States Urged to Crack Down on Insurance Fraud

Despite the fact that every 10th insurance claim involves fraud, little is being done to combat it, or even to determine how much the false payments inflate the cost of insurance, state insurance regulators were told Monday.

The U.S. Chamber of Commerce put no dollar value on its fraudulent claims statistic but, given the millions of claims filed each year to collect on property and life insurance, the cost ranges into the billions of dollars, said Victor N. DiCicco, chief of the enforcement division of the Pennsylvania Insurance Department.

Yet only six states, including California, have created fraud units within their insurance departments to combat what can be a highly sophisticated form of white-collar crime, despite a 10-year effort by the National Assn. of Insurance Commissioners to encourage a stronger enforcement effort by government and industry.

“Insurance companies pay off on car claims with no questions asked,” Pennsylvania Atty. Gen. LeRoy Zimmerman told the state regulators meeting in Pittsburgh to discuss fraud and a broad spectrum of other insurance issues.

“Insurance companies have just as much money as banks, and it’s a heck of a lot easier to get to it,” Zimmerman said.

Since 1980, life insurers have seen an increase in fraudulent claims, said Lawrence Vranka, an executive assistant in Metropolitan Life’s claims service, although nowhere near as much as property insurers have experienced. He said Met Life now receives about 300,000 claims a year, and about two a month are false. As recently as 1980, he said, the company would receive no more than five fraudulent claims a year.

Vranka attributed the increase in false claims to the larger amounts of life insurance now being carried, with $500,000 death benefits no longer unusual. In addition, sales of low-cost term insurance, which provides a maximum benefit for a minimum investment, has also increased in recent years, along with the general sophistication of consumers, he said.

“Never underestimate the ingenuity of the human animal--especially a greedy one,” Zimmerman said.

The cost of investigation, plus fear of litigation if legitimate claims are not paid promptly, underlie much of the industry’s reluctance to investigate, the regulators were told.

While only California, Florida, Idaho, Nevada, New York and North Carolina have so far created insurance fraud units, the response by the industry so far has been, at best, spotty: Only 75 companies have formed special investigative units to look into suspicious claims, DiCicco said.

Charles Rogovin, a Temple University law professor, told the regulators and industry representatives that it is “almost astonishing” that they are unable to estimate just how extensive insurance fraud is or to spell out its effect on insurance rates.

Some idea of the potential magnitude of the problem was offered by Robert E. McKenna, director of Florida’s division of insurance fraud, who said his staff is struggling under more than 600 pending cases of possible fraud.

Major Fraud Conviction

California’s insurance fraud bureau has had a relatively high profile in recent years. Last month, for example, six Southern Californians were charged with fraud stemming from a $600,000 ring in which the defendants allegedly wrecked a Porsche and other expensive cars, then filed damage claims with a variety of insurance companies.

In June, a Beverly Hills attorney, Michael P. Bota, was found guilty of 12 counts of insurance fraud and 11 counts of grand theft for his role in a traffic collision fraud ring that bilked insurers out of more than $100,000.

And last March, state investigators arrested a San Diego woman on suspicion of defrauding two insurers of $144,000, by claiming that a non-existent sister was killed in the 1985 Mexico City earthquake.