7/17/2008

In A Pickle, Insureds Attempt Drastic Measures

Financial strain and other factors create an environment for adjusters to get creative.

By Dennis Jay

America’s housing meltdown potentially has caused a spike in arsons by desperate homeowners seeking to avoid foreclosure through insurance bailouts.

The warning flares began popping up around the U.S. when the subprime crisis began rearing its ugly head a year ago. While the number of suspicious fires in foreclosing homes still is relatively small, it is expected that what is happening in the industry will be clarified in several months when more arson data has surfaced.

Accordingly, growing numbers of adjusters and investigators are on high alert as the unsteady economy lurches forward, leaving untold thousands of desperate homeowners facing foreclosure and looking to avoid financial ruin. The increase in suspicious cases and statistics around the country is undeniable.

For example, Christina Snyder was about to lose her rural home in Putnam County, Ind. She paid a crony $5,000 to tie her up with duct tape, slap her around, write “Whore” on her shirt, and then burn down her home for insurance money. The goal was to make it seem that a masked intruder had broken in, tried to rape her, and torched the place.

In Houston, an African-American man facing foreclosure allegedly torched his home but made it look like a racial hate crime by spray painting racial slurs around the interior of the home, prosecutors say.

The wife of a Texas Supreme Court justice allegedly burned down her home which faced foreclosure. The court justice also is being investigated.

Local officials point to spikes in suspicious home fires around the U.S. South Carolina insurers report a 40-percent to 200-percent increase in arson-related insurance fraud from 2006 to 2007, according to the South Carolina News Service.

Some 22 confirmed arson cases surfaced in Walker County, Ga. last year and several were linked to foreclosures, according to one official.

Suspicious fires have doubled over the last two years in Rockingham County, N.C., the county fire marshal says.

Suspected arsons of homes facing foreclosure doubled in California, from seven in 2006 to 14 in 2007, the insurance department reports.

More waves of mortgage resets lie ahead. This will create—literally and figuratively—an incendiary environment that could encourage the nefarious torching of more homes.

Auto insurance investigators also are watching for an economy-driven spike in so-called owner giveups. The ruse is well-known and time-dishonored. Cash-strapped drivers dump unwanted SUVs and other expensive vehicles they can’t—or don’t want to—pay for anymore. The drivers torch or simply abandon the vehicles in a remote area, or drown them in a lake or river, then lie to their insurer that someone stole the vehicles.

In New Jersey during May, two school principals and a guidance counselor were arrested for torching their vehicles in separate cases.

Localized spikes are being detailed in scattered news reports around the U.S., though it’s too early to know if a full national outbreak of owner giveups looms.

Layoffs, people being upside down on their vehicle loans and other economic challenges may be spurring some giveups. Rising gas prices also may prompt drivers to dump guzzlers such as SUVs. If gas reaches $5 per gallon during this summer, even more drivers may look for an insurance bailout.

High Tolerance of Fraud
Mounting economic stress comes at a time when America’s moral compass is growing wobbly. Sadly, a recent public-attitude survey conducted by the Coalition Against Insurance Fraud (CAIF) revealed that Americans are developing an increased tolerance for insurance fraud.

Combine the growing acceptance of unethical behavior with an unruly economy, and the potential for hikes in economy-sensitive insurance crimes grows with each passing month. This heightens the urgency and opportunity to build public outrage against fraud through well-funded national outreach campaigns.

First the good news: More than four of five adult Americans think certain fraud schemes are highly unethical, says the coalition’s soon-to-be-released study, Four Faces of Insurance Fraud.

But there’s a flip side: About one of five adults—around 45 million people—might be prone to bilk insurers, or look the other way when others try. That’s a potentially large fraud army walking the streets.

Note the declines in Americans who think it’s unethical to:
  • Misrepresent facts on an insurance application to lower their premiums (82 percent today, down from 91 percent in 1997)
  • File a claim for damage that occurred before the damage was covered (85 percent, down from 91 percent)
  • Inflate a claim to cover the deductible (84 percent, down from 91 percent)
  • Misrepresent an incident to be paid for an uncovered loss (84 percent, down from 92 percent)
Reversing this backslide is the challenge of insurers and the fraud-fighting community. There are too many swindlers to simply arrest fraud out of existence, so we must also change people’s attitudes.

More Americans must come to view fraud as morally repugnant, protect themselves from being bilked, turn in others who commit fraud, and grasp the huge personal and financial price we all pay.

The coalition is exploring the feasibility of a long term national outreach campaign, but adjusters can forcefully speak out in their communities right now. As highly trained professionals, adjusters can effectively relay fact based, nonpartisan anti-fraud messages locally—especially about schemes that victimize vulnerable consumers. Airbag fraud, body shop schemes, shady contractors, scams against seniors and other fraud crimes all provide excellent speaking opportunities.

Adjusters thus can position themselves—and their profession—as guardians of public interest. Speaking out against fraud is a white-hat issue that can help boost the entire profession’s reputation. This can counteract the dishonest few who taint the good work of the vast majority of adjusters. Seize this moment!

Fraud fighters such as the Coalition Against Insurance Fraud (www.InsuranceFraud.org), National Insurance Crime Bureau (www.nicb.org), and other groups have useful consumer brochures, videos, posters and other materials adjusters can use to educate consumers on the effects of fraud on their lives. Those who avail themselves of these resources will, in the long run, help to turn the tide of public acceptance of fraudulent practices.

Dirty Secret of Drug Diversion
Adjusters in workers’ compensation cases are being challenged on another front: America’s epidemic of drug diversion. Insurance fraud is a major financier of the large-scale diversion of addictive prescription drugs such as OxyContin.

Insurance fraud is the dirty secret that’s fueling this national epidemic, but far too few insurers realize that the schemes cost them tens of billions of dollars in hidden losses each year (See the full story, Prescription for Peril at www.insurancefraud.org/drugdiversion.htm).

Ohio pain doctor Jorge Martinez is the poster child for abuse gone rampant. Injured workers came to Martinez in agony. He threatened to deny them painkillers unless they let him use their names for his massive insurer billing schemes. Patients grew addicted to insurer-paid painkillers, which he doled out recklessly. Martinez billed insurers $60 million for painkillers and for expensive nerve-blocking tests that he never gave.

This practice not only is harmful to the industry but, unchecked, can have dire consequences for insureds. Blair Scott Knight and Jack Lancaster hurt their backs on the job, and Martinez showered them with insurer-paid prescriptions for addictive OxyContin. Both died of drug overdoses, and Martinez received life in prison.

Doctor shopping by addicts and abusers is the largest diversion scheme. Crooked doctors, pharmacies and drug dealers also make bogus prescription claims to obtain drugs for resale on the black market.

Over prescribing narcotics such as OxyContin is saddling workers’ comp insurers with huge losses. Often prescriptions bear no relation to work injuries. Roughly nine percent of prescriptions paid by Ohio’s Bureau of Worker’s Compensation—or $16 million—weren’t injury-related, notes an analysis published in 2005.

Workers’ comp insurers also must gain expertise on data mining for fraudulent prescriptions that drain their coffers, and more sharply focus investigative efforts toward diversion schemes. For example, Travelers Insurance requires claimants to obtain prescriptions from only one physician to help reduce costly doctor shopping. The Hartford blocks off-label prescriptions of medications such as cancer drugs.

Adjusters are among the first lines of defense against insurance fraud. Their onsite vantage points can provide actionable field intelligence that helps uncover schemes. A carefully attuned eye for the newest fraud trends will sharpen their instincts.

An astute grasp of the marketplace can help make adjusters true strategic partners who deliver ever greater value to insurers, and to all Americans who pay for fraud through higher premiums.
Dennis Jay has been executive director of the Coalition Against Insurance Fraud since its founding in 1993. The coalition is a nonprofit alliance of insurers, consumer leaders and government agencies combating all forms of insurance fraud through advocacy and consumer education. Visit www.insurancefraud.org.



Dennis Jay is executive director of Coalition Against Insurance Fraud (CAIF). He has been a CLM Fellow since 2012 and can be reached at www.insurancefraud.org.

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