INSURANCE FRAUD HURTS ALL OF US

By Alan Plafker, PRESIDENT & CEO
Member Brokerage Service LLC
A Melrose Credit Union Service Organization

Most people complain about rising insurance rates. I hear
them comment:

• “I have a good record with no claims paid out, why is my rate so high?”
  
  
• “The insurance companies are making a fortune on us.”
  
  
• “These rates are too high. If they go up next year, I can’t afford to stay in business.”

It seems to me that if Insurance Companies were enjoying big profits in our industry there would be more companies competing for your business. This is obviously not the case because we have very few Insurance Companies interested in writing policies for our industry. Fewer available companies leads to higher rates. Fortunately, there have been more companies entering the market in the past few years to help control insurance costs through competition.

The public’s perception is that Insurance Companies take advantage of our industry and charge more each year to make larger profits. This may not be accurate because of many factors. One major factor is the cost of FRAUD. Generally, there are two types of fraud:

#1 - Policyholders perform one type of fraud so they can get a better price on their policy. For example, someone gets a low rate as an owner/driver and then allows others to drive the vehicle as in a double or triple shift without informing the insurance company. This causes a higher exposure for which insurance companies are entitled to a higher premium which they do not receive.

Another example is when a driver gets a low rate because he drives for a ‘voucher only’ black car radio base and then he decides to cruise the streets and pick up passengers or gives the car to someone else who cruises the streets after the first shift is completed by the owner driver. This person is cheating the insurance company by increasing the exposure after getting a low rate for someone who is supposed to be an owner/driver, working one shift exclusively on vouchers for a particular black car base.

People or their brokers who misrepresent the risk to an insurance company for a lower rate cause inadequate pricing that results in general rate increases after the claims come in. There are always stories with the claim report. For example:

• “I am the only driver on this car, but he was driving it just this one time to get me a prescription at the drug store when the accident happened.”

Here’s another one:

• “I got hit in the rear by a car. My car has no damage but my neck and back hurt so I am going to the doctor three times a week for therapy for injuries.”

#2 - The other type of fraud is generally a scheme by groups of people who work together with Doctors, Attorneys, Medical clinic personnel and even police officers to swindle Auto Insurance Companies out of millions of dollars with phony injury claims.

The bad news is that fraud has contributed to rising insurance rates for our industry and for all auto policies in New York. Conspiracies and schemes to defraud insurance companies cost policy holders millions of dollars per year pushing up the cost of our insurance.

The good news is that we are winning some of the battles in the war against FRAUD.

In 2000, no-fault insurance claims in New York rose 30 percent, higher than anywhere else in the country. Many industry experts attribute the rise in costs to FRAUD and ABUSE as evidenced by the 300 percent increase in fraud reports received by the New York Insurance Frauds Bureau. Hopefully, new legislation to reduce fraud will curtail some of the rising costs in no-fault coverage.

A study by the Insurance Research Council reported: “The average amount paid for personal injury protection claims jumped 20 percent in New York in the year 2000 in contrast to six percent in other states”. The study also found that New York City claimants reported more injuries with 40 percent reporting three or more injuries. This is twice as much as the statewide average.

By 2005, a successful fraud fighting effort “Operation Auto Rates” reduced auto rates in New York State. New York drivers saved more than $400 million in auto insurance premiums as a result of efforts from a 15 member team at the Insurance Frauds Bureau.

In 2006, The Fraud Bureau received 22,884 reports of suspected fraud. Of that total 22,158 were received from licensees (like Insurance Companies & Agents) required to submit such reports to the department and 726 were received from other sources such as consumers & anonymous tips.

A total of 1,101 new cases were opened for investigation in 2006. The bureau referred 274 cases to prosecutorial agencies for criminal prosecution. These investigations led to 604 arrests for insurance fraud and related crimes during the past year.

In one such case, a 20 month investigation conducted jointly by the Frauds bureau, the Attorney General’s Auto Insurance Fraud Unit and the NYPD’s Fraudulent Accident Investigation Squad resulted in three separate indictments charging 17 people and three corporations with participation in an elaborate no-fault insurance fraud scheme.

Lately, I see information on a daily basis about fighting FRAUD. Many meetings I attend in Albany on the Committees for the Professional Insurance Agents Association discuss and support legislative changes intended to reduce fraud. The NY State Insurance Department is aggressive in its fight against fraud.

Insurance Companies have devoted their resources to SIU (Special Investigative Units) departments. They are making a difference by uncovering rate evaders and working in close contact with law enforcement officials and prosecutors to uncover scams and fraud rings who steal from insurance companies with phony accidents and padded claims. The New York Insurance Department has a Fraud Bureau that is proactive to investigate and pursue arrests against people who defraud insurance companies. They work with the Attorney General’s office and police to uncover, arrest, file charges and indict people who operate fraud rings in NY. Anyone with information about fraudulent activity should call 1 888 FRAUD NY.

Alan Plafker is President of Member Brokerage Service LLC, a Melrose Credit Union Service Organization. He is a licensed Insurance Broker and serves on the Board of Directors the PIANY (Professional Insurance Agents Association of NY) and on the Board of CIBGNY (Council of Insurance Brokers of Greater NY). His Agency insures thousands of polices for TLC Insurance as well as many policies for all types of insurance. You can reach him in his Briarwood, Queens office at (718) 523-1300 ext. 1082.

ATLANTIC CITY, N.J.– Michael Plafker of Plainview, N.Y., account executive for Member Brokerage Service LLC, in Briarwood, N.Y., was named the New York Young Insurance Professionals Volunteer of the Year at the Professional Insurance Agents of New Jersey and New York Inc.’s Joint Annual Conference. The event was held at the Trump Taj Mahal Resort Casino in Atlantic City, June 10-12. 

The award is bestowed by NY-YIP and is given to an individual who is strongly committed to improving the quality of events and programs of the organization by giving of their personal time so that others will benefit.

“Mike’s tireless commitment to NY-YIP is second to none,” said Shawn Kain, CPCU, ARe, president of NY-YIP. “It is with great appreciation that we recognize him for what he’s done for our organization and industry.”

Active in PIANY, Plafker is a member of the Membership/Programs Committee.

NY-YIP is an organization dedicated to the professional and personal growth of newcomers to the insurance industry. It is affiliated with PIANY, a trade association representing professional, independent insurance agencies and their employees throughout the state.

Published June 12, 2007 by PIA. PIA (Professional Insurance Agents) is a voluntary, membership based trade association representing professional, independent property/casualty insurance agents.

Jaye Czupryna, public relations specialist Mary Christiano, director of communication (800) 424-4244

MICHAEL PLAFKER IS THE SON Of ALAN PLAFKER, ABOVE, PRESIDENT OF MEMBER BROKERAGE, LLC AND CONTRIBUTING WRITER OF TLC MAGAZINE.

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