Combating Insurance Fraud Requires Adequate Resources
Insurance fraud is not a victimless crime. The FBI estimates that over a 10-year period, insurance fraud costs the average U.S. family between $4,000 and $7,000 in increased premiums. In fact, if insurance fraud were a business it would be a Fortune 500 company. Worse, innocent people are often injured or killed because of insurance fraud when fraudsters engage in schemes such as arson, auto repair scams, and staged accidents.
To combat insurance fraud, most states have formed insurance fraud bureaus (or similarly named units) to investigate suspected fraud. The amount and source of revenue made available to these fraud bureaus, though, varies widely.
Most states levy an assessment on the insurance industry, whether it is a flat amount per company or written policy, or a proportional amount based on gross premiums. The remainder of the states that maintain a fraud bureau, fund it through general revenue or fees and fines. What really, though, sets apart fraud bureaus, from the scrappy to the mighty, is funding.
“All the state fraud bureaus are staffed with highly skilled, professional law enforcement personnel eager to fight insurance fraud, but their enforcement capabilities are capped by their available resources,” says Alan Haskins, Vice President of Government Affairs for the National Insurance Crime Bureau (NICB). “It’s typical for a fraud bureau to only be able to meaningfully investigate a fraction of referred cases.”
When funding is boosted though, more cases are investigated and more insurance fraud perpetrators are brought to justice. Such was the case in fast-growing North Carolina, where despite being the first state in the nation to establish a criminal investigations division within a department of insurance, fell behind in adequately funding the unit.
That changed in 2017 when the North Carolina General Assembly appropriated $2.4 million to hire additional agents. And the commitment bore fruit. Comparing year 2016 to 2018, North Carolina’s Department of Insurance (DOI) Criminal Investigations Division (CID) nearly doubled the amount of arrests for suspected insurance fraud, and increased their geographic range, arresting suspected criminals in 93 percent of North Carolina’s counties, up from just 57 percent in 2016.
NICB’s Senior Director of Government Affairs Tim Lynch added, “Insurance fraud didn’t double in those years. What changed is that simply more money meant the ability to hire more investigators which meant more crooks were investigated and brought to justice.”
This is why the NICB not only devotes its own resources, in the form of investigative and operational assistance, to supporting insurance fraud bureaus, but also in advocating for additional state dollars. In 2019, NICB supported a number of pieces of legislation that would continue or increase funding to combat insurance fraud, such as:
- California AB 1679 increases the assessment on automobile insurance policies to fight fraudulent auto insurance claims and vehicle theft.
- South Carolina S 229 doubles the minimum funding for the Insurance Fraud Division of the Office of the Attorney General.
- New York A 4032 grants the superintendent of financial services authority to investigate motor vehicle insurance fraud and theft.
- Louisiana SB 199 extends the sunset date of the insurance fraud investigation unit.
- Texas HB 2816 provides peace officers sworn under the Texas Department of Insurance the same pay scales as peace officers in other state departments.
- Washington HB 1069 creates a distinct insurance industry-funded account to support the state’s insurance fraud bureau.
“These types of bills are and will continue to be a top legislative priority for NICB,” said Haskins.
State elected officials or staff interested in creating an insurance fraud bureau or increasing funding for an existing fraud bureau should contact NICB’s government affairs department at GovernmentAffairs@nicb.org or 800-447-6282.