Professor Jay Feinman, Co-Director of the Middle for Threat 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 Towards Insurance coverage Fraud researchers used an estimate of the share of fraud in property/casualty insurance coverage claims that’s greater than a quarter-century previous, a proportion {that a} main scholar has characterised as “extra folks knowledge than reality.” The researchers didn’t carry out any impartial analysis and ignored proof from state anti-fraud companies that signifies the quantity of fraud probably is much decrease than the acknowledged determine. They didn’t take into account the most effective tutorial analysis—or any tutorial analysis—on the quantity of insurance coverage fraud.
Why ought to anyone imagine the Coalition Towards Insurance coverage Fraud once they fraudulently fabricate numbers to help 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 help insurance coverage trade goals quite 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The Coalition’s estimate depends closely on outdated knowledge from the late Nineteen Eighties when insurance coverage adjusters opined that fraud accounted for roughly 10% of property/casualty insurance coverage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 once I first known as out the Coalition in 2008 for fabricating these statistics in A Response To The Govt Director Of The Coalition Towards 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 trade and its lobbyists.
The underside line is that whereas insurance coverage fraud is a severe concern that deserves consideration and assets, inflated statistics don’t serve anybody’s pursuits. The insurance coverage trade’s dedication to combating fraud is commendable, however the methodology used to quantify the issue wants important 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, Research Stirs Debate on Actual Affect of Litigation, Fraud on Property Insurance coverage, acknowledged:
An instructional paper revealed within the Journal of Insurance coverage Regulation appears to have rekindled the controversy over how a lot of an affect litigation and fraud has had on property insurance coverage losses and premiums, notably 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 12 months in the past however was reposted just lately by Florida plaintiffs’ lawyer Chip Merlin. Merlin argued the research exhibits that claims of extreme litigation, fraud, and social inflation have been blown out of proportion by the insurance coverage trade.
Has the Coalition management eliminated these fraudulent statistics from their web site? Nope. A verify 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 vital 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 proportion continues to be getting used with out accounting for technological advances in fraud detection or societal modifications. These estimates have been offered with none help after which merely copied into later Coalition-backed analysis.
Second, Feinman discovered that state insurance coverage company knowledge instantly contradicts these excessive estimates. In Massachusetts, for instance, solely 43% of insurer-reported fraud circumstances have been accepted for investigation, and simply 13% of investigated circumstances have 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 degree of prison 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 selections, corresponding to counting non-fraudulent auto theft as insurance coverage fraud and together with legit 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 firms 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 beneath 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 severe concern requiring consideration, Feinman argues that utilizing inflated, unsupported statistics undermines the insurance coverage trade’s credibility and distracts from growing efficient options based mostly 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 Threat and Accountability (Nov. 2024).
