100,000-plus referrals of suspected fraud each year. Every agency charged with investigating fraud — including the FBI — say they have two to three times the number of good cases than they can handle.
Research shows a large minority of Americans tolerate insurance fraud.
Most fraud is never uncovered. The true cost will never be known because of the hidden nature of the crime.
But independent researchers — including U.S. GAO — have concluded insurance fraud costs our economy at least tens of billions of dollars each year.
Some insurers may exaggerate the incidence of fraud. But the truth is, there still many insurance companies that ignore fraud, and rather than fight it, are inclined to pass the cost on to consumers.
So let's stop this "very rare" nonsense. Whether fraud is 3% or 30%, it's still a cost that consumers and society shouldn't be paying.
- Dennis Jay
Executive Director
Coalition Against Insurance Fraud
The insurance industry is indeed obsessed with policyholder fraud.
The entire betting-parlour atmosphere of the business of insurance differentiates much of what passes for "the insurance claims settlement process" very little from a street-level game of 3-card monte.
The insurance industry's banding together in supposedly legitimate industry groups, such as the Insurance Research Council, is in fact a coordinated conspiracy to put down a smoke-screen in order to create the false impression that the insurance industry is under systematic and concerted attack by fraudsters.
But the real purpose of the industry's bent on policyholder fraud is to systematically demonize the average policyholder and to cow insurance regulators into supporting secular industry abuse of otherwise perfectly innocent policyholders.
The real insurance fraud, as we can see "writ large" in the case of AIG, is by the insurance companies themselves: a trillion $ fraud committed against their policyholders, shareholders, the regulators, the public - and most importantly against the entire "social institution" of insurance.
The "social institution" of insurance is the mechanism by which we herd together to afford each other mutual protection against unpleasant eventualities that we can not hope to overcome on our own: and this is what AIG and the rest of the industry has set about destroying.
How convenient of you to purposefully leave out the fact the IRC study includes "build up" in its statistics. Since you practice in Florida you know doubt have a stable of medical providers who are experts at medical build in order to maximize the PIP benefits and then write bogus medical reports stating the diagnosed problems are chronic in nature in order to breach the threshold.
Another laughable editorial from your firm.
Rather than respond to your attempt at obfuscation I will only say that I agree with Mr. Jay's comments.
This is very interesting. I doubt they make up ALL their statistics, but this is good info.
There is nothing at all laughable about the insurance industry's effort to paint "fraud" with a broad brush or Mr. Merlin's attempt to expose the resulting harm.
That there are three comments ahead of mine tells me Mr. Merlin hit a nerve - that he raised the subject at all is, no doubt, a result of dealing with the fallout on a daily basis.
This subject needs informed, honest discussion and comments that attempt to obfuscate the need for same lend credibility to Mr. Merlin's argument.
bimmertl,
I appreciate your comment because it has some merit. However, it has some wrong assumptions and fails to reflect the post accurately.
First, my post notes in the quote that "buildup" is part of the statistic.
Second, our firm has no "stable" of medical practioners. Almost none of our coverage work has anything to do with the battle between medical providers. You wrongly assume we practice in the personal injury or medical payment fields. At this point, we have no cases I am aware of involving medical experts, with the small exception of a few bad faith cases.
For other readers, "buildup" is an insurance industry term to describe overtreatment, unnecessary treatment, or overbilling by various medical practioners. When this actually occurs, the claimants are often referred by the medical practitioner to an attorney or vice versa, for the sole purpose of needlessly expending insurance benefits by billing insurance companies for the direct treatment and then enhancing the claim made by an attorney on behalf of the claimant for liability or uninsured coverage benefits.
Unfortunately, this happens. Indeed, there are schemes where "runners" for medical practioners or attorneys seek accident victims. To the extent it happens, it is wrong, and I applaud efforts to stop the practice.
The insurance industry issues huge press releases when the government presses charges or an insurer files lawsuits to stop the practice. Such publicity may be a valid deterrent. It may also spur more public money into the criminal justice system to help investigate such wrongdoings. I cannot fault such legitimate efforts.
However, following this comment to my blog, I called an individual who is volunteering his time to those he believes have been wrongly caught up in the net of such investigations. He told me there is a war in many urban areas against chiropractors and the people who typically see them. He has testified in several criminal cases that claimants of a minority status are targeted by SIU departments as frauds.
I will report later on just such a targetting of minorities by State Farm in the landmark case of Singh vs. State Farm.
Obviously, whether he is right or wrong depends on the facts of each case. But again, there is a huge profit incentive for the insurance industry to promote a suspicion upon those injured and making claims under insurance policies. Attacking medical doctors and practitioners, along with attorneys, has been a very effective propaganda method used by the insurance industry.
Indeed, your comment to my blog appears to be such a propaganda attempt to smear my reputation through guilt by association. You wrongly assume that I practice in a field where buildup occurs. You then publicly insinuate I am involved with unnamed buildup practitioners. Then you call the blog laughable, though you obviously thought it significant enough to comment upon with innuendo of unethical conduct.
Your smear tactics are not going to work, but I appreciate the opportunity to show others how insurance propagandists work.