Insurance coverage firms declare that when claims numbers are merely made up, that act constitutes fraud. If this is so, then insurance coverage firm fraud statistics are a fraud. The customarily wrongfully cited estimate of $308.6 billion is an admittedly “make consider” estimate.
A current article by Kenneth S. Klein within the Journal of Insurance coverage Regulation, The Case for Pausing Any Speedy Embrace of the Social Inflation Argument for Authorized System Reforms, 1 uncovered how the numbers are merely made up and utterly unreliable:
The problem of getting a agency grasp on fraud is well-illustrated by the APCIA’s try to put a quantity on the price. Citing FBI information, APCIA et al. (2022) quantify the impression ‘intentional and legal acts perpetrated in opposition to an insurance coverage firm’ as $40 billion in combination and $400-$700 on common per family. However the cited FBI information describes premium diversion by insurance coverage brokers, charge churning by insurer intermediaries via reinsurance agreements, asset diversion when insurance coverage firms are acquired by different firms, and fraudulent sale of staff comp insurance coverage (FBI, 2010). In different phrases, the FBI shouldn’t be quantifying fraud in opposition to insurers; reasonably, the FBI is quantifying fraud by insurers….
… In 2022, CAIF, in partnership with the Worldwide Affiliation of Particular Investigation Models (insurance coverage fraud investigators), APCIA, the Nationwide Insurance coverage Crime Bureau, and III, printed a prolonged research performed with the Colorado State College International White Collar Crime Process Pressure 2022. The research estimates the price of insurance coverage fraud yearly within the U.S., throughout all traces of enterprise, is $308.6 billion, and of this quantity, property and casualty insurance coverage fraud (which is the main target of the social inflation literature) is $45 billion….
…In ‘roughly 1995,’ CAIF estimated the price of insurance coverage fraud within the U.S. as being $80 billion yearly. The $80-billion determine was not from a broadcast report however reasonably was a CAIF determine offered at a press convention. There isn’t a archival documentation inside CAIF of the press launch, what fraud was measured, or the way it was measured. But for many years, it was essentially the most cited determine on insurance coverage fraud.
In 2022, CAIF used the $80-billion determine as ‘a fundamental first step’ to estimate the price of fraud extra rigorously, beginning with changing the baseline of $80 billion from 1995 into ‘present-day’ {dollars}, which was $145 billion. The researchers subsequent thought of a number of methodologies to generate their very own information on fraud however rejected doing so as a result of every had its personal flaws. Subsequently, the researchers used current information from different sources. For P&C, the researchers concluded one of the crucial credible fraud estimates was the above-referenced 2010 FBI calculation of $40 billion. The second most credible and dependable information supply was a III report from 1980, which estimated fraud accounted for 10% of all P&C claims primarily based on interviews of claims adjusters or, because the researchers famous, equated to $38 billion if utilized to 2016 LAE estimates. The first information supply the researchers relied upon was Insurance coverage Analysis Council (IRC) information (together with an IRC research of casualty fraud claims funds for car insurance coverage bodily damage in 2012), resulting in estimates that fraud in 2012 added between $5.6 billion and $7.7 billion to paid claims. The researchers determined to use the III 10% determine to reported annual quantities of whole LAE in P&C, which thought of compared to ‘the prices … from FBI ($40 billion), III ($38 billion), and the IRC (between $5.6 and $7.7 billion in casualty fraud),’ led them to search out ‘a present estimate of $45 billion seems credible and dependable.
Journalists and others ought to cease reciting this fraudulent statistic.
The issue with fraudulent statistics is that the insurance coverage trade then wrongfully makes use of them in makes an attempt to alter or make legal guidelines to suit its political agenda. It will get folks to repeat its fraudulent statements a lot that others merely take them for reality. My put up earlier this yr, Property Insurance coverage Litigation Statistics Fabricated By Insurance coverage Business, and Florida Politicians In Mattress With These Insurers, famous a research by an investigative journalist, Lawrence Mower of the Miami Herald and Tampa Bay Instances, exposing how the insurance coverage trade fabricated litigation statistics which had been then recirculated and printed with out important evaluation in the event that they had been ever correct.
I first raised the subject of those statistics being fraudulent and used for improper functions 16 years in the past in “Are Insurance coverage Fraud Statistics Fraudulent?”
For years, a colleague of mine, Eugene Anderson has questioned whether or not the insurance coverage trade is concerned in a conspiracy in opposition to its personal clients by claiming {that a} sizable portion of them are concerned in insurance coverage fraud. The insurance coverage associations declare an infinite quantity of insurance coverage fraud is dedicated yearly…
A extra skeptical individual might assume these statistics are made up by the insurance coverage trade and broadcast by their paid spokespeople to assuage anger over their exorbitantly excessive premiums. A extremely revered claims skilled, Gary Fye, has prompt to me that the insurance coverage trade propagandists are engaged in a wrongful try to create a tradition the place society suspects all claims are fraudulently created or inflated. It doesn’t take a genius to determine why insurance coverage firms would like to encourage this fantasy among the many basic populace.
Simply because one questions the truthfulness of insurance coverage fraud statistics doesn’t imply one helps insurance coverage fraud. Insurance coverage fraud is flawed, and it ought to be punished. As a society we have to be ever vigilant in opposition to those that abuse the system. Certainly, that a number of might try to destroy property or take part in different schemes to fraudulently earn cash from insurance coverage firms is predicted. All of us endure from these wrongdoings, and we should always applaud audits and truthful investigations that uncover fraudulent exercise.
Professor Klein ought to be congratulated for his work exposing the untruthfulness of the insurance coverage fraud statistic. He did it in a really skilled, educational method. I’m calling it for what it’s—fraud.
A Thought For The Day
Two wrongs by no means make a proper.
—Alice Merlin
1 Kenneth S. Klein. The Case for Pausing Any Speedy Embrace of the Social Inflation Argument for Authorized System Reforms. 42 J. Ins. Reg. 1 (2023).