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Insurance fraud
Insurance fraud is any act committed with the intent to fraudulently obtain payment from an insurer.
Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise.[1] Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are very diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities also affect the lives of innocent people, both directly through accidental or purposeful injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a very significant problem, and governments and other organizations are making efforts to deter such activities.
Insurance companies are also susceptible to fraud because false insurance claims can be made to appear like ordinary claims. This allows fraudsters to file claims for damages that never occurred, and so obtain payment with little or no initial cost.
The most common form of insurance fraud is inflating of loss.
Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to receive payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.[9]
Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud.[8]insurance policy, an individual misreports previous or existing conditions in order to obtain a lower premium on their insurance policy.[8] This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in a collision an insured person might claim more damage than was really done to his or her car. Soft fraud can also occur when, while obtaining a new
The most common perpetrators of healthcare insurance fraud are health care providers. One reason for this, according to David Hyman, a Professor at the University of Maryland School of Law, is that the historically prevailing attitude in the medical profession is one of “fidelity to patients”.[11] This incentive can lead to fraudulent practices such as billing insurers for treatments that are not covered by the patient’s insurance policy. To do this, physicians often bill for a different service, which is covered by the policy, than that which was rendered.[12]
Another motivation for insurance fraud in the healthcare industry, just as in all other types of insurance fraud, is a desire for financial gain. Public healthcare programs such as Medicare and Medicaid are especially conducive to fraudulent activities, as they are often run on a fee-for-service structure.[13] Physicians use several fraudulent techniques to achieve this end. These can include “up-coding” or “upgrading,” which involve billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are not medically necessary; scheduling extra visits for patients; referring patients to another physician when no further treatment is actually necessary; "phantom billing," or billing for services not rendered; and “ganging,” or billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.[13]
"Crash for cash" scams may involve random unaware strangers, set to appear as the perpetrators of the orchestrated crashes.[16] Such techniques are the classic rear-end shunt (the driver in front suddenly slams on the brakes, eventually with brake lights disabled), the decoy rear-end shunt (when following one car, another one pulls in front of it, causing it to brake sharply, then the first car drives off) or the helpful wave shunt (the driver is waved in to a line of queuing traffic by the scammer who promptly crashes, then denies waving)[17]
Organized crime rings can also be involved in auto-insurance fraud, sometimes carrying out schemes that are very complex. An example of one such ploy is given by Ken Dornstein, author of Accidentally, on Purpose: The Making of a Personal Injury Underworld in America. In this scheme, known as a “swoop-and-squat,” one or more drivers in “swoop” cars force an unsuspecting driver into position behind a “squat” car. This squat car, which is usually filled with several passengers, then slows abruptly, forcing the driver of the chosen car to collide with the squat car. The passengers in the squat car then file a claim with the other driver’s insurance company. This claim often includes bills for medical treatments that were not necessary or not received.[18]
Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud.[23] Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation.[24] There are two main types of statistical analysis tools used: supervised and unsupervised.[23] In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived.[23]
In a supervised method, expected values are obtained by analyzing records of both fraudulent and non-fraudulent claims.[23] According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it requires absolutely certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect types of fraud that have been committed and identified before.[23]
Unsupervised methods of statistical detection, on the other hand, involve detecting claims that are abnormal.[23] Both claims adjusters and computers can also be trained to identify “red flags,” or symptoms that in the past have often been associated with fraudulent claims.[25] Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious claims that need to be investigated further.[23]
Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount.[26][27] These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.[28] Suspicious claims can also be submitted to “special investigative units”, or SIUs, for further investigation. These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims.
Zalma, Barry "Insurance Fraud" an E- Book available at http://www.zalma.com/Insurance Fraud.htm
READ MORE - Insurance fraud
Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise.[1] Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are very diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities also affect the lives of innocent people, both directly through accidental or purposeful injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a very significant problem, and governments and other organizations are making efforts to deter such activities.
Contents[show] |
[edit] Causes
The “chief motive in all insurance crimes is financial profit.”[1][1] This condition can be very difficult to avoid, especially since an insurance provider might sometimes encourage it in order to obtain greater profits.[1] This allows fraudsters to make profits by destroying their property because the payment they receive from their insurers is of greater value than the property they destroy. Insurance contracts provide both the insured and the insurer with opportunities for exploitation. One reason that this opportunity arises is in the case of over-insurance, when the amount insured is greater than the actual value of the property insured.Insurance companies are also susceptible to fraud because false insurance claims can be made to appear like ordinary claims. This allows fraudsters to file claims for damages that never occurred, and so obtain payment with little or no initial cost.
The most common form of insurance fraud is inflating of loss.
[edit] Losses due to insurance fraud
It is virtually impossible to determine an exact value for the amount of money stolen through insurance fraud. Insurance fraud is designed to be undetectable, unlike visible crimes such as robbery or murder. As such, the number of cases of insurance fraud that are detected is much lower than the number of acts that are actually committed.[1] The best that can be done is to provide an estimate for the losses that insurers suffer due to insurance fraud. The Coalition Against Insurance Fraud estimates that in 2006 a total of about $80 billion was lost in the United States due to insurance fraud.[2]Insurance Information Institute, insurance fraud accounts for 10%, or about $30 billion, of losses in the property and casualty insurance industries in the United States.[3] The National Health Care Anti-Fraud Association estimates that 3% of the health care industry’s expenditures in the United States are due to fraudulent activities, amounting to a cost of about $51 billion.[4] Other estimates attribute as much as 10% of the total healthcare spending in the United States to fraud—about $115 billion annually.[5] In the United Kingdom, the Insurance Fraud Bureau estimates that the loss due to insurance fraud in the United Kingdom is about £1.5 billion ($3.08 billion), causing a 5% increase in insurance premiums.[6] The Insurance Bureau of Canada estimates that personal injury fraud in Canada costs about C$500 million annually.[7] According to estimates by the[edit] Hard vs. soft fraud
Insurance fraud can be classified as either hard fraud or soft fraud.[8]Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to receive payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.[9]
Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud.[8]insurance policy, an individual misreports previous or existing conditions in order to obtain a lower premium on their insurance policy.[8] This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in a collision an insured person might claim more damage than was really done to his or her car. Soft fraud can also occur when, while obtaining a new
[edit] Types of insurance fraud
[edit] Life insurance
An example of life insurance fraud is the John Darwin disappearance case, an ongoing investigation into the faked death of British former teacher and prison officer John Darwin, who turned up alive in December 2007, five years after he was thought to have died in a canoeing accident. Darwin was reported as "missing" after failing to report to work following a canoeing trip on March 21, 2002. He reappeared on December 1, 2007, claiming to have no memory of the past five years.[edit] Health care insurance
According to Roger Feldman, Blue Cross Professor of Health Insurance at the University of Minnesota, one of the main reasons that medical fraud is such a prevalent practice is that nearly all of the parties involved find it favorable in some way. Many physicians see it as necessary to provide quality care for their patients. Many patients, although disapproving of the idea of fraud, are sometimes more willing to accept it when it affects their own medical care. Program administrators are often lenient on the issue of insurance fraud, as they want to maximize the services of their providers.[10]The most common perpetrators of healthcare insurance fraud are health care providers. One reason for this, according to David Hyman, a Professor at the University of Maryland School of Law, is that the historically prevailing attitude in the medical profession is one of “fidelity to patients”.[11] This incentive can lead to fraudulent practices such as billing insurers for treatments that are not covered by the patient’s insurance policy. To do this, physicians often bill for a different service, which is covered by the policy, than that which was rendered.[12]
Another motivation for insurance fraud in the healthcare industry, just as in all other types of insurance fraud, is a desire for financial gain. Public healthcare programs such as Medicare and Medicaid are especially conducive to fraudulent activities, as they are often run on a fee-for-service structure.[13] Physicians use several fraudulent techniques to achieve this end. These can include “up-coding” or “upgrading,” which involve billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are not medically necessary; scheduling extra visits for patients; referring patients to another physician when no further treatment is actually necessary; "phantom billing," or billing for services not rendered; and “ganging,” or billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.[13]
[edit] Automobile insurance
The Insurance Research Council estimated that in 1996, 21 to 36 percent of auto-insurance claims contained elements of suspected fraud.[14] There is a wide variety of schemes used to defraud automobile insurance providers. These ploys can differ greatly in complexity and severity. Richard A. Derrig, vice president of research for the Insurance Fraud Bureau of Massachusetts, lists several ways that auto-insurance fraud can occur. Examples of soft auto-insurance fraud can include filing more than one claim for a single injury, filing claims for injuries not related to an automobile accident, misreporting wage losses due to injuries, or reporting higher costs for car repairs than those that were actually paid. Hard auto-insurance fraud can include activities such as staging automobile collisions, filing claims when the claimant was not actually involved in the accident, submitting claims for medical treatments that were not received, or inventing injuries.[15] Another example is that a person may illegally register their car to a location that would net them cheaper insurance rates than where they actually live, sometimes called "rate evasion". For example, some drivers in Brooklyn drive with Pennsylvania license plates because registering their car in a rural part of Pennsylvania will cost a lot less than registering it in Brooklyn. Another form of automobile insurance fraud, known as "fronting," involves registering someone other than the real primary driver of a car as the primary driver of the car. For example, parents might list themselves as the primary driver of their children's vehicles to avoid young driver premiums. Hard fraud can also occur when claimants falsely report their vehicle as stolen. Soft fraud accounts for the majority of fraudulent auto-insurance claims.[14]"Crash for cash" scams may involve random unaware strangers, set to appear as the perpetrators of the orchestrated crashes.[16] Such techniques are the classic rear-end shunt (the driver in front suddenly slams on the brakes, eventually with brake lights disabled), the decoy rear-end shunt (when following one car, another one pulls in front of it, causing it to brake sharply, then the first car drives off) or the helpful wave shunt (the driver is waved in to a line of queuing traffic by the scammer who promptly crashes, then denies waving)[17]
Organized crime rings can also be involved in auto-insurance fraud, sometimes carrying out schemes that are very complex. An example of one such ploy is given by Ken Dornstein, author of Accidentally, on Purpose: The Making of a Personal Injury Underworld in America. In this scheme, known as a “swoop-and-squat,” one or more drivers in “swoop” cars force an unsuspecting driver into position behind a “squat” car. This squat car, which is usually filled with several passengers, then slows abruptly, forcing the driver of the chosen car to collide with the squat car. The passengers in the squat car then file a claim with the other driver’s insurance company. This claim often includes bills for medical treatments that were not necessary or not received.[18]
[edit] Property insurance
Possible motivations for this can include obtaining payment that is worth more than the value of the property destroyed, or to destroy and subsequently receive payment for goods that could not otherwise be sold. According to Alfred Manes, the majority of property insurance crimes involve arson.[19] One reason for this is that any evidence that a fire was started by arson is often destroyed by the fire itself. According to the United States Fire Administration, in the United States there were approximately 31,000 fires caused by arson in 2006, resulting in losses of $755 million.[20] Example: The Moulin Rouge in Las Vegas was struck by arson twice within 6 years.[21][edit] Council compensation claims
The fraud involving claims from the councils' insurers suppose staging damages blamable on the local authorities (mostly falls and trips on council owned land) or inflating the value of existing damages.[22][edit] Detecting insurance fraud
The detection of insurance fraud generally occurs in two steps. The first step is to identify suspicious claims that have a higher possibility of being fraudulent. This can be done by computerized statistical analysis or by referrals from claims adjusters or insurance agents. Additionally, the public can provide tips to insurance companies, law enforcement and other organizations regarding suspected, observed, or admitted insurance fraud perpetrated by other individuals. Regardless of the source, the next step is to refer these claims to investigators for further analysis.Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud.[23] Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation.[24] There are two main types of statistical analysis tools used: supervised and unsupervised.[23] In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived.[23]
In a supervised method, expected values are obtained by analyzing records of both fraudulent and non-fraudulent claims.[23] According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it requires absolutely certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect types of fraud that have been committed and identified before.[23]
Unsupervised methods of statistical detection, on the other hand, involve detecting claims that are abnormal.[23] Both claims adjusters and computers can also be trained to identify “red flags,” or symptoms that in the past have often been associated with fraudulent claims.[25] Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious claims that need to be investigated further.[23]
Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount.[26][27] These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.[28] Suspicious claims can also be submitted to “special investigative units”, or SIUs, for further investigation. These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims.
[edit] Legislation
National and local governments, especially in the last half of the twentieth century, have recognized insurance fraud as a serious crime, and have made efforts to punish and prevent this practice. Some major developments are listed below:[edit] United States
- Insurance Fraud is specifically classified as a crime in 48 out of 50 states (all except Oregon and Virginia).[8]
- 19 states require mandatory insurer fraud plans. This requires companies to form programs to combat fraud and in some cases to develop investigation units to detect fraud.[8]
- 41 states have fraud bureaus. These are law enforcement agencies where “investigators review fraud reports and begin the prosecution process.”[8]
- Section 1347 of Title 18 of the United States Code states that whoever attempts or carries out a “scheme or artifice” to “defraud a health care benefit program” will be “fined under this title or imprisoned not more than 10 years, or both.” If this scheme results in bodily injury, the violator may be imprisoned up to 20 years, and if the scheme results in death the violator may be imprisoned for life.[29]
[edit] Canada
- The Insurance Crime Prevention Bureau was founded in 1973 to help fight insurance fraud. This organization collects information on insurance fraud, and also carries out investigations. Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim.[30]
- British Columbia’s Traffic Safety Statutes Amendment Act of 1997 states that any person who submits a motor vehicle insurance claim that contains false or misleading information may on the first offence be fined C$25,000, imprisoned for two years, or both. On the second offense, that person may be fined C$50,000, imprisoned for two years, or both.[31]
[edit] United Kingdom
- A major portion of the Financial Services Act of 1986 was intended to help prevent fraud.[32]
- The Serious Fraud Office, set up in 1987 under the Criminal Justice Act, was established to “improve the investigation and prosecution of serious and complex fraud.”[32]
- The Fraud Act 2006 specifically defines fraud as a crime. This act defines fraud as being committed when a person “makes a false representation,” “fails to disclose to another person information which he is under a legal duty to disclose,” or abuses a position in which he or she is “expected to safeguard, or not to act against, the financial interests of another person.” This act also defines the penalties for fraud as imprisonment up to ten years, a fine, or both.[33]
[edit] Examples
Following are some examples of real instances of insurance fraud that occurred in recent years:- According to a report by a United States district court in Illinois, a psychiatrist who practiced as the Assistant Medical Director and Medical Director at a psychiatric facility in Illinois from 1998 through 2002 submitted claims to Medicare for psychiatric and psychotherapy services that he in fact never actually provided. He also “up-coded,” or billed for more expensive services than those that were actually provided, many claims that he submitted to Medicare. In addition, he admitted patients that did not qualify for treatment so that he could submit bills for hospital care even though it was not medically necessary for those patients. Through these schemes, this psychiatrist was able to fraudulently obtain $875,881 in Medicare Reimbursements before his conviction in February 2005.[34]
- The Insurance Information Institute conducted a study on organized crime rings in New York City that have fraudulently exploited the personal injury protection policies of no-fault automobile insurance plans throughout the beginning of the 21st century. This has often been achieved when a “runner” is paid to organize an intentional collision, often including multiple passengers. These passengers then are taken to “medical mills,” which are either real or nonexistent facilities that file claims for reimbursement for treatments that are unnecessary and often not received. This practice has caused the cost of claims in New York City to rise by 32.1% in 2006, as opposed to only a 4.5% increase in 1998.[35]
- According to the Coalition Against Insurance Fraud, a former business executive from Chicagosuicide. He received about $600,000 in insurance money, but was eventually convicted on several charges and sentenced to 190 years in federal prison.[36] resorted to insurance fraud to pay off his debt of over $672,000. He set fire to his own home in order to collect insurance money on it. In order to disguise this act of arson, he trapped his ninety year old mother in the basement while the house was burning so that the fire would appear to be a
[edit] See also
- The Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know (book)
- Viaene S. & Dedene G. Insurance fraud: issues and challenges. Geneva Papers on Risk and Insurance. 29 (2) : 313 -333, 2004 (article)
[edit] Bibliography
- Bolton, Richard J. and David J. Hand. "Statistical Fraud Detection: A Review." Statistical Science. 17.3 (2002): 235-249.
- Clarke, Michael. "The Control of Insurance Fraud, A Comparative View." The British Journal of Criminology. 30.1 (1990): 1-23.
- Coalition Against Insurance Fraud. Annual Report. Washington, DC: Coalition Against Insurance Fraud, 2006.
- Coalition Against Insurance Fraud. "Insurance Fraud Hall of Shame: Mother Almost Blamed for Son's Arson." 31 12 2006. Coalition Against Insurance Fraud. 13 December 2007.[37]
- Coalition Against Insurance Fraud. "Learn About Fraud." Coalition Against Insurance Fraud. 1 December 2007.[38]
- Derrig, Richard A. "Insurance Fraud." The Journal of Risk and Insurance. 69.3 (2002): 271-287.
- Dornstein, Ken. Accidentally on Purpose: The Making of a Personal Injury Underworld in America. New York: St. Martin's Press, 1996.
- Feldman, Roger. "An Economic Explanation for Fraud and Abuse in Public Medical Care Programs." The Journal of Legal Studies. 30.2 (2001): 569-577.
- Ghezzi, Susan Guarino. "A Private Network of Social Control: Insurance Investigative Units." Social Problems. 30.5 (1983): 521-531.
- Hyman, David A. "Health Care Fraud and Abuse: Market Change, Social Norms, and the Trust 'Reposed in the Workmen'." The Journal of Legal Studies. 30.2 (2001): 531-567.
- Insurance Information Institute. "Fraud." Insurance Information Institute. 1 December 2007.[39]
- Insurance Information Institute. "Insurance Fraud." Insurance Information Institute. 1 December 2007.[40]
- Insurance Information Institute. "No-Fault Insurance Fraud in N.Y. State." Insurance Information Institute. 1 December 2007.[41]
- Legislative Assembly of British Columbia. "Traffic Safety Statutes Amendment Act." 1997.
- Manes, Alfred. "Insurance Crimes." Journal of Criminal Law and Criminology 35.1 (1945): 34-42.
- Ministry of Justice. "Fraud Act 2006." 11 August 2006. The UK Statute Law Database. 13 December 2007.[42]
- National Health Care Anti-Fraud Association. "The Problem of Health Care Fraud." National Health Care Anti-Fraud Association. 1 December 2007.[43]
- Office of the Law Revision Counsel, U.S. House of Representatives. "United States Code; Title 18, Section 1347." 2 January 2006.[44]
- Pontell, Henry N., Paul D. Jesilow and Gilbert Geis. "Policing Physicians: Practitioner Fraud and Abuse in a Government Medical Program." Social Problems. 30.1 (1982): 117-125.
- Staple, George. "Serious and Complex Fraud: A New Perspective." The Modern Law Review. 56.2 (1993): 127-137.
- Tennyson, Sharon and Pau Salsas-Forn. "Claims Auditing in Automobile Insurance: Fraud Detection and Deterrence Objectives." The Journal of Risk and Insurance. 69.3 (2002): 289-308.
- U.S. Fire Administration. "Arson Fire Statistics." 11 October 2007. U.S. Fire Administration. 13 December 2007.[45]
- United States of America v. Naseem Chaudhry. United States District Court, Northern District of Illinois, Eastern Division. February 2005.
- Viaene, Stijn, et al. "A Comparison of State-of-the-Art Classification Techniques for Expert Automobile Insurance Claim Fraud Detection." The Journal of Risk and Insurance. 69.3 (2002): 373-421.
[edit] Citations
- ^ a b c d e Manes, Alfred. "Insurance Crimes." p. 34.
- ^ Coalition Against Insurance Fraud. Annual Report.
- ^ Insurance Information Institute. "Insurance Fraud."
- ^ National Health Care Anti-Fraud Association. "The Problem of Health Care Fraud."
- ^ Hyman, David A. "Health Care Fraud and Abuse." p. 532.
- ^ Insurance Fraud Bureau. "Fighting Organized Insurance Fraud." p. 2.
- ^ Insurance Bureau of Canada. "Cost of Personal Injury Fraud."
- ^ a b c d e f Insurance Information Institute. "Fraud."
- ^ Coalition Against Insurance Fraud. "Learn About Fraud."
- ^ Feldman, Roger. "Economic Explanation." p. 569-570.
- ^ Hyman, David A. "Health Care Fraud and Abuse." p. 541.
- ^ Hyman, David A. "Health Care Fraud and Abuse." p. 547.
- ^ a b Pontell, Henry N., et al. "Policing Physicians." p. 118.
- ^ a b Tennyson, Sharon et al. "Claims Auditing" p. 289.
- ^ Derrig, Richard A. "Insurance Fraud." p. 274.
- ^ "BBC News - Car crash scams at record level". Bbc.co.uk. 2010-08-21. http://www.bbc.co.uk/news/uk-11046344. Retrieved 2010-08-21.
- ^ The One Show Team - September 15, 2008 3:50 PM (2008-09-15). "Crash for cash - a scam for the unquestioning? - Consumer". Bbc.co.uk. http://www.bbc.co.uk/blogs/theoneshow/consumer/2008/09/15/crashing-in-on-crime.html. Retrieved 2010-08-21.
- ^ Dornstein, Ken. Accidentally on Purpose. p. 3.
- ^ Manes, Alfred. "Insurance Crimes." p. 35.
- ^ U.S. Fire Administration. "Arson Fire Statistics."
- ^ Mercury News 05/06/2009 http://www.mercurynews.com/breakingnews/ci_12308730
- ^ "Housing and Council Tax Benefit fraud - Allerdale Borough Council". Allerdale.gov.uk. 2009-11-02. http://www.allerdale.gov.uk/advice-and-benefits/benefits/housing-benefit/housing-benefit-fraud.aspx. Retrieved 2010-08-21.
- ^ a b c d e f g Bolton, Richard J. “Statistical Fraud Detection.” p. 236.
- ^ Derrig, Richard A. "Insurance Fraud." p. 277.
- ^ Viaene, Stijn, et al. "Insurance Claim Fraud Detection." p. 375.
- ^ Derrig, Richard A. "Insurance Fraud." p. 278.
- ^ Viaene, Stijn, et al. "Insurance Claim Fraud Detection." p. 374.
- ^ Ghezzi, Susan Guarino. " Private Network."
- ^ Office of the Law Revision Counsel, U.S. House of Representatives. "United States Code."
- ^ Clarke, Michael. “The Control of Insurance Fraud.” p. 10.
- ^ Legislative Assembly of British Columbia. "Traffic Safety Statutes Amendment Act."
- ^ a b Staple, George. "Serious and Complex Fraud." p. 127.
- ^ Ministry of Justice. "Fraud Act 2006."
- ^ United States of America v. Naseem Chaudhry.
- ^ Insurance Information Institute. "No-Fault Insurance Fraud."
- ^ Coalition Against Insurance Fraud. "Insurance Fraud Hall of Shame." p. 99.
- ^ "Articles on insurance fraud". Insurancefraud.org. 2006-12-31. http://www.insurancefraud.org/article.lasso?RecID=1532. Retrieved 2010-08-21.
- ^ "Learn about fraud". Insurancefraud.org. http://www.insurancefraud.org/learn_about_fraud.htm. Retrieved 2010-08-21.
- ^ "Fraud". III. http://www.iii.org/media/facts/statsbyissue/fraud/. Retrieved 2010-08-21.
- ^ "Insurance Fraud". III. http://www.iii.org/media/hottopics/insurance/fraud/. Retrieved 2010-08-21.
- ^ "Conozca los deducibles por huracanes y si aplica a su póliza de seguro de propietario de vivienda". III. http://www.iii.org/media/research/newyorknofaultauto/. Retrieved 2010-08-21.
- ^ "Fraud Act 2006 (c. 35) - Statute Law Database". Statutelaw.gov.uk. 2007-01-15. http://www.statutelaw.gov.uk/content.aspx?LegType=All+Legislation&title=fraud&Year=2006&searchEnacted=0&extentMatchOnly=0&confersPower=0&blanketAmendment=0&sortAlpha=0&TYPE=QS&PageNumber=1&NavFrom=0&parentActiveTextDocId=2922456&ActiveTextDocId=2922458&fi. Retrieved 2010-08-21.
- ^ "Anti-Fraud Resource Center". Nhcaa.org. http://www.nhcaa.org/eweb/DynamicPage.aspx?webcode=anti_fraud_resource_centr&wpscode=TheProblemOfHCFraud. Retrieved 2010-08-21.
- ^ "U.S. Code". Uscode.house.gov. http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t17t20+687+0++%28%29%20%20AND%20%28%2818%29%20ADJ%20USC%29%3ACITE%20AND%20%28USC%20w%2F10%20%281347%29%29%3ACITE%20%20%20%20%20%20%20%20%20. Retrieved 2010-08-21.
- ^ "USFA Arson Fire Statistics". Usfa.dhs.gov. 2010-01-05. http://www.usfa.dhs.gov/statistics/arson/index.shtm. Retrieved 2010-08-21.
[edit] External links
- Insurance Information Institute. Insurance Information Institute.
- National Health Care Anti-Fraud Association. National Health Care Anti-Fraud Association.
- National Insurance Crime Bureau. National Insurance Crime Bureau.
- Insurance Bureau of Canada. Insurance Bureau of Canada.
- U.S. Fire Administration
- Insurance Research Council. Insurance Research Council.
- 2009 Florida report: Impacts of the Economy and Insurance Fraud
Insurance law
Insurance law is the name given to practices of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories - regulation of the business of insurance; regulation of the content of insurance policies, especially with regard to consumer policies; and regulation of claim handling.
"means whereof it cometh to pass that upon the loss or perishing of any ship there followeth not the undoing of any man, but the loss lighteth rather easily upon many than upon a few... whereby all merchants, especially those of the younger sort, are allured to venture more willingly and more freely."[1]
The expansion of English maritime trade made London the centre of an insurance market that, by the 18th century, was the largest in the world. Underwriters sat in bars, or newly fashionable coffee-shops such as that run by Edward Lloyd on Lombard Street, considering the details of proposed mercantile "adventures" and indicating the extent to which they would share upon the risks entailed by writing their "scratch" or signature upon the documents shown to them.
At the same time, eighteenth-century judge William Murray, Lord Mansfield, was developing the substantive law of insurance to an extent where it has largely remained unchanged to the present day - at least insofar as concerns commercial, non-consumer business - in the common-law jurisdictions. Mansfield drew from "foreign authorities" and "intelligent merchants"
"Those leading principles which may be considered the common law of the sea, and the common law of merchants, which he found prevailing across the commercial world, and to which every question of insurance was easily referrable. Hence the great celebrity of his judgments, and hence the respect they command in foreign countries".[2]
By the 19th century membership of Lloyd's was regulated and in 1871, the Lloyd's Act was passed, establishing the corporation of Lloyd's to act as a market place for members, or "Names". And in the early part of the twentieth century, the collective body of general insurance law was codified in 1906 into the Marine Insurance Act 1906, with the result that, since that date, marine and non-marine insurance law have diverged, although fundamentally based on the same original principles.
At common law, the defining concept of a contract of commercial insurance is of a transfer of risk freely negotiated between counterparties of similar bargaining power, equally deserving (or not) of the courts' protection. The underwriter has the advantage, by dint of drafting the policy terms, of delineating the precise boundaries of cover. The prospective insured has the equal and opposite advantage of knowing the precise risk proposed to be insured in better detail than the underwriter can ever achieve. Central to English commercial insurance decisions, therefore, are the linked principles that the underwriter is bound to the terms of his policy; and that the risk is as it has been described to him, and that nothing material to his decision to insure it has been concealed or misrepresented to him.
In civil law countries insurance has typically been more closely linked to the protection of the vulnerable, rather than as a device to encourage entrepreneurialism by the spreading of risk. Civil law jurisdictions - in very general terms - tend to regulate the content of the insurance agreement more closely, and more in the favour of the insured, than in common law jurisdictions, where the insurer is rather better protected from the possibility that the risk for which it has accepted a premium may be greater than that for which it had bargained. As a result, most legal systems worldwide apply common-law principles to the adjudication of commercial insurance disputes, whereby it is accepted that the insurer and the insured are more-or-less equal partners in the division of the economic burden of risk.
Regulation of the insurance industry began in the United States in the 1940s , through several United States Supreme Court rulings. The first ruling on insurance had taken place in 1868 (in the Paul v. Virginia[3]), with the supreme court ruling that insurance policy contracts were not in themselves commercial contracts. This stance did not change until 1944 (in the United States v. South-Eastern Underwriters Association ruling [4]), when the Supreme court upheld a ruling stating that policies were commercial, and thus were regulatable as other similar contracts were. ruling
In the United States each state typically has a statute creating an administrative agency. These state agencies are typically called the Department of Insurance, or some similar name, and the head official is the Insurance Commissioner, or a similar titled officer. The agency then creates a group of administrative regulations to govern insurance companies that are domiciled in, or do business in the state. In the United States regulation of insurance companies is almost exclusively conducted by the several states and their insurance departments. The federal government has explicitly exempted insurance from federal regulation in most cases.
In the case that an insurer declares bankruptcy, many countries operate independent services and regulation to ensure as little financial hardship is incurred as possible (National Association of Insurance Commissioners[5]). operates such a service in the United States
In the United States and other relatively highly-regulated jurisdictions, the scope of regulation extends beyond the prudential oversight of insurance companies and their capital adequacy, and include such matters as ensuring that the policy holder is protected against bad faith claims on the insurer's part, that premiums are not unduly high (or fixed), and that contracts and policies issued meet a minimum standard. A bad faith action may constitute several possibilities; the insurer denies a claim that seems valid in the contract or policy, the insurer refuses to pay out for an unreasonable amount of time, the insurer lays the burden of proof on the insured - often in the case where the claim is unprovable. Other issues of insurance law may arise when price fixingZurich Financial Services [6] - along with several other insurers - inflated policy prices in an anti-competitive fashion. If an insurer is found to be guilty of fraud or deception, they can be fined either by regulatory bodies, or in a lawsuit by the insured or surrounding party. In more severe cases, or if the party has had a series of complaints or rulings, the insurer's license may be revoked or suspended. It should be noted that bad faith actions are exceedingly rare outside the United States. Even within the US the full rigour of the doctrine is limited to certain States such as California. occurs between insurers, creating an unfair competitive environment for consumers. A notable example of this is where
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[edit] Development of Insurance Law
The earliest form of insurance is probably marine insurance, although forms of mutuality (group self-insurance) existed before that. Marine insurance originated with the merchants of the Hanseatic league and the financiers of Lombardy in the 12th and 13th centuries, recorded in the name of Lombard Street in the City of London, the oldest trading insurance market. In those early days, insurance was intrinsically coupled with the expansion of mercantilism, and exploration (and exploitation) of new sources of gold, silver, spices, furs and other precious goods - including slaves - from the New World. For these merchant adventurers, insurance was the"means whereof it cometh to pass that upon the loss or perishing of any ship there followeth not the undoing of any man, but the loss lighteth rather easily upon many than upon a few... whereby all merchants, especially those of the younger sort, are allured to venture more willingly and more freely."[1]
The expansion of English maritime trade made London the centre of an insurance market that, by the 18th century, was the largest in the world. Underwriters sat in bars, or newly fashionable coffee-shops such as that run by Edward Lloyd on Lombard Street, considering the details of proposed mercantile "adventures" and indicating the extent to which they would share upon the risks entailed by writing their "scratch" or signature upon the documents shown to them.
At the same time, eighteenth-century judge William Murray, Lord Mansfield, was developing the substantive law of insurance to an extent where it has largely remained unchanged to the present day - at least insofar as concerns commercial, non-consumer business - in the common-law jurisdictions. Mansfield drew from "foreign authorities" and "intelligent merchants"
"Those leading principles which may be considered the common law of the sea, and the common law of merchants, which he found prevailing across the commercial world, and to which every question of insurance was easily referrable. Hence the great celebrity of his judgments, and hence the respect they command in foreign countries".[2]
By the 19th century membership of Lloyd's was regulated and in 1871, the Lloyd's Act was passed, establishing the corporation of Lloyd's to act as a market place for members, or "Names". And in the early part of the twentieth century, the collective body of general insurance law was codified in 1906 into the Marine Insurance Act 1906, with the result that, since that date, marine and non-marine insurance law have diverged, although fundamentally based on the same original principles.
[edit] Common law of insurance - basic principles
Common law jurisdictions in former members of the British empire, including the United States, Canada, India, South Africa, and Australia ultimately originate with the law of England and Wales. What distinguishes common law jurisdictions from their civil law counterparts is the concept of judge-made law and the principle of stare decisis - the idea, at its simplest, that courts are bound by the previous decisions of courts of the same or higher status. In the insurance law context, this meant that the decisions of early commercial judges such as Mansfield, Lord Eldon and Buller bound, or, outside England and Wales, were at the least highly persuasive to, their successors considering similar questions of law.At common law, the defining concept of a contract of commercial insurance is of a transfer of risk freely negotiated between counterparties of similar bargaining power, equally deserving (or not) of the courts' protection. The underwriter has the advantage, by dint of drafting the policy terms, of delineating the precise boundaries of cover. The prospective insured has the equal and opposite advantage of knowing the precise risk proposed to be insured in better detail than the underwriter can ever achieve. Central to English commercial insurance decisions, therefore, are the linked principles that the underwriter is bound to the terms of his policy; and that the risk is as it has been described to him, and that nothing material to his decision to insure it has been concealed or misrepresented to him.
In civil law countries insurance has typically been more closely linked to the protection of the vulnerable, rather than as a device to encourage entrepreneurialism by the spreading of risk. Civil law jurisdictions - in very general terms - tend to regulate the content of the insurance agreement more closely, and more in the favour of the insured, than in common law jurisdictions, where the insurer is rather better protected from the possibility that the risk for which it has accepted a premium may be greater than that for which it had bargained. As a result, most legal systems worldwide apply common-law principles to the adjudication of commercial insurance disputes, whereby it is accepted that the insurer and the insured are more-or-less equal partners in the division of the economic burden of risk.
[edit] Insurable interest and indemnity
Most, and until 2005 all, common law jurisdictions require the insured to have an insurable interest in the subject matter of the insurance. An insurable interest is that legal or equitable relationship between the insured and the subject matter of the insurance, separate from the existence of the insurance relationship, by which the insured would be prejudiced by the occurrence of the event insured against, or conversely would take a benefit from its non-occurrence. Insurable interest was long held to be morally necessary in insurance contracts to distinguish them, as enforceable contracts, from unenforceable gambling agreements (binding "in honour" only) and to quell the practice, in the seventeenth and eighteenth centuries, of taking out life policies upon the lives of strangers. The requirement for insurable interest was removed in non-marine English law, possibly inadvertently, by the provisions of the Gambling Act 2005. It remains a requirement in marine insurance law and other common law systems, however; and few systems of law will allow an insured to recover in respect of an event that has not caused the insured a genuine loss, whether the insurable interest doctrine is relied upon, or whether, as in common law systems, the courts rely upon the principle of indemnity to hold that an insured may not recover more his true loss.[edit] Utmost good faith
The doctrine of uberrimae fides - utmost good faith - is present in the insurance law of all common law systems. An insurance contract is a contract of utmost good faith. The most important expression of that principle, under the doctrine as it has been interpreted in England, is that the prospective insured must accurately disclose to the insurer everything that he knows and that is or would be material to the reasonable insurer. Something is material if it would influence a prudent insurer in determining whether to write a risk, and if so upon what terms. If the insurer is not told everything material about the risk, or if a material misrepresentation is made, the insurer may avoid (or "rescind") the policy, i.e. the insurer may treat the policy as having been void from inception, returning the premium paid.[edit] Warranties
In commercial contracts generally, a warranty is a contractual term, breach of which gives right to damages alone; whereas a condition is a subjectivity of the contract, such that if the condition is not satisfied, the contract will not bind. By contrast, a warranty of a fact or state of affairs in an insurance contract, once breached, discharges the insurer from liability under the contract from the moment of breach; while breach of a mere condition gives rise to a claim in damages alone.[edit] Regulation of insurance companies
Insurance regulation that governs the business of insurance is typically aimed at assuring the solvency of insurance companies. Thus, this type of regulation governs capitalization, reserve policies, rates and various other "back office" processes.[edit] In the United States
As a preliminary matter, insurance companies are generally required to follow all of the same laws and regulations as any other type of business. This would include zoning and land use, wage and hour laws, tax laws, and securities regulations. There are also other regulations that insurers must also follow. Regulation of insurance companies is generally applied at State level and the degree of regulation varies markedly between States.Regulation of the insurance industry began in the United States in the 1940s , through several United States Supreme Court rulings. The first ruling on insurance had taken place in 1868 (in the Paul v. Virginia[3]), with the supreme court ruling that insurance policy contracts were not in themselves commercial contracts. This stance did not change until 1944 (in the United States v. South-Eastern Underwriters Association ruling [4]), when the Supreme court upheld a ruling stating that policies were commercial, and thus were regulatable as other similar contracts were. ruling
In the United States each state typically has a statute creating an administrative agency. These state agencies are typically called the Department of Insurance, or some similar name, and the head official is the Insurance Commissioner, or a similar titled officer. The agency then creates a group of administrative regulations to govern insurance companies that are domiciled in, or do business in the state. In the United States regulation of insurance companies is almost exclusively conducted by the several states and their insurance departments. The federal government has explicitly exempted insurance from federal regulation in most cases.
In the case that an insurer declares bankruptcy, many countries operate independent services and regulation to ensure as little financial hardship is incurred as possible (National Association of Insurance Commissioners[5]). operates such a service in the United States
In the United States and other relatively highly-regulated jurisdictions, the scope of regulation extends beyond the prudential oversight of insurance companies and their capital adequacy, and include such matters as ensuring that the policy holder is protected against bad faith claims on the insurer's part, that premiums are not unduly high (or fixed), and that contracts and policies issued meet a minimum standard. A bad faith action may constitute several possibilities; the insurer denies a claim that seems valid in the contract or policy, the insurer refuses to pay out for an unreasonable amount of time, the insurer lays the burden of proof on the insured - often in the case where the claim is unprovable. Other issues of insurance law may arise when price fixingZurich Financial Services [6] - along with several other insurers - inflated policy prices in an anti-competitive fashion. If an insurer is found to be guilty of fraud or deception, they can be fined either by regulatory bodies, or in a lawsuit by the insured or surrounding party. In more severe cases, or if the party has had a series of complaints or rulings, the insurer's license may be revoked or suspended. It should be noted that bad faith actions are exceedingly rare outside the United States. Even within the US the full rigour of the doctrine is limited to certain States such as California. occurs between insurers, creating an unfair competitive environment for consumers. A notable example of this is where
[edit] In the European Union
Member States of the European Union each have their own insurance regulators. However, the E.U. regulation sets an harmonsied prudential regime throughout the whole Union. As they are submitted to harmonised prudential regulation, and in consistency with the European Treaty (according to which any legal or natural person who is a citizen of a Union member State is free to establish him-, her- or itself, or to provide services, anywhere within the European Union), an insurer licensed in and regulated by e.g. the United Kingdom's financial services regulator, the Financial Services Authority, may establish a branch in, and/ or provide cross-border insurance coverage (through a process known as "free provision of services") into, any other of the member States without being regulated by those States' regulators. Provision of cross-border services in this manner is known as "passporting".[edit] Rest of World
Every developed sovereign state regulates the provision of insurance in different ways. Some regulate all insurance activity taking place within the particular jurisdiction, but allow their citizens to purchase insurance "offshore". Others restrict the extent to which their citizens may contract with non-locally regulated insurers. Still others do both. In consequence, a complicated muddle has developed in which many international insurers provide insurance coverage on an unlicensed or "non-admitted" basis with little or no knowledge of whether the particular jurisdiction in or into which cover is provided is one that prohibits the provision of insurance cover or the doing of insurance business without a licence.
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