Fraud Week Spotlight: The Top 5 Insurance Schemes

Insurance fraud is a year-round threat. While we must remain vigilant at all times, the celebration of International Fraud Awareness Week (which kicked off on Sunday) should serve as a reminder that the battle is far from over.

Editor's Note: Goldstein Law Group is one of more than 1,000 Official Supporters of International Fraud Awareness Week, November 16-22, 2014. In this article, the author shares his insights on fraud gained from years of experience working with clients in the insurance industry.

By Frank Goldstein

November 2014

 

Insurance fraud is a year-round threat. While we must remain vigilant at all times, the celebration of International Fraud Awareness Week should serve as a reminder that the battle is far from over.

 

Goldstein Law Group works diligently on behalf of insurance companies doing business in South Florida – a hot-spot for fraud over the years. To help others recognize potential schemes, our firm has compiled a list of the top five insurance frauds we regularly encounter, and why it’s important to combat them.

 

1)  Staged auto accidents have become so prevalent, they often aren’t news. While the details vary, there’s a classic pattern to the cast of characters running these scams, including accident organizers, illegally solicited patients and unscrupulous professionals willing to file false insurance claims. It takes patience and perseverance to uncover the ring leaders, recover misappropriated funds and reduce the incidence of these schemes.

Sometime car accidents aren’t really accidents, making consumers unwitting victims or innocent bystanders. By actively combating staged accident schemes, insurance companies and law enforcement can begin making a dent in a crime that impacts consumers everywhere, who are paying higher insurance premiums to cover the cost of staged accidents.   

 

2)  False auto theft claims are one of the most popular fraud schemes among non-professional crooks. Although most perpetrators aren’t professionals, they can be incredibly creative. Individuals might create fake vehicle titles or registrations for nonexistent antiques or luxury cars, report them stolen and file a claim. These scams cost the public billions of dollars annually and, unfortunately, they’ve become more commonplace as people resort to desperate measures to raise cash.

 

Working side-by-side with insurance companies, legal teams can identify many suspicious claims. Often recurring indicators will raise red flags, such as claimants who increase their insurance right before a car is “stolen” or repeatedly file claims. Through the use of social media and shared databases between insurance companies, investigators can improve their success rates.

 

Did you know false auto theft claims arrests can result in a felony conviction when destruction of property is involved? Just knowing that can make some would-be fraudsters think twice.

 

3)  “Straw” clinic ownership isn’t new, but it’s a growing trend as criminals attempt to thwart the law. Straw ownership essentially involves setting up a false “store front” medical clinic to hide fraudsters’ identity, along with the crime.

 

Clinics handle large sums of insurance money, providing opportunities for criminals to cash in through elaborate schemes. Many agencies require clinics to be licensed if not owned by medical doctors or chiropractors, so fraudsters often compensate someone with medical credentials to act as their shadow owner. False ownership representation allows them to submit fraudulent claims and reap the monetary benefits – sometimes millions of dollars.

 

Sadly, these operations mean legitimate patients may not receive proper medical treatment, or fraudsters will submit fictional claims to maximize their payoff. Because these clinics deceive insurers to get fraudulent payments, we all pay through higher premiums. That’s why insurers should take an aggressive approach to fighting cases of straw ownership, and recommend everyone report suspicious activity to authorities.

 

4)  Foreclosure. Mortgages. Loans and debt. They’re all big concerns for home and business owners. Sometimes, they also lead to arson insurance fraud. Also called “arson for profit,” arson insurance fraud involves intentionally set fires to collect insurance money. While appealing to someone facing financial hardships, a fire’s unpredictable nature can lead to even greater loss, including adjacent properties…even death.

 

The National Fire Protection Association says, between 2007 and 2011, an estimated 282,600 fires each year were set intentionally, causing 420 civilian deaths, 1,360 injuries and $1.3 billion in direct property damage annually. That’s why law enforcement and insurance companies have an interest in thoroughly investigating every fire. And why arson is one reason life, property and home insurance premiums are so high.

 

In response, many insurance companies now have special arson fraud divisions. Investigating arson isn’t easy because evidence is destroyed by the fire, but new evidence-gathering techniques can reveal clues about the fire and its creator.

 

5)  Insurance that protects your home or business against water damage is a wise investment. However, some individuals view that as an opportunity to cash in through false water supply line claims. The scheme involves claiming fraudulent damage to property and possessions due to sewer or drain backups, or sudden, accidental plumbing damage. It’s enticing because there’s room for creativity.

 

People may deliberately break pipes and supply lines to fake “accidental” plumbing failures and collect insurance. Or, they inflate estimates to get more money than necessary to replace or repair plumbing. Fraudsters also may fabricate evidence, such as forged invoices, to make claims appear legitimate, while maximizing costs to get larger payouts. Whichever version, it’s being done at the expense of consumers’ premiums.

 

Water damage may seem like a fraud that’s hard to prove, but investigators often can spot “red flags” by verifying paperwork and examining the scene of the damage.

 

These are the top five frauds we deal with on a regular basis. While the job of reducing these schemes falls to state and federal agencies, and the legal teams specializing in fraud, the public can help, too. FraudWeek.com notes that crimes are most likely to be detected by a tip, so hotlines can be effective tools. Consumer tips can be crucial links for unraveling fraudulent operations.

 

As we celebrate International Fraud Awareness Week, let’s come together to increase public awareness about fraud … and what it’s costing each of us … in order to make fraud less profitable.

   

Frank Goldstein is the Founder and Managing Partner of Goldstein Law Group, which concentrates its practice in defending insurers and insureds against insurance fraud and the filing of civil lawsuits against those whom engage in insurance fraud. He was recently named the FIFEC (Florida Insurance Fraud Education Committee) Insurance Attorney of the Year.