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Waiter, there's a mouse in my soup ... And other tales of insurance fraud National Insurance Crime Bureau By Phil Zinkewicz If you were asked to guess the annual cost of insurance fraud and you answered $30 billion, you’d be correct, according to the National Insurance Crime Bureau (NICB). But that would be only on the property and casualty side of the insurance business—auto fraud rings, arson for profit, faked workers compensation claims, and so on. If, however, you consider all other types of insurance—life insurance, health insurance, disability insurance, to name just a few—then you’d be talking at least $80 billion annually in insurance fraud. Consider the more recent cases that the Coalition Against Insurance Fraud (CAIF) put into its 2006 Fraud Hall of Shame: • Carla Patterson, Newport News, Virginia, said she found a dead mouse in her vegetable soup at a Cracker Barrel restaurant. She demanded $500,000 in damages, but Cracker Barrel discovered that the rodent had no soup in its lungs and hadn’t been cooked. Nevertheless, customers harassed Cracker Barrel employees, and one worker lost her home when business declined. Patterson received a year in prison. •Dr. Jorge Martinez, an Ohio pain management specialist, threatened to deny desperate patients painkillers unless they let him use their names to bill insurance companies more than $60 million in narcotic drugs and expensive diagnostic tests he never gave. Some patients grew addicted to the drugs he doled out, and two of them died of overdoses. Martinez also fraudulently billed insurers for more than 100 patients a day for years. He received a life term in federal prison. • Dr. David Wexler, a New York City dermatologist, paid drug addicts to lend their names so he could bill thousands of dollars for skin surgeries he never performed. The doctor made nearly 2,000 bogus claims for phantom surgeries on one addict alone, including 1,400 on his face. Wexler paid the addicts with a virtual pharmacy of narcotics to keep them coming back. He received 20 years in prison. • Cindy Monkman fell for a handsome German day laborer, Michael Apelt, who lied that he was an international businessman. The Phoenix, Arizona, woman agreed to marry him just three weeks after they met. Apelt took out $400,000 in life insurance on Cindy just 10 days after they married. He and his brother, Rudi, soon stabbed her to death in the desert. Both brothers received death sentences. In just those four cases, we see liability insurance fraud, health insurance fraud and life insurance fraud. We see innocent people’s lives ruined and even taken away. Over the years, many fraud-fighting organizations have risen up to combat insurance fraud. The NICB and the CAIF are just two of them. In addition, 47 states have insurance fraud bureaus and many insurance companies have established their own special investigative units (SIUs) to fight insurance fraud. All have performed well individually. Unified approach Now the property and casualty insurance industry is taking more aggressive action in a more unified approach. “Insurance fraud in all its manifestations is a drain not only on the national economy and insurance carriers, but also on the finances of ordinary people—people who buy insurance to protect themselves against loss stemming from auto accidents, natural disasters, theft and injury,” says Frank Scafidi, spokesman for the NICB. “It has been estimated by some insurance studies that fraud adds anywhere from $200 to $300 to an average family’s annual insurance costs—money that belongs in the family’s bank account and not in the pockets of scam artists and criminals,” he says. “While individual insurance carriers continue to refine and expand their aggressive anti-fraud processes into their claims handling procedures, today’s more sophisti-cated criminals create a special challenge,” Scafidi continues. “They are much more insidious in that they will simultane-ously target numerous companies with multiple fraudulent claims generating millions of dollars in bogus claims. That kind of criminal enterprise requires more than an individual company is able to withstand.” It is against that backdrop that, over the last two years, various committees were created and staffed with industry professionals charged with identifying weak spots in existing fraud-fighting efforts. These groups recently completed their work and found that the industry’s approach to fraud was fragmented and inadequate. “While there are isolated examples of effective anti-fraud programs, a nationwide coordinated effort on multiple fronts is necessary to reduce this costly economic problem,” says Scafidi. “During this review, five ‘pillars’ were identified as critical components to an effective fraud-fighting structure.” Those pillars, according to Scafidi, are public awareness, legislative advocacy, training, data analysis and investigation. Explains Scafidi: “Public awareness of the costs of insurance fraud is essential. We have to make the public understand that insurance fraud is costly to them personally so that they will join the fight. Legislative advocacy is important so that we can find sponsors at both the state and federal levels for support of anti-fraud programs. Training our claims people to recognize a legitimate claim versus a ‘set-up’ is also of paramount importance. Claims people have to be trained to develop a ‘sixth sense’ when dealing with fraudulent claims. As for data analysis, we have the technology available to gather masses of information. Now we have to develop the ability to analyze that data to detect fraud rings and repeat offenders. Finally, we have to improve our investigation techniques. The companies that are big enough to have SIUs should assist the smaller insurers in claims investigations.” A model platform Scafidi says that industry professionals believe that, among the many entities currently engaged in fighting insurance fraud, the Illinois-based, not-for-profit NICB’s operational structure represents an existing platform from which a more focused fraud-fighting organization could evolve. With its principal functions of investigation, training, government affairs, awareness and data analysis and its nationwide network of special agents, NICB is uniquely positioned and staffed to build on the industry’s blueprint, he says. “The NICB board of governors has been tasked to develop an integrated business plan for a new fraud-fighting organization, incorporating the five pillars based on the NICB model,” continues Scafidi. “Overseeing this effort is an executive steering committee staffed by Marc C. Russell, vice president and chief administrative officer, Grange Insurance; Susan Q. Hood, claims vice president, State Farm Mutual Automobile Insurance Company; William J. Breslin, senior vice president, claims service, USAA; Robert M. Bryant, president and chief executive officer, NICB; and Dennis Jay, executive director, CAIF. “Five committees representing each of the pillars have been established,” reports Scafidi. “They are staffed with professional law enforcement officers, state insurance regulators, prosecutors, insurance executives, researchers, legal experts and consumer advocates. They will examine the current practices within each of the five areas looking for successful operations, as well as missing elements and/or weaknesses. This will be followed by a process of incorporating ‘best practices’ into each committee’s deliberations and, finally, producing a report of findings and recommendations.” The committees are: Public Awareness, chaired by Cary Schneider, senior vice president, Insurance Information Institute; Legislative Advocacy, co-chaired by Eric Miller, deputy chief financial officer, Florida Department of Financial Services, and Paul Stachura, senior vice president, Home Office Claims, Fireman’s Fund; Training, co-chaired by Edward Schaefer, claims senior executive, Westfield Group, and Thomas Mulvey, director of SIU operations, Insurance Services Offices; Data Analysis, chaired by Susan Hood; and Investigations, chaired by Charles Schader, senior vice president, worldwide claims, AIG. Mark Russell, chairman of the NICB’s board of governors, commented on this ambitious undertaking: “I am both pleased and excited about this opportunity. With a coordinated assault on fraud, we have an excellent opportunity to have an impact upon this perennial problem. I look forward to working with our committees in creating an organization that will embody the best possible design for success in fighting insurance fraud,” he says. * For more information: |
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