Record fraud drives up insurance rates

Consumers face $40B in fake claims

Ohio has already received a record number of allegations of insurance fraud this year, which officials said is partly due to better reporting of suspected incidents of criminal activity and hard economic times.

Insurance fraud costs U.S. families hundreds of dollars each year in the form of increased premiums, and tens of billions of dollars are paid out annually for fake and exaggerated claims, according to industry and federal estimates.

Though fraud is thought to account for only a small fraction of all insurance claims, the activity is one of the most prevalent forms of white-collar crime, and it can be difficult to identify and prove.

Officials urge people with knowledge of potential fraud to contact the state, because authorities need all the help they can get to weed out wrongdoing. Members of the public should also report misconduct and illegal activities by insurance agents and agencies, which also carry significant costs and risks to consumers.

“Insurance fraud is not a victimless crime,” said Elizabeth Stelzer, spokeswoman with Columbus-based Nationwide Insurance. “It is a serious issue that affects everyone.”

Consumers, insurers, insurance agents, law enforcement officers and others have already lodged 4,022 allegations of insurance fraud with the state through Dec. 7 of this year, according to the Ohio Department of Insurance. Allegations of fraud continue to rise, and they are already up 10 percent compared to all of 2011 and up 25 percent from 2010.

The increase partly reflects the Department of Insurance’s strengthened efforts to get insurers and the public to report suspected incidents of fraud, said Chris Brock, department spokesman. Fraudulent activity also tends to increase when people face serious economic hardships, he said.

The most common types of fraud include false or inflated homeowner and auto claims, staged auto accidents, and bogus slip and fall accidents. Fake health care plans have spread during the economic downturn, and arson remains a problem.

Additionally, the state this year has also received about 2,904 allegations of misconduct by insurance agents and agencies. The state launched 1,843 administrative investigations, and about 148 insurance agents and agencies have surrendered their licenses or had them revoked because of wrongdoing.

Some insurance agents sell policies, take consumers’ money and then do not do the paperwork, meaning the consumers are not actually insured. The consumer can be hit with large bills when they require hospital care or seek repayment for losses. Deceptive sales practices can also result in consumers buying insurance policies that are expensive and do not meet their needs.

Despite the record number of allegations, it remains unclear whether or to what degree the increase in reports reflects an increase in fraudulent activity. Criminal indictments, referrals and cases opened and investigated by the Ohio Department of Insurance are not on track to significantly surpass the totals of previous years.

But officials said there is no doubt that fraud is hitting consumers where it hurts — in their pocketbooks.

Non-medical insurance fraud costs more than $40 billion per year, and results in the average U.S. family paying $400 to $700 more annually in the form of higher premiums, according to the FBI. Misconduct by insurance agents and agencies also can be expensive and leaves policyholders without coverage because their premiums were diverted.

Insurance fraud is the second most costly white-collar crime after tax evasion, the industry said.

“Insurance fraud is a cost of business, and like any cost of business, it gets passed on to normal consumers in higher premiums,” said James Quiggle, spokesman with the Washington, D.C.,-based Coalition Against Insurance Fraud. “Why should honest Americans have to pay for the thievery of others in a down economy, when every penny counts?”

Many allegations of insurance fraud are bogus, misinformed or cannot be substantiated, said Frank Scafidi, spokesman with the National Insurance Crime Bureau. Other complaints of fraud are true, but definitive evidence is lacking, or authorities or insurance companies decide not to take action.

Most insurance crimes are “soft fraud,” meaning policyholders exaggerate their losses on a legitimate claim, Scafidi said. A policyholder whose home is broken into may inflate the value of the items stolen and the extent of property damage. He or she may lie and claim they had some possessions stolen they never owned.

In some of these cases, insurers may suspect fraud, but they will not try to prove it or get the policyholders to admit fault, Scafidi said. He said this crime can be hard to detect and prove, and insurance companies often determine it is just easier to pay the claim.

“A small percentage of the policyholders are doing this,” he said.

“Hard fraud” is less common, but it is usually far more serious. In these cases, people deliberately plan and cause accidents, thefts, property damage and other events that lead to insurance payments. These crimes can be extremely costly and put lives in danger.

In May, a Montgomery County jury convicted Eva Christian, the long-time owner of Café Boulevard and Boulevard Haus in the Oregon District, of five felony counts related to insurance fraud, and a judge sentenced her to nine years in prison.

Christian, who is from Croatia and will be deported after serving her sentence, staged a break-in at her Washington Twp. home in October 2009 and two months later, she caused her restaurant, the Cena Brazilian Steakhouse in Miami Twp., to be damaged, set on fire and vandalized. A witness testified at trial that Christian said she wanted to “blow up” her restaurant, which was located next to a family-portrait studio and men’s clothing store.

“It was about money, it was about greed,” said Mary Montgomery, assistant Montgomery County prosecutor. “She was in financial trouble, and I think people go to crazy lengths when they are desperate, and she was desperate.”

Insurance investigators were suspicious of the original claim, but they did not have enough evidence to build a case against her, Montgomery said. Christian may have not been charged and convicted if she did not commit a second act of fraud, she added.

Authorities ultimately collected lots of evidence that showed Christian was behind the break-in and restaurant damage, and they built a successful case against her. Montgomery said it helped that police received an anonymous tip about her crimes.

The Ohio Department of Insurance’s fraud hotline is 1-800-686-1527, and the consumer hotline is 1-800-686-1526.

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