Insurance fraud epidemic continues; drives up operational, consumer costs

Insurance fraud is considered a $310 billion a year criminal business – and the rate of fraud continues seemingly unabated. It all started when two Greek sea merchants intentionally sunk their boat believing it would allow them pocket money lent to them by the boat’s owner, who was insured.

That was more than 2,300 years ago and though the two merchants were caught – and drowned – it didn’t stop others from trying their hand at insurance fraud. And today, it continues. A report by the U.S. Federal Trade Commission said that in 2021, there were more than 4.2 million fraud cases reported, 2.8 million were fraud related complaints and 1.4 were identity theft complaints.

Perhaps more alarming is a large and growing consensus among some demographics, particularly the younger generation, that believes insurance fraud is okay.

Attitudes toward insurance fraud 'concerning'

“Consumer attitudes towards insurance fraud are concerning,” said Michelle Rafeld executive director of the Coalition Against Insurance Fraud, an organization of consumers, insurers, government agencies, prosecutors and others, all uniting to fight fraud. “Studies show a significant portion of the population does not view it as a crime.”

In a recent webinar sponsored by Travelers Institute, Rafeld noted that today the same technology advancements that have made it easier for individuals to get their insurance, have also made it easier for sophisticated criminals to commit insurance fraud.

Every line of insurance has its own unique set of fraud schemes, Rafeld said, because there's no type of insurance that's immune from fraud.

Some don't view it as a crime

But perhaps more troubling, she said, were the results of a recent coalition study that found about 15% of those surveyed didn't view insurance fraud as a crime, with a large number saying committing insurance fraud was acceptable and something in which they would be willing to engage.

“That should concern you, because when you apply that percentage to the country's
overall population, it means that there are over 50 million Americans who don't view insurance
fraud as a crime,” she said.

Age groups look at it differently, with those 45 and older generally seeing insurance fraud as a crime, but a large percentage of individuals between the ages of 18 and 44 do not. Many even indicated they felt envious or motivated to commit insurance fraud after learning someone they knew engaged in it.

“That should make all of us lose sleep because if someone is willing to lie, cheat, and steal
in their 20s, 30s, and 40s, they're going to continue to lie as they get older,” Rafeld said. “So, the problem only stands to become far worse, especially if we don't take significant efforts
to change the perception.”

Opportunistic fraud vs. organized fraud

Generally, insurance fraud comes in two flavors, opportunistic fraud and organized fraud, said Pranay Mittal, vice president of Travelers Investigative services.

Opportunistic insurance fraud occurs when someone knowingly submits a false claim or takes advantage of a legitimate claim by exaggerating or misrepresenting facts on an application form when they're buying a policy. Examples might be someone overstating the value of some expensive jewelry on a homeowners’ application or exaggerating the physical damage to an automobile or bodily injury.

Organized fraud involves multiple sophisticated claims that are deliberately planned - like those of the ancient Greek sea merchants. Those cases, Mittal said, could involve medical providers, attorneys, contracting companies and auto body shops, all working in concert to defraud insurers.

“You could have a medical provider submitting claims for services that were not needed or rendered, or completely faking patient records,” he said. “You could have a property contractor fraud where a firm is intentionally misleading a client for the purposes of getting as much money as possible for subpar or incomplete work.”

Identity theft a frequent crime

Identity theft may be among the most frequent form of fraud insurance companies are seeing. It goes far beyond simply using another’s name and address to rip off an insurer.

“Fraudsters get on the dark web and can get driver's licenses, Social Security numbers, passports, credit card information, online banking information, user ID, and passports of people and a whole range of documents that are also available,” Mittal said. “Then they create
fake documents as needed and buy policies from an insurance company or make up a claim.”

These fraudsters now can be anywhere in the world, he said, because they can easily mask
their computer’s IP address and caller ID. Moreover, the internet is ripe with free tools that can be used to manipulate images, photos, and documents to appear legitimate.

Technology is 'available to fraudsters'

“And there are many websites now that allow individuals to emulate voices, manipulate videos,
mask computer locations,” said Mittal. “So, while technology, of course, has many, many good uses, we do have to remember that that same technology is available to fraudsters on the web.”

The growing epidemic of fraud is driving up operational and consumer costs. Companies now must hire or develop fraud training for all employees, build investigative units – Travelers alone has 275 such investigators – specialized teams for unraveling underwriting fraud, recovering stolen cargo, fire science experts, surveillance and wellness checks personnel, and litigation support experts.

“On the analytics side, we have many fraud fighting capabilities that help us with detection
and investigation of fraud,” Mittal said. “Predictive models run on our claims and identify which of our claims need additional investigation.”

Companies also work with groups like the National Insurance Crime Bureau as well as the Coalition Against Insurance Fraud to fight fraud in the marketplace.

“The need for insurers and consumers and government organizations to unite and collectively fight fraud has never been greater,” said Rafeld.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].