Now there’s a
headline that might grab your attention, but it doesn’t refer to a discount
program, it refers to the fact that in some lines of insurance between $.11 and $.30
of every premium dollar is lost to fraud. Reducing fraud could get each and
every one of us a lower insurance premium. Insurance group estimates suggest
that fraud, in the aggregate, costs us $80 billion a year in the United States.
That works out to about $256.75 for every man woman and child living in the United
industry watches these numbers pretty closely, as they should. The higher the
fraud numbers go, premiums follow and no one likes to see their insurance
premiums rise. Insurance professionals talk about “hard fraud” and “soft
fraud.” Hard fraud in insurance terms is something like a made up claim or a
faked accident. These are the sorts of things you read about in the newspaper
where someone recruits a number of people to go to a dishonest doctor or health
center where they are given bills and records but no treatment and the bills
are sent to the insurer. Some of these scams cost millions of dollars before
they are uncovered. Soft fraud is much more pervasive and insurance companies
believe much more costly. Soft fraud occurs when people misrepresent their
losses on a claim or misrepresent items on their insurance application in order
to obtain a lower premium. The prevalence of these two forms make insurance
fraud the number two economic crime in the United States. What is number one
you ask; tax evasion.
When you consider
the frequency of these two economic crimes, you may be right in judging that
there are some common underlying reasons. A large majority (76%) of people say they would be more likely to commit insurance fraud during an economic downturn. Almost 25% of people believe it is at least somewhat acceptable to
cheat an insurance company. In general, consumer attitudes toward insurance
fraud appear to be coming more permissive. That is probably not a good thing so
far as our future premiums are concerned.
State, the Insurance Commissioner has a responsibility to make sure that
insurance companies and their representatives play fair in pricing,
representing their policies and paying claims. The commissioner also has a
responsibility to make sure that people play fair with the insurance companies.
The commissioner’s office has a special investigations unit that looks into insurance fraud in Washington whether it is perpetrated by individuals, agents
or companies and their instructions for reporting fraud on the Washington State
Insurance Commission website.
You can help out
as well by avoiding the temptation to “fudge” an insurance claim or an
insurance application and by being willing to report suspicious circumstances,
such as a body shop that offers to inflate your car repair bill and split the
In the coming
years, we can expect to see a lot more information about insurance fraud. There
are some who believe that there are enormous savings to be found in Medicare by
reducing fraud, but it is not only government operated insurance programs that
suffer from fraud. All private insurers have to be vigilant in their claims
processes every day. CIGNA insurance company, for example, was the target of a fraud that began in 2006 and was and
uncovered until 2010; it cost them about $1.25 million in claim costs.