Professor Jay Feinman, Co-Director of the Middle for Danger and Duty, 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an estimate of the share of fraud in property/casualty insurance coverage claims that’s greater than a quarter-century outdated, a share {that a} main scholar has characterised as “extra people knowledge than reality.” The researchers didn’t carry out any impartial analysis and ignored proof from state anti-fraud businesses that signifies the quantity of fraud doubtless is much decrease than the said determine. They didn’t think about one of the best tutorial analysis—or any tutorial analysis—on the quantity of insurance coverage fraud.
Why ought to anyone consider the Coalition In opposition to Insurance coverage Fraud after 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 somewhat than debating the reality.
The Coalition’s estimate depends closely on outdated information from the late Eighties when insurance coverage adjusters opined that fraud accounted for about 10% of property/casualty insurance coverage losses.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 once I first known as out the Coalition in 2008 for fabricating these statistics in A Response To The Government 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 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 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 Educational Article Exposing Fraudulent Statistics by Insurance coverage Business. Rabb’s article, Examine Stirs Debate on Actual Affect of Litigation, Fraud on Property Insurance coverage, said:
An educational paper revealed within the Journal of Insurance coverage Regulation appears to have rekindled the talk over how a lot of an impression litigation and fraud has had on property insurance coverage losses and premiums, notably in Florida.
The paper, ‘The Case for Pausing Any Speedy Embrace of the Social Inflation Argument for Authorized System Reforms,’ was penned by Kenneth Klein, a professor at California Western Faculty of Legislation, who spent a lot of his profession as a enterprise protection lawyer. It was revealed a 12 months in the past however was reposted lately by Florida plaintiffs’ lawyer Chip Merlin. Merlin argued the research reveals 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 test final night time indicated that they nonetheless publish these made-up numbers even after being warned about them for greater than a decade.
Professor Feinman’s analysis reveals a number of crucial issues with the Coalition’s estimate. First, the Coalition determine depends on outdated methodology from the 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 help after which merely copied into later Coalition-backed analysis.
Second, Feinman discovered that state insurance coverage company information 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 knowledgeable on insurance coverage fraud, discovered that the ratio of suspected fraud to provable fraud is roughly 25 to 1. This implies the true stage 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 decisions, akin 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 fully 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 situation 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 creating efficient options primarily based on correct information. Does anyone disagree with that?
Thought For The Day
Statistics are like bikinis. What they reveal is suggestive, however what they conceal is important.
—Aaron Levenstein
1 Jay M. Feinman. Misinformation About Insurance coverage Fraud. Rutgers Middle for Danger and Duty (Nov. 2024).
