How to Defeat Insurance Fraud

A Video Explaining the Efforts Needed to Deter or Defeat Insurance FraudShow more

Insurance fraud is a crime in most states of the United States. The victims of the crime of insurance fraud are insurers – no one else. The crime is committed by every race, gender, national origin, religion, or sexual orientation.

The crime of insurance fraud takes from the insurance industry and, as a result, the insurance buying public, anywhere from $80 to $300 billion dollars every year. No one knows the real amount because most insurance fraud attempts succeed.

I have been involved in insurer’s attempts to defeat insurance fraud for almost 54 years. I have seen frauds succeed. I have had clients compel settlement of a fraudulent claim with voluminous evidence sufficient to prove the fraud beyond a preponderance of the evidence, to avoid the possibility of a bad faith. The only way, in my experience, to defeat insurance fraud is to take the profit out of the crime. Criminal prosecutions don’t take the profit out of the crime since there are few arrests, fewer convictions and most sentences, even after a conviction, are mild and often do not require full restitution.

To complete a thorough investigation of a suspected fraudulent claim should include:

Detailed recorded statements of the insured and all independent witnesses.
In a case of amazing and surprising perspicacity, the California Legislature recognized the problem and added to The California Insurance Frauds Prevention Act (“CIFPA”) a qui tam provision that made it possible for insurers to file whistleblower suits against fraud perpetrators.

This powerful tool should be emulated by every state as well as every federal court under the false claims act. Take the money from the fraudsters, take the profit out of the crime, and they will move on to other less prosecuted crimes like taking benefits from the U.S. Government’s efforts to ease the public’s cost of the Covid-19 pandemic.

What to do if There is No Available Qui Tam Statute

A Proposal that Every Insurer Should Establish a Corporate Position to Refuse to Pay a Fraud

The insurer who truly desires to defeat insurance fraud must:

Require that the entire staff of claims handlers be trained to recognize attempts at insurance fraud.
Require that the entire staff of claims handlers be trained to recognize the “red flags of fraud.”
Create, maintain and effectively fund an SIU staffed with insurance and fraud trained investigators.
Require a thorough investigation of every claim.
Require the claims staff to refer suspected insurance fraud attempts to the SIU when a claims investigation establishes no less than three red flags of fraud.
Require the SIU to conduct a thorough suspected fraud investigation.
When the SIU collects what it believes to be an attempt at insurance fraud it should refer, for advice and counsel, the claim to an experienced insurance coverage lawyer in the state where the claim was presented.
If, after review of the claims investigation, coverage counsel opines that there is a preponderance of evidence establishing a fraud was attempted and claims management is convinced the advice is proper the claim must be rejected as a fraud.

Setting up such company policy will go a long way to reduce insurance fraud attempts against the insurer. Fraud perpetrators will move from that insurer to another. Those insurers who do not have such a corporate policy will find more attempts at insurance fraud and will be encouraged to take on the aggressive anti-fraud position taken by the insurer following the anti-fraud position proposed

© 2022 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

Subscribe to "Zalma on Insurance" at https://zalmaoninsurance.locals.com/subscribe and "Excellence in Claims Handling" at https://barryzalma.substack.com/welcome.

You can contact Mr. Zalma at https://www.zalma.com, https://www,claimschool.com, zalma@claimschool.com and zalma@zalma.com . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast "Zalma On Insurance" at https://anchor.fm/barry-zalma; you can follow Mr. Zalma on Twitter at; you should see Barry Zalma's videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/