Professor Jay Feinman, Co-Director of the Middle for Danger and Accountability, has ready an evaluation of the $308.6 billion determine that concludes it’s pure misinformation. 1 The methodology used to reach at fraud figures given to the media and cited publicly to authorities authorities by these propagandists is unsound. For instance, the Coalition In opposition to Insurance coverage Fraud researchers used an estimate of the proportion of fraud in property/casualty insurance coverage claims that’s greater than a quarter-century previous, a share {that a} main scholar has characterised as “extra people knowledge than reality.” The researchers didn’t carry out any unbiased analysis and ignored proof from state anti-fraud businesses that signifies the quantity of fraud probably is much decrease than the acknowledged determine. They didn’t contemplate one of the best tutorial analysis—or any tutorial analysis—on the quantity of insurance coverage fraud.
Why ought to anyone imagine the Coalition In opposition to Insurance coverage Fraud once they fraudulently fabricate numbers to assist their trigger? The Coalition appears to be utilizing the identical playbook that the remainder of the insurance coverage foyer makes use of to advertise no matter their new agenda is—fabricating statistics and mendacity to assist insurance coverage business aims fairly than debating the reality.
The Coalition’s estimate depends closely on outdated knowledge from the late Nineteen Eighties when insurance coverage adjusters opined that fraud accounted for about 10% of property/casualty insurance coverage losses. This determine has been perpetuated with out substantial proof or consideration of how technological advances have impacted each fraud prevention and detection. I perceive that after I first known as out the Coalition in 2008 for fabricating these statistics in A Response To The Govt Director Of The Coalition In opposition to Insurance coverage Fraud, this weblog was a fly of their ointment.
Nevertheless, when lecturers additionally declare that the statistics of fraud are fraudulent, these allegations deserve a response. In any other case, you lose all credibility with the media and the federal government officers you are attempting to affect. Possibly Matthew, “all claims by policyholders are fraudulent” Monson will come to the Coalition’s rescue with an argument about why made-up numbers are acceptable by the insurance coverage business and its lobbyists.
The underside line is that whereas insurance coverage fraud is a critical concern that deserves consideration and assets, inflated statistics don’t serve anybody’s pursuits. The insurance coverage business’s dedication to preventing fraud is commendable, however the methodology used to quantify the issue wants vital enchancment. This was one message raised by William Rabb of the Insurance coverage Journal, as I famous in Insurance coverage Journal Picks Up on Tutorial Article Exposing Fraudulent Statistics by Insurance coverage Trade. Rabb’s article, Examine Stirs Debate on Actual Influence of Litigation, Fraud on Property Insurance coverage, acknowledged:
A tutorial paper revealed within the Journal of Insurance coverage Regulation appears to have rekindled the controversy over how a lot of an influence litigation and fraud has had on property insurance coverage losses and premiums, significantly in Florida.
The paper, ‘The Case for Pausing Any Quick Embrace of the Social Inflation Argument for Authorized System Reforms,’ was penned by Kenneth Klein, a professor at California Western Faculty of Regulation, who spent a lot of his profession as a enterprise protection lawyer. It was revealed a yr in the past however was reposted not too long ago by Florida plaintiffs’ lawyer Chip Merlin. Merlin argued the examine exhibits that claims of extreme litigation, fraud, and social inflation have been blown out of proportion by the insurance coverage business.
Has the Coalition management eliminated these fraudulent statistics from their web site? Nope. A examine final evening indicated that they nonetheless submit these made-up numbers even after being warned about them for greater than a decade.
Professor Feinman’s analysis reveals a number of important issues with the Coalition’s estimate. First, the Coalition determine depends on outdated methodology from the Nineteen Eighties, when adjusters estimated fraud at 10% of property/casualty losses. This decades-old share continues to be getting used with out accounting for technological advances in fraud detection or societal adjustments. These estimates had been offered with none assist after which merely copied into later Coalition-backed analysis.
Second, Feinman discovered that state insurance coverage company knowledge immediately contradicts these excessive estimates. In Massachusetts, for instance, solely 43% of insurer-reported fraud circumstances had been accepted for investigation, and simply 13% of investigated circumstances had been referred to prosecutors. Dr. Richard Derrig, previously the nation’s main skilled on insurance coverage fraud, discovered that the ratio of suspected fraud to provable fraud is roughly 25 to 1. This means the true stage of felony fraud can be lower than 0.5%, not the claimed 10%, which has been regurgitated for the final 40 years by the Coalition with none basis.
The Coalition’s report additionally makes questionable methodological decisions, comparable to counting non-fraudulent auto theft as insurance coverage fraud and together with authentic Social Safety overpayments of their calculations. How is social safety fraud associated to something involving property insurance coverage fraud statistics?
Maybe most notably, the report utterly ignores fraud dedicated by insurance coverage corporations towards policyholders, regardless of well-documented circumstances of systematic claims denials and different fraudulent practices by insurers. The Coalition has zero for this quantity, suggesting that it’s in mattress with the insurance coverage foyer or below a make-believe state of affairs that insurers don’t take part in any schemes to fraudulently underpay policyholders.
Whereas insurance coverage fraud is a critical concern requiring consideration, Feinman argues that utilizing inflated, unsupported statistics undermines the insurance coverage business’s credibility and distracts from growing efficient options primarily based on correct knowledge. Does anyone disagree with that?
Thought For The Day
Statistics are like bikinis. What they reveal is suggestive, however what they conceal is significant.
—Aaron Levenstein
1 Jay M. Feinman. Misinformation About Insurance coverage Fraud. Rutgers Middle for Danger and Accountability (Nov. 2024).
