Do Insurers Get Their Moneys Worth from Fighting Fraud?

• Author: Zalma, Barry
• Position: [ON MY RADAR]

* The simple answer is "yes" and "no." The more difficult question to answer is how to quantify the savings, if any.

A report from the Insurance Services Office (ISO) commented:

1. Insurers consider fraud a serious problem but their companies' Anti-fraud efforts are only moderately effective;

2. Sixty-eight percent say their companies' anti-fraud programs address claims fraud thoroughly;"

3. 19 percent say they address premium fraud "thoroughly";

4. 25 percent say they address application fraud "thoroughly;"

5. Slightly more than one-third (37 percent) think the amount of fraud their companies have experienced has increased over the past three years;

6. Forty-two percent think that 21 percent or more of total claims contain "soft" fraud, but only 6 percent think that 21 percent or more of claims contain "hard" fraud. They agree that fraud is most prevalent in the private passenger auto and workers compensation lines of business;

7. Eighty-two percent of the 353 insurers responding to the survey say they have an anti-fraud program at their companies;

8. One hundred percent of the large insurers, 91 percent of the medium insurers, and 64 percent of the small insurers have an anti-fraud program;

9. Sixty-three percent of the companies say that the state or states in which their companies do business require an anti-fraud plan; and

10. Only 13 percent of insurers doing business in these states consider state requirements and guidelines very useful.

Because less than one-third of respondents answered questions about their companies' expenditures, estimates of industry-wide spending on anti-fraud efforts are not reliable. The response rate suggests that insurers are unable to isolate anti-fraud expenditures in their budgets or unwilling to share what figures they have with other insurers and the general public.

The Coalition Against Insurance Fraud reported that attempts to measure insurance fraud have either been broad estimates, one-time snapshots, or narrowly focused on a single area, such as bodily injury fraud. The most-notable efforts include:

Coalition Against Insurance Fraud: Publishes annual estimates for claims fraud in four areas of insurance (auto, homeowners, health and business). Estimates are based on extrapolations of previous industry and government estimates of fraud.

* Latest national estimate for claims fraud in the U.S. is $79 billion from the National Insurance Crime Bureau.

Estimates that insurance fraud totals $18 billion to $20...