Insurance News

Insurance Fraud Likely To Ramp Up In 2010, Experts Say

Posted on: December 21, 2009

Experts in fighting insurance fraud say scams that historically escalate in a poor economy will increase in 2010, with health-related activity at the top of the list and with smaller firms as favored targets

A recent survey of 37 fraud bureaus found the selling of bogus health insurance to small businesses is now the number one scam, according to Dennis Jay, executive director of the Coalition Against Insurance Fraud, based in Washington, D.C.

?Individuals seem to target small, unsophisticated Main Street businesses that still want to provide employees with a health plan,? he related, adding that healthcare-related fraud also includes medical provider fraud in auto injury and workers? compensation cases.

Mr. Jay said the Coalition in 2010 expects to see ?a continuation of economy-driven scams,? propelled upward by economically desperate people with phony car theft ?auto giveup? claims, as well as bogus homeowners claims, including a small number of arsons.

Another scam category that is one of the top-three, Mr. Jay said, is agent fraud.

While actual criminal activity by producers may not be increasing, he said, the amount that is being discovered is up. ?In tough times, it is harder to conceal because people are looking for it? he explained. There may also be a desperation factor at certain agencies because policy counts and premiums are down, he noted.

Meanwhile, the other high-focus area is fake slips-and-falls. ?It really is going through the roof,? he noted, with grocery stores, big-box stores and restaurants as favorite targets.

Ondrej Krehel, information security officer at Scottsdale, Ariz.-based Identity Theft 911, said smaller firms are the likeliest targets for computer hacking fraud because bigger companies tend to have solutions in place with a high level of sophistication, enabling them to quickly recognize fraud trends.

Ed Goodman, chief privacy officer at Identity Theft 911, said at this point he thinks insurance losses from this kind of crime are difficult to quantify because ?the insurance industry is very tight-lipped about it,? and ?some numbers you see on the cost of data breach losses are questionable.?

However, he guessed that the damage ?could well be in the hundreds of millions? and involve soaring legal costs.

Mr. Krehel pointed out that a data breach can involve the cost of notification, running a call center to deal with the fallout and offers of credit monitoring. ?It all starts compounding,? he said.

Small companies, Mr. Goodman explained, can have a significant amount of data, mentioning that a single doctor may have files on 5,000 to 7,000 patients and a three-attorney law firm might have 1,000 clients.

Andrea Allmon, insurance product director for FICO–a Minneapolis-based insurance fraud product management firm–said that in the health care fraud sector the smaller firms ?are juicer targets.? Criminals, she explained, are ?realizing that larger firms are putting fraud detection systems in place making it a little more risky.?

Ms. Allmon said that workers? comp fraud may be increasing somewhat because in a down economy those out with an injury may be fearful if they return to work, they will lose their jobs and so are ?milking? their condition.

Health care fraud, according to Ms. Allmon, is being increasingly influenced by offshore organized crime, with an increasing criminal element from Nigeria that generates fraudulent provider identification numbers and submits fraudulent bills. Shifty health care providers, she added, are constantly reincorporating to start new ventures.

She also believes that auto giveups and fake homeowner claims are ramping up.

Ms. Allmon estimates that ?anywhere between 5- and 10 percent of premiums is lost to fraud.? To combat it, her company is producing sophisticated analytic software that picks up unusual patterns to give an early warning that a claim may be fraudulent, she noted.

© Copyright 2009 National Underwriter Property & Casualty. A Summit Business Media publication. All Rights Reserved.

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