March 31, 2010
The sour economy is producing a bumper crop of shady characters that are fueling a wave of insurance fraud that is keeping regulators and law enforcement officials busy from coast to coast.
Whether it is worthless health plans peddled by fax, staged auto accidents, arson, or slip-and-fall accidents at the local mall, insurance fraud of all kinds is booming in the recession, and consumers are paying the price in higher premiums.
To keep it in perspective, roughly 48 million insurance claims are made each year in the United States, and less than one-quarter of 1 percent are referred to the nonprofit National Insurance Crime Bureau for investigation of possible fraud.
Last year, that amounted to just more than 85,000 questionable claims. But it was up almost 14 percent, from nearly 75,000 in 2008.
A recent survey of 37 state insurance-fraud bureaus by the Coalition Against Insurance Fraud found that the recession "appears to have had a significant impact on the incidence of fraud" last year. On average, the bureaus reported increases in case referrals and new investigations in all 15 categories of fraud the survey covered.
Leading the way was the sale of bogus health insurance, with 38 percent of bureaus reporting a "much higher" increase over 2008.
With about 50 million uninsured Americans and health care in the Washington spotlight, state insurance regulators have their hands full keeping up with scam artists.
In recent months, more than a dozen states have put out consumer alerts or issued fines and cease-and-desist orders against unregistered firms offering worthless plans or deceptively marketing plans with limited benefits as full coverage.
Some of the bogus plans turn out to be discount cards that provide only slight price breaks on services such as prescriptions or X-rays. Many are advertised on TV and the Internet, but most are marketed through junk faxes sent to businesses, government offices, and homes.
One recent fax reads, "Congress to pass reform act. In preparation for the new health-care model, our company now offers creditable coverage plans" with 80 percent coverage on prescriptions, diagnostic, X-rays, and lab work for only $368 a month, or $4,416 a year for a family.
Not a bad deal, considering the average annual price for standard family coverage exceeds $13,000, according to the Kaiser Family Foundation. For those that are jobless, uninsured, or unable to afford COBRA coverage, it seems too good to pass up.
"So here you have people in desperate circumstances, and they're getting these faxes that are promising them the moon and complete coverage at low costs, and they want to believe, so they buy it," said Oklahoma Insurance Commissioner Kim Holland. "But it's just a scam."
Oklahoma is one of 20 states that have taken action or are moving to stop one of the biggest national providers of these policies, a company known as the American Trade Association. Based in Tennessee, ATA has taken in about $14 million in premiums nationwide from about 12,000 people, Holland said.
Typically, policyholders do not realize they have worthless or inadequate coverage until they submit claims.
The company does business in numerous states under a variety of monikers, including Serve America Assurance and Smart Data Solutions.
An ATA attorney declined to comment.
Frank Scafidi, a spokesman for the National Insurance Crime Bureau, said there were no empirical data to validate the theory that the bad economy was spurring more insurance fraud.
But when gasoline prices began to spike several years ago, Scafidi said, so did the number of auto "give-ups," in which owners fraudulently reported their vehicles as stolen or destroyed to collect on the insurance. Many of the abandoned vehicles were gas-guzzling SUVs and pickups.
In the absence of more hard data, the survey of state insurance-fraud bureaus is notable: 68 percent of states reported an increase in auto "give-ups" as job losses made it hard for people to keep up with their payments.
When creditors came looking for Elizabeth Layton's tractor in January, she allegedly claimed it was stolen. Information in an unrelated burglary investigation revealed the vehicle was in a garage on a nearby farm. Layton, of Laurens, N.Y., faces charges of grand theft, insurance fraud, and false reporting.
Sixty-nine percent of states cited an increase in insurance-agent fraud.
Former agent Emil Feduniec, 52, of Tuckahoe, N.Y., was arrested on grand-larcery charges last month, accused of failing to make payments on two policies, while collecting more than $15,000 in commercial-property insurance premiums in 2008 and 2009.
The policies were canceled for nonpayment, but not before one of the property owners paid $25,000 for roof damages to a structure Feduniec allegedly failed to insure.
Roofers were some of the worst insurance scammers in 2009. According to the National Insurance Crime Bureau, the number of questionable claims for hail damage spiked more than 200 percent, from 256 in 2008 to 772 last year.
But in other cases, said Scott Morrison, an expert in hail roof damage with Haag Engineering of Dallas, homeowners were the culprits and tried to simulate damage by striking roofs with golf balls in socks or by twisting quarters into asphalt shingles.
The scams often unraveled when cotton and nylon fibers from the socks were found in the shingles. Morrison said striations left in the tiles from small change also was visible.
The sour economy is producing a bumper crop of shady characters that are fueling a wave of insurance fraud that is keeping regulators and law enforcement officials busy from coast to coast.
Whether it is worthless health plans peddled by fax, staged auto accidents, arson, or slip-and-fall accidents at the local mall, insurance fraud of all kinds is booming in the recession, and consumers are paying the price in higher premiums.
To keep it in perspective, roughly 48 million insurance claims are made each year in the United States, and less than one-quarter of 1 percent are referred to the nonprofit National Insurance Crime Bureau for investigation of possible fraud.
Last year, that amounted to just more than 85,000 questionable claims. But it was up almost 14 percent, from nearly 75,000 in 2008.
A recent survey of 37 state insurance-fraud bureaus by the Coalition Against Insurance Fraud found that the recession "appears to have had a significant impact on the incidence of fraud" last year. On average, the bureaus reported increases in case referrals and new investigations in all 15 categories of fraud the survey covered.
Leading the way was the sale of bogus health insurance, with 38 percent of bureaus reporting a "much higher" increase over 2008.
With about 50 million uninsured Americans and health care in the Washington spotlight, state insurance regulators have their hands full keeping up with scam artists.
In recent months, more than a dozen states have put out consumer alerts or issued fines and cease-and-desist orders against unregistered firms offering worthless plans or deceptively marketing plans with limited benefits as full coverage.
Some of the bogus plans turn out to be discount cards that provide only slight price breaks on services such as prescriptions or X-rays. Many are advertised on TV and the Internet, but most are marketed through junk faxes sent to businesses, government offices, and homes.
One recent fax reads, "Congress to pass reform act. In preparation for the new health-care model, our company now offers creditable coverage plans" with 80 percent coverage on prescriptions, diagnostic, X-rays, and lab work for only $368 a month, or $4,416 a year for a family.
Not a bad deal, considering the average annual price for standard family coverage exceeds $13,000, according to the Kaiser Family Foundation. For those that are jobless, uninsured, or unable to afford COBRA coverage, it seems too good to pass up.
"So here you have people in desperate circumstances, and they're getting these faxes that are promising them the moon and complete coverage at low costs, and they want to believe, so they buy it," said Oklahoma Insurance Commissioner Kim Holland. "But it's just a scam."
Oklahoma is one of 20 states that have taken action or are moving to stop one of the biggest national providers of these policies, a company known as the American Trade Association. Based in Tennessee, ATA has taken in about $14 million in premiums nationwide from about 12,000 people, Holland said.
Typically, policyholders do not realize they have worthless or inadequate coverage until they submit claims.
The company does business in numerous states under a variety of monikers, including Serve America Assurance and Smart Data Solutions.
An ATA attorney declined to comment.
Frank Scafidi, a spokesman for the National Insurance Crime Bureau, said there were no empirical data to validate the theory that the bad economy was spurring more insurance fraud.
But when gasoline prices began to spike several years ago, Scafidi said, so did the number of auto "give-ups," in which owners fraudulently reported their vehicles as stolen or destroyed to collect on the insurance. Many of the abandoned vehicles were gas-guzzling SUVs and pickups.
In the absence of more hard data, the survey of state insurance-fraud bureaus is notable: 68 percent of states reported an increase in auto "give-ups" as job losses made it hard for people to keep up with their payments.
When creditors came looking for Elizabeth Layton's tractor in January, she allegedly claimed it was stolen. Information in an unrelated burglary investigation revealed the vehicle was in a garage on a nearby farm. Layton, of Laurens, N.Y., faces charges of grand theft, insurance fraud, and false reporting.
Sixty-nine percent of states cited an increase in insurance-agent fraud.
Former agent Emil Feduniec, 52, of Tuckahoe, N.Y., was arrested on grand-larcery charges last month, accused of failing to make payments on two policies, while collecting more than $15,000 in commercial-property insurance premiums in 2008 and 2009.
The policies were canceled for nonpayment, but not before one of the property owners paid $25,000 for roof damages to a structure Feduniec allegedly failed to insure.
Roofers were some of the worst insurance scammers in 2009. According to the National Insurance Crime Bureau, the number of questionable claims for hail damage spiked more than 200 percent, from 256 in 2008 to 772 last year.
But in other cases, said Scott Morrison, an expert in hail roof damage with Haag Engineering of Dallas, homeowners were the culprits and tried to simulate damage by striking roofs with golf balls in socks or by twisting quarters into asphalt shingles.
The scams often unraveled when cotton and nylon fibers from the socks were found in the shingles. Morrison said striations left in the tiles from small change also was visible.
Closed November 2010