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.
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.
© 2021 Barry Zalma, Esq., CFE