Insurance companies must stop the logarithmic growth of insurance fraud
Watch the full video at https://rumble.com/v1petty-how-to-defeat-or-deter-insurance-fraud.html and at https://youtu.be/6-iZqqx8d6I
Fraudsters take more money every year from insurance buyers. The Coalition Against Insurance Fraud recently revised its estimates from $80 billion a year to announce that insurance fraud takes over $308 billion a year from the insurance industry. The US Department of Justice, working with various federal law enforcement agencies, has taken an active role in investigating, prosecuting and convicting those who defraud US health programs and federally funded insurance such as flood insurance and crop insurance. Still, the arrests and prosecutions that do occur make only a small dent in the amount of money stolen from private and federally funded insurance.
Because no one really knows how much is taken from insurance companies and federal programs—because most succeed—the best estimates, such as that made by the Coalition Against Insurance Fraud, are nothing more than an educated guess. People actively involved in the investigation of insurance fraud believe that the more accurate estimate is an amount equivalent to 10% to 30% of premium collected.
As the property and casualty insurance industry collected $394.8 billion in the first half of 2021 compared to $362.3 billion for the same period in 2020, six-month fraud took $39.48 billion to $118.44 billion annually for the small part of the insurance industry. [https://content.naic.org/sites/default/files/inline-files/Property-Casualty-and-Title-Insurance-Industries-2021-Mid-Year-Report.pdf] If the trend continues, the amount stolen from the property and casualty insurance industry — a small fraction of the coalition’s number — for the year would nearly double to $80 billion to $220 billion.
Insurance companies properly complain that local district attorneys and law enforcement agencies give low priority to the crime of insurance fraud,
The insurance companies have good reason to complain. They are generally ignored by police authorities when reporting the crime. When insurance criminals are caught in the act, they are rarely caught, even less often prosecuted and almost never punished.
Insurance is the only crime where the victim must pay for the investigation and prosecution of the criminal or there will be no investigation
The California Department of Insurance, like similar entities across the country, mandates that insurers fund and staff a Special Investigative Unit (SIU) to investigate and report to the state potential insurance fraud and maintain a detailed anti-fraud program. The California Department of Insurance audits insurance companies regularly to make sure that each insurer is working hard to investigate and prosecute the crime of insurance fraud and punish those the Department believes are not working seriously to defeat fraud.
At the same time, the same insurance department penalizes insurers for not paying claims promptly or for not treating insureds or claimants fairly. Courts and juries will often assess punitive and exemplary damages against insurers who accuse their insureds of fraud while looking with 20/20 hindsight at the SIU investigation.
Similar companies in the financial sector, which are also regularly exposed to fraud and other crimes, are not taxed or forced to investigate crimes committed against them. No one is asking Bank of America or Wells Fargo or Chase to pay to prosecute embezzlers or bank robbers. No one is demanding that Southland Corporation pay to prosecute people who have 7-11 stores. No regulatory authority requires stockbrokers to investigate money laundering or fraudulent transactions. The imposition on the insurance industry – and the resulting cost passed on to the insurance consumer – is unique.
Insurance companies are treated differently than any other business in the United States.
George Orwell was right when, to paraphrase, he had a character in his novel “Animal Farm” say that “all businesses are equal, some are more equal than others.”
It is clear that insurance companies are less equal when it comes to crimes committed against them than other companies.
Are insurance companies getting their money’s worth from fighting fraud?
Prosecutions and investigations of insurance fraud are anemic.
I have heard the following excuses from prosecutors presented with insurance fraud cases:
- An admission on the record by five corroborating witnesses is not sufficient to support a charge of fraud.
- An insurance company cannot be the victim of a crime.
- You have a good case, but I don’t have time to prepare an indictment or take the case to a grand jury.
- Juries don’t like insurance companies.
- Are you filing this case because you don’t want to pay a legitimate claim?
- I don’t understand what the appellant did wrong.
- Burning fires for profit takes too much time and effort unless someone dies in the fire.
What can insurers do to change the statistics?
It is the duty of all of us whose job it is to protect insurance companies against insurance fraud to do something to change the lack of adequate detection and prosecution of insurance fraud. Methods that are available and should be practiced by anyone who wants to reduce the impact of insurance fraud include:
Lobby to change the system so that:
- All funds must go to any type of insurance fraud at the discretion of the Insurance Commissioner.
- Prosecutors must be assigned to the Fraud Bureau and their sole duty must be to prosecute insurance fraud.
- When the local DA doesn’t file a criminal complaint, the fraud investigator or insurance company attorney has to complain loudly.
Work within the system we have:
- Report any suspected fraudulent claims to the Fraud Division or Fraud Bureau in your country with an effective report including acceptable evidence.
- Follow up with the fraud department after you get the letter saying they won’t investigate.
- Complete the Suspected Fraudulent Claim (“SFC”) report with investigation findings and transcripts of investigations under oath.
- Develop a personal relationship with fraud investigators.
- Develop a personal relationship with supervising investigators in the fraud department.
When the Fraud Unit refers a case to a prosecutor, the prosecutor’s identity determines.
- Make it clear to the prosecutor that you represent an interested and proactive victim.
- Make it clear to the prosecutor that your insurance company is upset that it is the victim of a crime.
- Make it clear to the prosecutor that you will do everything necessary for him or her.
- Make it clear to the prosecutor that you, and other employees of the insurance company, will be available to testify.
- If you are in California and sixty days pass after the case was referred to the DA, compliance with the requirements of the California Insurance Code is required. California Insurance Code § 1872.4 provides, in relevant part, as follows:
If prosecution by the concerned district attorney has not been commenced within 60 days of receipt of the commissioner’s notification, the district attorney shall notify the commissioner and the insurer of the reasons for the lack of prosecution of the reported violations.
- If you are not in California look for similar statutes in your state or simply complain to the DA or State’s Attorney who are public servants.
- The letter demanding an explanation as to why there is no prosecution must go to the public prosecutor. He or she will refer your letter for a response to a deputy manager. Often they will be embarrassed to tell you that the only reason for the failure is that other cases always take precedence over insurance fraud. The prosecutor in each county must be made aware that he or she is obligated to inform the victim of the insurance company as to why the crime is not being prosecuted.
Enough letters, enough complaints and insurance fraud will finally be recognized by prosecutors as a serious crime.
It is also the duty of all involved in the effort to prevent insurance fraud to:
- Write articles for your local newspapers.
- Call local reporters and complain that they are not covering the crime.
- Call talk radio and explain the costs of insurance fraud.
- Volunteer as your company speaker and give a talk on insurance fraud at every Rotary, Lions, BPOE or other service organization meeting.
- Shown at trial in every insurance fraud case.
- Claim compensation when an insurance fraud is convicted.
- Refuse to pay fraudulent claims.
- When sued by people believed to have made fraudulent claims, insist that the case be tried to a jury before any payment is made.
- Remember Pogo who was reported to have said, “We have met the enemy and they are us!”
To defeat or deter insurance fraud, it must be prosecuted. To get it prosecuted, the insurer has to do the work because local police authorities or prosecutors will not deal with the fraud, unless it involves a serious violent crime.
The orphan in the criminal justice system
Insurance fraud is an orphan of the criminal justice system and will never be defeated until the public and prosecutors recognize that insurance fraud is a serious problem that affects their own financial situation.
It’s time for insurers to stop complaining and do the work necessary to defeat this metastasizing crime before its growth eats away at any opportunity for insurers—and their shareholders—to make a profit.
Everyone involved in the insurance industry and everyone who buys insurance needs to make it clear that they are angry about what is happening to their insurance premium dollars. When I, and anyone who has ever bought insurance, hears that $300 out of every $1,000 we pay in premiums goes to a criminal, we should all want to scream out the window, like the character on “Network”: “I I’m crazy like hell, and I’m not going to take this anymore!”
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org. Subscribe and receive videos limited to Excellence in Claims Handling subscribers at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.
Now available Barry Zalma’s newest book, Bad faith damagesand “How to Acquire, Understand and Make a Successful Commercial Property Insurance Claim: Information Needed by Individuals and Insurance Professionals to Manage Commercial Property Insurance” the new books are now available as a Kindle book here, pocket here and as one bound here available at amazon.com.
Write to Mr. Zalma at email@example.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published on https://zalma.substack.com. Go to the Zalma On Insurance podcast at https://anchor.fm/barry-zalma; Follow Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos on Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to Insurance Claims Library – https://zalma.com/blog/insurance-claims-library