Insurance fraud: why should you care?

What is insurance fraud and how much does it cost you?

Nationwide, insurance fraud adds an extra $400 to $700 a year to the average family’s insurance premiums, according to the FBI, and affects about 10% of insurance claims. For property and casualty insurance (the kind PEMCO sells), that translates to $45 billion a year in fraudulent claims, according to a recent study by insurancefraud.org. 

Researchers say most insurance fraud doesn’t come from headline-grabbing organized crime rings, where actors stage car accidents and criminals are plotting with unethical doctors and lawyers. More often, it’s ordinary people who inflate legitimate claims or fib on applications to hide tickets and accidents, minimize annual mileage driven or disguise that a teen driver is actually a car’s primary driver in hopes of getting a cheaper rate.

RELATED: Don’t lie on your insurance application | FOX13

Why do people commit insurance fraud?

It’s tough to get inside the head of anyone willing to break the law. Understanding the motivation when it’s the friendly neighbor next door is even tougher!

Sometimes, people act out of pure desperation – a lost job, failed marriage or substance-abuse habit that has put someone in financial distress. Occasionally, a teen driver worried about getting in trouble from Mom and Dad insists the dents they put in the car were from a hit-and-run. To those people, insurance fraud seems like a victimless way to get out of a tight spot (“It’s a big company. Who’s really getting hurt?”). 

Other times, though, people lie out of a sense of entitlement to see a “return” on their premiums. Scammers often think they’re too smart to get caught or perceive insurance companies as big, faceless bureaucracies unlikely to spot the deception.

Occasionally, technology is both the tool and downfall of would-be fraudsters. 

The strange tale of the time-traveling thief 

After living in his apartment for more than a year, “Henry” (not his real name) decided to apply for a renter’s policy to cover $60,000 in personal property plus a special rider to protect $12,500 worth of fine jewelry. And what a lucky choice it was! A mere two months later, he said, a thief made off with the jewelry and more, disappearing with $24,000 worth of his stuff. 

Henry told PEMCO that security cameras at his apartment complex had caught the whole thing, showing the thief hauling the loot down the stairs. The thief, Henry explained, was a homeless person whom he occasionally allowed to sleep inside his home. 

Henry eventually provided the video to PEMCO. But not before PEMCO had already obtained a copy from the apartment manager.

Both sets of images showed the thief on the stairs, just as Henry described. But the apartment manager’s original version contained something Henry’s version didn’t: a timestamp. It was dated the day before Henry bought his renter’s policy.

It turns out, the theft motivated Henry to insure his belongings. He waited for what he thought would be a reasonable time before filing the claim, then he digitally doctored the video to remove the telltale timestamp showing when the crime really happened. He even stuck to his story when PEMCO’s Special Investigations Unit (SIU) took a follow-up statement from him. It fell apart, though, when the investigator played the apartment manager’s unaltered clip. Henry withdrew the claim.

PEMCO turned over evidence of the attempted fraud to the National Insurance Crime Bureau and the Washington State Office of the Insurance Commissioner for further review. By working with law enforcement and state and national agencies, we can help identify insurance criminals and better protect the vast majority of honest policyholders who rely on us to hold accountable the cheating few who drive up their premiums.

How do insurance companies spot fraud?

PEMCO Claims adjusters refer between 100 and 200 cases a year to our SIU. While each claim is different and often, something that initially seems suspicious can have an innocent explanation, dozens of circumstances may warrant a second look. Some common ones among auto claims include:

•    Vehicles destroyed by fire
•    Extensive injuries in low-speed accidents
•    Drivers who don’t file a police report
•    People who have had frequent claims
•    People with serious financial troubles.

One of the industry’s most-flagged claims is for damage from a hit-and-run accident that, to an experienced eye, appears to have occurred when the driver struck a stationary object like a pole, fence or barrier. If a claim is found to be fraudulent, consequences can include legal action or cancellation of the policy.

In Washington, among all the insurance companies doing business in the state, the Office of the Insurance Commissioner receives about 2,000 fraud-case referrals every year.

“PEMCO is a mutual company, meaning we’re owned by our policyholders,” said Janet McDaniel, Director Property Claims. “We take our role as stewards of their money as seriously as we take our promise to protect their homes and cars. Part of our responsibility is ensuring the premiums our customers pay go to what they should: making people whole again after an accident or loss.”

What if I suspect someone of insurance fraud?

If you think someone is committing insurance fraud, you can report your concerns to a state agency. In Washington, it’s the Office of the Insurance Commissioner, which has a fraud form on its website, or you can call (360) 586-2566. In Oregon, call the Consumer Advocacy Unit of the Oregon Division of Financial Regulation at 1-888-877-4894.




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