Frauds in Insurance Sector CATEGORIES OF INSURANCE FRAUD: Insurance fraud is broken down into two major categories, property/casualty

and life/health. This article will discuss life/health insurance fraud, which inclu des the term life insurance sector. Non-profit sites like the Coalition Against Insurance Fraud (CAIF) report that life/disability insurance fraud costs approx imately $1.5 billion a year. The worst part is that this cost is passed along t o consumers, most of whom would never consider committing insurance fraud themse lves. Instead, they find themselves paying up to hundreds more annually on thei r premiums. Money paid by insurance companies for fraudulent insurance claims a dd to the companies annual (loss, a statistic that is always used to establish fu ture rates. Insurance fraud is either internal (fraud within the insurance industry itself) or external (fraudulent activity by applicants, policy-holders or third party claimants). Internal Fraud: Internal fraud often includes the creation of a fictitious company to ge nerate insurance premiums and issue fraudulent policies. This is usually perfor med by professional con-artists, but there are some red flags to protect consume rs from being the victim of life insurance fraud: (1) Follow your instincts; if the deal sounds too good to be true, it probab ly is. Do not allow yourself to feel pressured by an agent or company. If an a gent does not directly answer your questions or seems particularly evasive, go e lsewhere. (2) Beware of any life insurance plan that promises vanishing or severely redu cing premiums later in the life of the policy. (3) Dont sign any application that has blank areas throughout the text. The fraudulent agent or company may later add in things that you did not agree to wi th your signature. Always get copies of what you signed. (4) Save everything that has to do with the policy that you sign, including statements, records of correspondence, check stubs, etc. (5) Dont buy coverage with terms that you dont understand, or feel pressured i nto buying more that you need. (6) Never pay premiums in cash; always pay by cheque or money order. And al ways ask for a receipt for any payment. (7) Never buy insurance from an unlicensed agent or company. You can verify this information with you states Department of Insurance. External Fraud: For insurance companies, there are sets of indicators that arouse suspic ion that a consumer or beneficiary is trying to deceive the company. Often just one of these indicators would mean little to a company; but evidence of several can be a severe red flat. If fraud is proven the claim will be denied and the crime will be reported to the authorities. Remember, insurance fraud is a felon y, and comes with strict penalties. For example, in California, insurance fraud is punishable by up to five years imprison and a $50,000 fine. Indicators of external life insurance fraud include; (1) The death occurred during the policys contestable period, or shortly afte r the policys inception. (2) The claimant had several small policies in force (often with various com panies, and/or of small enough amounts that no physical exam was required). (3) Evidence of financial distress directly prior to death (indicators inclu de depletion/closing of accounts, etc.) (4) Recent changes in coverage, usually in increments that dont require physi cal exams, and/or recent changes in beneficiaries. (5) Inconsistencies, mistakes, and/or blatant lies found on application. In sured was involved in an activity not considered customary for the person when h

e or she died. (6) The body of said insured is never found, or identification is incomplete (due to condition of deceased). (7) The coverage amount (total if insured has several policies) is not comme nsurate with insureds income and/or estimated economic worth. (8) The deceased was not well known by relatives and/or lived alone. TYPES OF INSURANCE FRAUD: The types of insurance fraud that exist are as diverse as the types of insurance policies that are available. Some of the major areas in which insurance fraud occurs are in the health care, automobile, and property insurance industries. Health Care Insurance: The most common perpetrators of health care insurance fraud are health care providers. One reason for this, according to David Hyman, a Professo r at the University Of Maryland School Of Law, is that the historically prevaili ng attitude in the medical professional is one of fidelity to patients. This ince ntive can lead to fraudulent practices such as billing insurers for treatments t hat are not covered by the patients insurance policy. To do this, physicians oft en bill for a different service, which is covered by the policy, / than that whi ch was rendered. Another motivation for insurance fraud in the healthcare industr y, just as in all other types of insurance fraud, is a desire for financial gain . Public healthcare programs such as Medicare are especially conductive to frau dulent activities, as they are often run on a fee-for service structure. Physic ians use several fraudulent techniques to achieve this end. These can includeupc oding or upgrading, which involve billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are no r medically necessary; scheduling extra visits for patients; referring to patien ts to another physician when no further treatment is actually necessary; and gang ing, or billing for services to family members or other individuals who are accom panying the patient but who did not personally receive any services. Automobile Insurance: The Insurance Research Council estimated that in 1996, 21 to 36 percent of auto-insurance claims contained elements of suspected fraud. There is a wide variety of schemes used to defraud automobile insurance providers. These ploys can differ greatly in complexity and severity. Richard A. Derrig, Vice President of Research for the Insurance Fraud Bu reau of Massachusetts, lists several ways that auto-insurance fraud can occur. E xamples of soft auto-insurance fraud can include filing more than one claim for a single injury, filing claims for injuries not related to an automobile acciden t, misreporting wage losses due to that were actually paid. Hard auto-insurance fraud can include activities such as staging automobile collisions, filing clai ms when the claimant was not actually involved in the accident, submitting claim s for medical treatments that were not received, or inventing injuries. Another example is that a person may illegally register their car to a location that wo uld net them cheaper insurance rates than where they actually live, sometimes ca lled rate evasion??. For example, some drivers in Brooklyn drive with Pennsylvan ia license plates due to the fact that registering their car in a rural part of Pennsylvania will cost a lot less than registering it in Brooklyn. Hard fraud c an also occur when claimants falsely report their vehicle as stolen. Soft fraud accounts for the majority of fraudulent auto-insurance claims. Organized crime rings can also be involved in auto-insurance fraud, some times carrying out schemes that are very complex. An example of one such ploy i s given by Ken Domstein, author of accidentally, on Purpose: The Making of a per sonal Injury Underworld in America. In this scheme, known as a swoop-and-squat, o ne or more drivers in swoop cars force an unsuspecting driver into position behind a squat car. This squat car, which is usually filled with several passengers, th

en slows abruptly, forcing the driver of the chosen car to collide with the squa t car. The passengers in the squat car then file a claim with the other drivers insurance company his claim often includes bills for medical treatments that wer e not necessary or not received. Property Insurance: Fraudulent activities against property insurance providers consist of th e destruction of property in order to receive insurance payments for it. Possib le motivations for this can include obtaining payment that is worth more than th e value of the property destroyed, or to destroy and / subsequently receive paym ent for goods that could not otherwise be sold. According to Alfred Manes, the majority of property insurance crimes involve arson. One reason for this is tha t any evidence that a fire was started by arson is often destroyed by the fire i tself. Accordingly to the United States Fire Administration, in the United Stat es there were approximately 31,000 fires caused by arson in 2006, resulting in l osses of $755 million. Property insurance fraud can also occur when claimants e xaggerate the value of the property lost or damaged. DETECTING INSURANCE FRAUD: The detection of insurance fraud generally occurs in two steps. The fir st step is to identify suspicious claims that have a higher possibility of being fraudulent. This can be done by computerized statistical analysis or by referr als from claims adjusters or insurance agents. The next step is to refer these claims to investigators for further analysis. Due to the sheer number of claims submitted each day, it would be far to o expensive for insurance companies to have employees check each claim for sympt oms of fraud. Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases , suspicious claims are identified by comparing data about the aim to expected v alues. The main difference between the two methods is how the expected values a re deprived. In a supervised method, expected values are obtained by analyzing record s of both fraudulent and non-fraudulent claims. According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some draw backs as it requires absolute certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect t ypes of fraud that have been committed and identified before. Unsupervised methods of statistical detection, on the other hand, involv e detecting claims that are abnormal. Both claims adjusters and computers can a lso be trained to identify red flags, or symptoms that in the past have often been associated with fraudulent claims. Statistical detection does not prove that c laims are fraudulent; it merely identifies suspicious claims that need to be inv estigated further. Fraudulent claims can be one of two types. They can be otherwise legiti mate claims that are exaggerated or built up, or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identifi ed, insurance companies usually try to negotiate the claim down to the appropria te amount. Suspicious claims can also be submitted to special investigative unit s, or SIUs for further investigation. These units generally consist of experienc ed claims adjusters with special training in investigating fraudulent claims. T hese investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the vi olation is serious enough. Examples: Following are some examples of real instances of insurance fraud that oc curred in recent years: According to a report by a United States district court in Illinois, a p sychiatrist who practiced as the Assistant Medical Directors and Medical Directo r at a psychiatric facility in Illinois from 1998 through 2002 submitted claims to Medicare for psychiatric and psychotherapy services that he in fact never act

ually provided. He also up-coded, or billed for more expensive services than thos e that were actually provided, many claims that he submitted to Medicare. In ad dition, he admitted patients that did not qualify for treatment so that he could submit bills for hospital care even though it was not medically necessary for t hose patients. Through these schemes, this psychiatrist was able to fraudulent obtain $875,881 in Medicare Reimbursements before his conviction in February of 2005. REASONS WHY FRAUDSTERS TARGET SENIORS: Con artists target seniors, particularly in insurance fraud and health scams bec ause they are seem to be easily trusting and gullible. According to the FBI, so me other reasons why seniors are targeted for fraud include: (1) Older citizens are likely to accumulate savings over the years and are l ikely to own their home and/or have a decent line of credit. They often are in a financial stable position. This attracts con artists who whip up new schemes and fake health products or insurances to scam the scam the savings of the elder ly. (2) Individuals who grew up in the 1930s to the 1950s were raised to be poli te and trusting. These are two positive traits, but can make an individual more vulnerable to con artists. Because these individuals tend to be too polite I s ay NO or just hang up the phone. (3) Elder people are the least likely to report fraud for one or more person s. Some of these reasons include they lack information on how to report a fraud , they have a hard time admitting that they fell into a scam, or defrauded. As well as, elder victims

of fraudsters of ten worry that their family members will began to think that they lack the menta l capacity to manage their own financial affairs if they admit being defrauded. (4) When an elderly victim reports fraud, they often make poor witnesses. T he con artists known the effects of age on memory and knows that by the time the victim realizes they have been / defrauded, which may be weeks or months after the incident they wont be able to provide detail information to. This investigat ors, Information about how many times the fraudster called, the time of the day they called, if it was always the same person who called, the last time they tal ks to the person, if the person had an accent, what the person promised, etc. (5) Lastly, older individuals often become the victim of health scams, promi sing improved cognitive functions, longevity and cancer fighting products. This is because in a country like America that has new medical breakthroughs in vacc inations to cure older diseases, it gives individuals new hope. Hope that fraud sters use in their advantage as they promote their phony. HOW TO AVOID HEALTH INSURANCE FRAUD? For some, tips on how seniors and other avoid health insurance fraud inc lude: (1) Avoid signing blank insurance claim forms. (2) Review your insurers benefits statement carefully. Call if you have any q uestions or need clarifications (3) Ask your health care providers what they charge for a visit, treatment, procedure, and what you will need to payout of your pocket. (4) Refuse to do business with door-to-door or telephone salespersons who of fer free medical services on equipment. (5) Give your insurance/Medicate number only to those who provided you with certified medical services. (6) Make note of all of your health care and medical appointments.

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Know if your doctor ordered special equipment for you.

ETHICAL ISSUES IN INSURANCE SECTOR INTRODUCTION: Ethical issues are of great significance in the financial service indust ry. Financial services are intangible and inseparable and the importance of tru st and confidence is paramount. In insurance sector, there is a heavy reliance on personal selling and since these sales persons operate on commission basis, t he following ethical issues can arise in the insurance sector. KEY ETHICAL ISSUES IN THE LIFE INSURANCE: (1) The insurance companies may resort to misleading representations of prod ucts and services. (2) Clearing the application of the customer by our agent, without disclosin g the illness and health problems. (3) The new private sector insurance companies are offering a large agency c ommission in breach of the 5% ceiling prescribed by the Insurance Regulatory Dev elopment Authority (IRDA). (4) Charging higher premium. (5) Pricing any insurance product is highly complicated and hence greater tr ansparency is needed. (6) The insurance company sets a high quality service standard, but does not follow it. (7) Sales people (LIC Agents) have to deal with ethical conflicts such as wh ether to tell the truth to a policyholder or risk loosing business or to mislead the policyholder and get his/her policy. (8) In order to beat the competition, the new insurance companies and their agent offer gifts, payments, gift vouchers, cash refund, etc. (9) The insurance company may use political influence and lobby with governm ent agencies to enact legislation. (10) Poaching of Agents: IRDA has suggested that there should be a cooling pe riod of one year for an agent intruding to leave one company and join another. There would also be a minimum contract of 3 years. (11) Delaying payments of valid claims. (12) Introducing policies which do not match the requirement of the policyhol der. (13) Incompetent policies which do not match the requirement of the policyhol der. (14) The policyholder is not aware about the mechanism for redressal of griev ance. (15) The policyholder is not informed about insurance ombudsman. (16) The insurance company wants to earn higher profits at the expense of the policyholder. (17) The data of the policyholder is stored in a database. The insurance com pany cannot discriminate on the basis of the information stored. They should al so not misuse this very personal private data of individual policyholders.