Insurance Fraud, Claim Build-Up Cost Industry Billions [Study]

Insurance fraud is a hot-button topic here at HometownQuotes because we recognize the damage that such practices can do to insurers and their customers in spite of often being looked at as a “victimless crime.” As we’ve noted in the past, it’s the exact opposite of victimless targeting each facet of the insurance spectrum, and a new study hints at the overall damages that it can do when it comes to auto injury claims alone.

According to the research presented by the Insurance Research Council (IRC), fraud and claim “build-up” add between $5.6 billion and $7.7 billion in excess payments on auto injury claims annually in the United States.

These excessive payments represented between 13 percent and 17 percent of total payments under the five main private passenger auto injury coverages, noted the study which was based on 2012 claims data.

Approximately 21 percent of closed-with-payment bodily injury (BI) claims and 18 percent of personal injury protection (PIP) claims had what the study called the “appearance” of fraud and/or build-up for the time period in question.

Build-up was the most common type of abuse. It is defined as “the inflation of otherwise legitimate claims,” by the Insurance Journal, and these types of claims “accounted for 15 percent of dollars paid for BI and PIP claims in 2012,” the study noted, adding that claims with the appearance of fraud and/or build-up “were more likely than other claims to involve chiropractic treatment, physical therapy, alternative medicine, and the use of pain clinics.”

The prevalence of these types of claims varied widely from state to state, and were especially unpredictable in no-fault states. The ones with highest rates of fraud and build-up among PIP claims included Florida (31 percent); New York (24 percent); Massachusetts (22 percent); and Minnesota (22 percent).

“The costs associated with auto injury claim abuse make auto insurance more expensive for everyone,” said Elizabeth Sprinkel, senior vice president of the IRC. “Efforts to lower insurance costs must include measures aimed at reducing the amount of fraud and buildup in the system.”

IRC’s report details several claim handling techniques used by insurers to identify and investigate claim abuse. Among them: independent medical exams, special investigative units, and peer medical reviews. The research organization and watchdog said additional costs associated with these efforts aren’t included in the IRC estimates of excess payments in comments to IJ.

IRC’s study is entitled, “Fraud and Build-up in Auto Injury Insurance Claims,” and it is based on continuing research into the causes of increased auto injury claim severity. It covers more than 35,000 auto injury claims that were closed with payment under the five principal private passenger coverages. Twelve of the top insurers (52 percent of the private passenger auto insurance market in the U.S.) participated in the study.


In Summary

While insurers are learning more everyday about the telltale signs of fraud and build-up and how to fight back, the problem is still a considerable threat to affordable rates. As an agent, you can help your customers further understand how insurance fraud like that mentioned above impacts their rates as well as provide them with information on how to report suspected cases to the proper authorities. The more that people know regarding the effects of insurance fraud, the easier it will become to isolate and stamp out the problem.

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