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Hot To Spot Fraud

By Ralph Burnham

Tell us a little bit about your organization and its foundation.

The Pennsylvania Insurance Fraud Prevention Authority (IFPA) was created by Pennsylvania's General Assembly in December 1994 to combat insurance fraud by: providing state and local law enforcement with needed resources to investigate and prosecute insurance fraud; and educating people about fraud's harms and consequences. Now in its 20th year, the IFPA annually levies $12.7 million in assessments upon insurers who do business in Pennsylvania, provides $12.5 million in grants to 14 state and local law enforcement agencies, and invests one-half million dollars a year on public education. The IFPA does not use taxpayer dollars and operates independently of the executive, legislative and judicial branches of state government. To learn more about the IFPA, or read its annual reports to the Commonwealth's Governor and General Assembly, visit www.HelpStopFraud.Org.

In general, what is insurance fraud?

Insurance fraud is a financial crime, reported by the national Coalition Against Insurance Fraud to cost the insurance industry upwards of $80 billion a year nationally, making insurance more costly than necessary for policyholders.

Most commonly, as defined in Pennsylvania's Crimes Code, insurance fraud is a knowing and intentional lie told on either an insurance application, a 1st degree Misdemeanor crime punishable by up to five years imprisonment, or during a claim to defraud an insurer, a 3rd degree Felony crime punishable by up to seven years imprisonment. It is important to know that the lie need not be successful in actually defrauding an insurer for the crime of insurance fraud to be committed.

In addition to the charge of insurance fraud, defendants may also be charged with attempted theft by deception or theft by deception, as determined by whether or not the defendant unlawfully obtained money of an insurer. Defendants upon conviction or being diverted to rehabilitation programs will also face paying fines that range up to $15,000 per violation, restitution and court costs.

What are a few ways insurance scammers try to take advantage of homeowners?

Home repair contractors who go into neighborhoods after storms offering free storm damage inspections and replacement of roofing and siding at no out-of-pocket cost to homeowners have been one source of insurance fraud in recent years. In cases where the homeowners had insurance that covered the full cost of replacing damaged roofing and siding, dishonest contractors have been caught intentionally causing damage to homes while doing "free inspections." Typically, to lure homeowners in, contractors have billed for their services without disclosing that they would reduce that bill by a "discount" equal to the homeowners' insurance deductible. In their reports and billing given homeowners and their insurers, the contractors' misrepresentations that the cause was storm damage constituted insurance fraud. It had also been seen that dishonest contractors had increased their unlawful profits by substituting inferior materials for the high-end products they had said they used in their estimates and bills. And, where dishonest contractors skipped out without paying the businesses that supplied them repair materials to do the work, homeowners later found that the supply firms had filed mechanics liens against their homes ? liens that had to be paid by the homeowners before they could refinance or sell. Lastly, in the worst cases, after homeowners received and naively signed over insurance checks to dishonest contractors, repairs were never completed.

Homeowners, as well as business owners, can find themselves being targeted by "slip and fall" con artists. Picking out a crack in a sidewalk or an icy sidewalk in front of homes, a team of fraudsters will stage an accident. One will pretend to slip, while one or more other team members pose as witnesses to the accidental fall. A call to 911, an ambulance trip to the emergency room, and a well-rehearsed story told doctors set the stage for the homeowner or their insurance company receiving notice from a personal injury attorney that the homeowners is being sued for negligence, with demands made for payment of the costs of medical treatment and the accident victim's pain and suffering. Recently in Philadelphia, one such slip and fall ring was exposed, where a dishonest attorney had paid people (called "runners") to recruit others to participate in faking accidents and injuries. In that case, 46 people were charged. Learning he was to be arrested, the personal injury attorney who'd operated the scheme reportedly chose to commit suicide rather than face prosecution.

What can homeowners do to help prevent this problem?

The best advice is "act cautiously." Obtain and compare several repair quotes, ask for and check out contractors' references, and check to see that they are properly registered with Pennsylvania's Attorney General.

And, whenever a homeowner believes that their home has suffered storm damage or someone alleges that the homeowner's negligence has caused injury, they should immediately contact their agent or insurance company. Most insurance policies require that timely notice be given a homeowner's insurer, and an insurance company's investigators are trained to deal with insurance fraud.

What are some common ways in which homeowners themselves commit insurance fraud?

Homeowners who unwisely commit insurance fraud have historically done so in three ways: 1) After purchasing and insuring a home, they make a false claim by attempting to have repairs of damage which was present on the home when they bought it paid for through a claim on their new policy; 2) They experience a legitimate damage or theft loss at their home, but make false statements or use false receipts or other documents hoping to increase their claim settlement; and 3) They conceal that they use their home for commercial purposes (as in renting out the home to others) from their insurers.

In your opinion, what is the biggest risk with potential insurance fraud?

It's both the risks and penalties of insurance fraud that are important to know. People should read their insurance policies and know what they will and will not cover. We see people who've been frustrated when their claim was denied or paid in an amount less than they'd expected react by making a false claim. Jewelry is a good example. Most policies will pay only a certain amount ? unless the homeowner has paid an additional amount of premium to have the jewelry's full value insured through an endorsement or rider to the policy.

People must also know that insurance companies have a legal and moral obligation to their shareholders and all their policyholders to challenge and resist the payment of fraudulent claims. To do this, insurance companies employ well-trained fraud analysts and investigators, and use a variety of data resources and forensic analysis to ferret out fraud. Many people who've committed fraud think that their biggest risk will be having their false claim denied. Insurance fraud's additional penalties can include having a policy cancelled or rescinded due to fraud, finding it difficult and more costly to buy insurance, plus the embarrassment and added financial costs of being arrested and prosecuted.

How does your organization help prevent this?

The IFPA does not, itself, investigate nor prosecute insurance fraud. We do publicize the arrests and prosecutions done by the 14 state agencies that we provide funding and resources to, in hopes that people will better understand and avoid committing insurance fraud. Our consumer research tells us that since 2008, our efforts have returned a 35% increase in Pennsylvanians' knowledge about insurance fraud and a 28% increase in their willingness to report it to law enforcement.

People who suspect insurance fraud is being committed or who have a question about insurance should contact one of the 14 state or local insurance fraud units that are funded by the IFPA. People may also report their suspicions of fraud to the National Insurance Crime Bureau at 1-800-TEL-NICB.

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