Fraud: Opportunity and challenges

Simply put, the panelists and topic had all participants nailed to their seats—not because we learned how to make the most of fraud as an opportunity (as the title suggested), but in learning how much work has been done—and must continue to be done—to prevent or stop fraud. The panelists, Kevin DeBarmo, Director of Special Investigations and Recover, Fireman’s Fund; Marty Gonzales, Division Chief, California Department of Insurance; Andy Zembles, Assistant Vice President, Corporate Compliance, Pacific Life and Angela Nelson, Director, Market Regulation, Missouri Department of Insurance, had the group laughing, gasping and crying…but few, apparently, will be turning to fraud as a career choice. This impressive panel jumped into the topic for which they are very well qualified.

WHY so much insurance fraud?
The panel reviewed the staggering real cost of insurance fraud and theorized that one reason insurance fraud is so prevalent is that consumer perceptions of the insurance industry are so poor—and the perception is getting worse. Too, many noted, a large number of consumers (and law enforcement) view insurance fraud as a victimless crime.  The panelists noted consumer opinions on insurance fraud, the most staggering were:

  • 55 percent of consumers believe poor service triggers fraud
  • 76 percent indicated fraud was more likely to happen during times of economic downturn
  • 68 percent believe fraud happens because the perpetrator can get away with it

Insurance fraud is pervasive, deadly, and impacts all levels of society.  Panelists made it clear that alert, aware individuals within insurance sector are those who can best stop insurance fraud—any line, any place.  Who are the professional fraudsters?  Well, fraud is committed by groups, individuals and, interestingly, committed equally by those who are affluent as well as not affluent. When individuals are intent on fraud, they are creative and willing to try everything. The panelists reviewed the many, many forms of fraud that ranged from a lie on applications to murder.

How does customer service interact with fraud prevention?
The panelists noted that customer service professionals are in an ideal position to identify red flags or questions and turn concerns over to special investigations units or anti-fraud personnel. Although it was recognized that all companies have the obligation for fair and balanced settlement when a legitimate claim is made, prompt identification of red flags actually helps all consumers.  When a red flag is reported and analyzed quickly, legitimate payments can be made—and fraudsters can be stopped, making the insurance industry more effective (and affordable) for all.

Red flags and triggers for consumer affairs professionals
What, specifically, are some of the suspicious red flags customer service professionals should note and pass along?

  • Claimant indicating a willingness to take less than would be legitimately required
  • Urging to hurry up and settle case
  • Strong knowledge of insurance terminology
  • Threats of publicity—especially use social media
  • Post-termination Workers’ Compensation claims
  • Driving long distances for care or professional advice
  • Loss immediately after inception of policy
  • Theft or arson of autos
  • Billing code mistakes in health insurance

Consumer affairs professionals were strongly encouraged to review online information such as websites and social media to, at a minimum, know what the public knows because websites can be easily found that are instructive in helping people achieve fraud and social media engagement can be used to catch people in falsehoods.

Producers and regulators
Producers and regulators are also in the front lines of defense against insurance fraud.  Carriers need to be committed to working with and educating producers so that exposure to application fraud can be reduced, and the severity of commission fraud is eliminated.

Regulators need to understand that some fraudsters strategize to contact DOIs to bully a claim through. By working together, carriers, regulators, and producers can interact with multiple business units, law enforcement, consumers and media to keep putting the pieces of the puzzle together to foil fraud.

Sharing is good but…
Inter-agency, carrier and law enforcement interaction is good, but all entities were cautioned to be aware of the need for privacy—especially an issue with cyber security (see article on cyber security in this issue).

Prosecution varies by state
Each state has a unique approach to prosecution of insurance fraud, with California cited as a state with a strong, proactive stance in working to stop insurance fraud. The panelists requested that carriers and regulators present recognize the volume of insurance fraud cases can be extremely large–in California, the case load regularly is between 30-40,000 cases each year. When submitting a case, panelists requested the submitting entities need to:

  • Clearly articulate the fraud suspected; have good information, and
  • Make it personal—call the state-specific law enforcement office for important cases.

Panelists ended the panel with the urging all present to market the insurance fraud story to the public using every outreach vehicle available.  Why?  Because the more the public knows about insurance fraud, the more likely it is that scams and schemes will be identified and stopped. Fraud is not a victimless crime; everyone pays—so everyone is needs to be enlisted in the fight against fraud.

Kevin DeGarmo
Director, Special Investigations & Recovery
Fireman’s Fund Insurance Company
1 Progress Point Parkway
O’Fallon, MO  63368

Marty Gonzalez
Fraud Division Chief
California Department of Insurance
333 S. Anita Dr., #450
Orange, CA  92868

Angela Nelson
Director, Market Regulation
Missouri Department of Insurance
PO Box 690
Jefferson City, MO  65102

Andy Zembles
Asst. VP, Corporate Compliance
Pacific Life Insurance Company
700 Newport Center Drive
Newport Beach, CA  92660


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