How Serious Is the Problem?
Insurance fraud is one of America’s costliest crimes. It is widespread throughout the country costing billions of dollars and causing damage and injury to thousands of victims. Insurance fraud is said to cost property and casualty insurers and policyholders approximately $30 billion a year. Fraud losses in all lines amount to at least $80 billion annually and could be as high as $120 billion according to other estimates.
Insurers spend hundreds of millions of dollars a year funding a large but still seemingly inadequate anti-fraud machine. About 85 percent of property and casualty insurers pay for in-house investigation units, and others pay for surveillance and software firms to support their anti-fraud operations.
It is unknown how many millions of taxpayer dollars—federal, state, and local—are diverted from other pressing societal problems to combat insurance fraud. Approximately 80 percent of states sponsor insurance fraud bureaus with combined budgets of nearly $130 million annually.
The Hidden Costs of Insurance Fraud
Unfortunately, most people fail to make the connection between insurance fraud and their own pockets. Many think that insurance companies are somehow absorbing the cost. In reality, the $80 billion in fraud costs that occur each year is paid for by American families through increased insurance rates as well as higher taxes to pay for fraud investigations and prosecutions. The hidden cost of insurance fraud not only discourages businesses from expanding their operations, it also promotes schemes to hire workers “under the table” in order to keep costs down. This ultimately minimizes the benefits and protections afforded to these workers and allows them to pocket their salaries without paying employment and income taxes.
There are other hidden costs as well, for example, lost revenue. Businesses lose millions of dollars in income each year due directly to fraud and higher premiums. This hampers their ability to expand, be profitable, and employ people.
Let’s not forget that staged accidents and arsons injure or kill innocent people, thus contributing to everyone’s rising health-care costs.
As reported by the Coalition Against Insurance Fraud, a national anti-fraud watch group, fraud bureaus are seeing a rise in the following areas:
-doctor shopping (requesting care from multiple physicians, usually to obtain
-diversion of prescription narcotics
-fraud by body shops
-workers’ compensation premium fraud by employers
-fraud by insurance agents
-fraud by organized rings
Other trends cited by the Coalition include:
=vehicle give-ups (dumping unwanted vehicles in a variety of ways)
=home and business arson
-suspicious personal possession losses
-bogus workers’ compensation injury claims
-staged auto accidents
-auto premium evasion
-tainted food swindles
-fake health insurance policies
-useless medical discount plans
-death faking schemes
-slip and fall schemes
-senior citizen fraud of all types
Perhaps one reason for the mounting insurance fraud trend is a declining economy. When the economy experiences a crushed housing market, a continued escalation in unemployment, and dwindling savings and investment accounts, many may consider duping large, faceless insurance companies as a means of bailing themselves out of a threatening financial corner. In economically challenging times, the risk of insurance fraud increases. Unchecked fraud results in depleted company reserves and the necessity for increased premiums, which can negatively influence the company’s competitive position.