How Insurers Are Fighting Insurance Fraud
Insurance fraud in Michigan is a $1 billion a year problem and not just for the industry. It costs the average family between $100 and $200 in premium payments annually and it’s widespread.
An astounding, one in six Michigan residents knows someone who has committed insurance fraud, according to the Lansing-based Michigan Insurance Fraud Awareness Coalition. It’s a crime of opportunity, sometimes involving millions of dollars, though often much smaller false and exaggerated claims for thousands or sometimes just hundreds of dollars.
The range of schemes is broad. According to the industry, common examples of fraud include false reporting of stolen cars that are actually sold or dismantled; collusion about auto accidents; staged home fires or storm damage; unnecessary or exaggerated medical treatments; even falsified death claims.
“There is no single database in Michigan where fraud is reported, so we don’t really have a good handle on the amount. But we do know that 10 percent of all claims are fraudulent,” said Lori Conarton, communications director for the Insurance Institute of Michigan (IIM). “The bottom line is that as an insurance payer we all pay for fraud in our policies.”
The IIM represents the state’s property and casualty insurers, companies that are likely to be affected by arson and auto-related frauds.
Its long-established Fraud Awareness Coalition sponsors programs to prevent and uncover both crimes. It has a statewide tip program (Hotline number: 1-800-442-7766) that has paid out $628,000 in rewards to informers and led to the arrest of 1,054 individuals on arson and related charges, the IIM reports. Administered by its Arson Prevention Committee, the reporting program pays up to $5,000 for information that leads to the arrest and conviction of arsonists.
According to the IIM, arson is a particularly attractive form of fraud. The coalition believes that nearly one-third of all fires in the state are arson or are deemed suspicious.
In a 2015 report, the IIM tracked thousands of fires in Michigan. It labeled 189 of 652 fires (29 percent) in Ingham County as arson or suspicious. In Clinton County, 27 of 152 (18 percent) fires were questionable and in Eaton County, it was 81 of 229 (28 percent). The leading county in Michigan for arson or suspicious fires was Wayne County where 47 percent of all fires – 2,996 of 6,457 – were considered to be crime related.
The IIM also supports a reporting program called HEAT (Help Eliminate Auto Thefts – 1-800-242-4328) to track fraud tied to stolen vehicles, chop shops, identify theft and carjacking. It reports that it has paid out nearly $3.8 million in rewards since 1985, led to the arrest of 3,500 suspects and recovery of $55 million in stolen property.
“We get a lot of people who contact us through our website,” Conarton said. “People are concerned about fraud and recognize that it costs them money and want to do something about it.”
The association believes that the state could reduce fraud by laws establishing a fraud authority and by eliminating the unlimited benefit provision attached to no-fault insurance. Conarton said that states with these policies are successful in reducing fraud.
While arson and auto fraud are pervasive, cases of multi-million-dollar medical fraud are among the most brazen.
In the forefront of addressing these crimes is Blue Cross Blue Shield of Michigan (BCBSM). It was the first insurer in the country to launch its own health care fraud investigations unit and is a national leader in the field.
Established in 1980, the insurer’s Corporate and Financial Investigations Unit, which investigates and prosecutes fraud, reports that it has recovered more than $333 million in corporate assets. It too has an anti-fraud hotline (1-800-482-3787).
According to Dan Crowell, the company’s director of corporate and financial investigations, somewhere between three and 10 percent of all health claims are fraudulent, although he believes BCBSM losses are less than the average.
He said that detailed analysis of claims as well as aggressive pursuit of tips provided by the hotline are effective in limiting losses.
“We do proactive data mining, looking for outliers, comparing specialties, procedure and diagnostic codes against their peers. It produces clues that there could be something going on,” Crowell said.
The company’s investigators work with federal, state and local law enforcement agencies to prosecute health care fraudsters. “We want criminals to know that when we do find fraud, we prosecute it,” Crowell said, adding that BCBSM’s enforcement efforts have been very successful.