Expert Commentary

Professional Insurance Adjusting and Insurance Fraud

Private property and casualty insurers lose $100 billion every year to insurance criminals. Insurance fraud is a prevalent problem that receives little attention by the police and judicial system. Often seen as a "victimless" crime, it is not. This drain on society can be plugged if insurers, insureds, and others raise their voices to point out the problem and be vigilant about seeing that justice is done.


Claims Practices
February 2021

Insurers tend to forget that the promises made by an insurance policy are essentially kept by the professional claims person. A professional claims staff is a cost-effective method to avoid litigation. In addition, the professional claims person is an important part of the insurer's defense to litigation brought by insureds against insurers for breach of contract as well as to detect and defeat attempts at insurance fraud.

A staff of claims professionals dedicated to excellence in claims handling is a profit center for an insurance company. In my experience, claims professionals resolve more claims for less money without the need for either party to involve counsel. A happy insured or claimant satisfied with the results of his or her claim will never sue the insurer.

On the other hand, incompetent or inadequate claims personnel may force insureds and claimants to lawyers. It only stands to reason that claims with an insured or claimant represented by counsel cost more than those where counsel is not involved.

Excellence in Claims Handling

An insurer must work intelligently and with vigor to create a professional claims department. What type of person works in a claims department?

  • People who can read and understand the insurance policies issued by the insurer
  • Those who understand the promises made by the policy and their obligation, as an insurer's claims staff, to fulfill the promises made
  • Employees who are all competent investigators
  • Those with empathy and who recognize the difference between empathy and sympathy
  • People who understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals
  • Employees who understand how to repair damage to real and personal property and the value of the repairs or the property

Without competent insurance claims professionals, insurers may face expensive and counterproductive litigation.

To avoid claims of bad faith, punitive damages, avoid losses, and make a profit, insurers must maintain claim staffs who are dedicated to excellence in claims handling. That means they will make sure every promise made in every policy is satisfied. Insurance training is available across the country through correspondence courses, in local colleges and universities, and from law firms that provide training as a marketing tool. (For further training information, see Zalma.com, Experfy.com, and Illumeo.com.)

In addition, the insurer must institute a regular program of auditing claims files to establish compliance with the subjects studied. There is no quick and easy solution. Training takes time; learning takes longer. The insurer's management must support and reinforce training regularly.

It Takes Courage To Fight Insurance Fraud

The legislatures of the various states, the US Congress, the National Association of Insurance Commissioners, the National Insurance Crime Bureau, and insurance industry groups realize that the war against insurance fraud is worth fighting. Until the states, local police agencies, district attorneys, US attorneys, and attorneys general of the various states join in the battle, the fight against fraud will be fought to a stalemate. The insurance industry cannot successfully fight insurance fraud alone.

Insurance industry sources estimate insurance fraud from lows of $80 billion a year to highs of $300 billion a year. Regardless of which, if any, estimate is accurate, the amount of money going to insurance criminals is staggering and approaches no less than 3–10 percent of premium collected.

An Idea for Fighting Insurance Fraud

Insurance fraud is not a local problem; it is a depletion of the wealth of the entire country. The lawyer for each state department of insurance is the state attorney general. A special unit could be established in the office of the attorney general, which is funded with the monies taken from the insurance industry to support the war against insurance fraud. This unit should be given a simple mandate: file and prosecute every insurance fraud brought to the unit by the fraud division that has a better than 50 percent chance of success.

Single counts should be prosecuted. When prosecutors file multiple charges against individual defendants, the case becomes a major action requiring a great deal of time to prosecute. Judges and juries do not want to be involved in a prosecution that takes months to prosecute.

If there are multiple counts available, the prosecutor should charge only the one where the evidence of fraud is overwhelming. If the jury finds for the defendant, the prosecutor can charge the next count continuously until the statute of limitation runs out.

Sentences across the state must be consistent and constitute true punishment. I have seen such inconsistency where cases, after conviction, in which the criminals received sentences that ranged from 24 hours to 24 years.

It is not enough for the state to say that the insurance companies must investigate and work to fight fraud; the state must also aggressively and vigorously fight insurance fraud.

If the legislatures really want insurers to fight insurance fraud, if the legislatures wish to keep strong and viable this important industry, and if the legislatures want to reduce the insurance premiums paid by their constituents, they must make practical the war on insurance fraud. I believe that as long as the tort of bad faith and the exposure of punitive damages hangs over insurance companies, the war will be one of attrition where no one will win.

The fictionalized stories in my book, It's Time To Abolish the Tort of Bad Faith, were written to show how insurance fraud is taking money out of the pockets of innocent and honest people who buy insurance. Basically, every person in the United States who does not commit fraud is paying to support those who do.

Does this make you angry? Write to your local district attorney, state attorney, attorney general, or US attorney and let them know.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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