Car Insurance

From innocent fudging to outright lies, cheating on insurance claims is widespread, costing insurers–and, ultimately, policyholders such as small companies–large sums in higher premiums. There are no figures on insurance fraud overall, but there are estimates for some industry segments. In the property/casualty field, for example, Sean Mooney, chief economist at the Insurance Information Institute, says it has been conservatively figured that one of every 10 claims is fraudulent in some respect.

In workers’ compensation, phony claims have driven up premiums nationally an estimated 10 percent, says Chris Campos, senior partner of the Campos & Stratis accounting firm, in Teaneck, N.J. The firm evaluates large insurance claims on behalf of insurers.

Another type of cheating on workers’ comp occurs when employers misclassify themselves to understate the riskiness of their work-calling themselves general contractors when they’re really roofers, for example–to avoid paying higher workers’ comp premiums.

Such fraud only adds to the upward pressure on premiums and, in its way, is almost as damaging as the destructive storms that caused $23 billion in claims in 1992 alone. Insurers are now restricting some coastal coverage, and premiums may start heading up. (See “Business Insurance Will Cost You More,” June.)

While insurance executives resist labeling ordinary insurance buyers as common criminals, insurance professionals say millions do inflate, exaggerate, and even lie to get money from their insurance companies or to get lower rates.

It can be as “innocent” as what is called “soft fraud,” which occurs when a parent, for example, lies about the garaging address of a daughter’s car to avoid paying the higher premium for coverage in a riskier location. Or it can be the “hard stuff,” such as arson or staged accidents.

To catch cheaters, the New Jersey Insurance Department parked empty buses on busy roads, arranged to have cars bump into them, then videotaped “passengers” who appeared from nowhere to board the buses and then claim they had been hurt in the “accidents.”

Why is fraud happening?

Adrian Tocklin, executive vice president of Continental Insurance, in New York, says it’s partly the nature of the insurance product. She says: “If I go out and I spend $1,000 on a new television set, I’ve got it. But when I spend $1,000 on traditional liability insurance and nothing happens–there’s no accident–well, I’ve spent that money, and I didn’t get anything back … and they’re going to want something back.”