Tougher Laws Key to Fight Against Insurance Fraud

How do you convince overworked state prosecutors to chase down often stale-sounding insurance swindles when their case files already are bulging with high-profile crimes such as drugs, robbery and murder?

Insurance-fraud laws are great motivators: State prosecutors can convict con artists much more easily using laws written with insurance crimes in mind. Wisely, nearly all states have made insurance fraud a specific crime, with stiff penalties. Only a few stragglers are left. These states have no fraud laws, or weak ones that pack little legal punch in the courtroom. But that small stragglers’ club could shrink this spring.

Indiana does have a fraud law, but it’s so vague that it’s virtually unusable. The state’s criminal code might as well be blank. It only makes bogus claims a crime, ignoring schemes like agents who steal client premiums, people who lie on applications, and crimes by insurers themselves. But a new measure would expand the dragnet. It would cover all insurance crimes and beef up penalties for frauds that steal more than $2,500.

The rickety fraud law in Kansas is so poorly worded that no one bothers using it. In fact, some regulators didn’t even know Kansas has a fraud law. Lawmakers had a golden chance to put a credible law on the books this year, but a bill fizzled in March after making it through the Senate. We expect it will return for another go-around next year.

Vermont is one of just four states without any insurance-fraud law. But the Green Mountain State could move from a fraud-fighting backwater to an ornery state that’s inhospitable to insurance crooks. A proposed bill would make fraud a crime and slap jail sentences and large convicted schemers. It’s based on the model bill written by the Coalition Against Insurance Fraud. That model is generally considered the stiffest package in the U.S.

Vermont’s legislature is edging toward passage, but the outcome is far from assured. Bills often move fastest when there’s a crisis, but Vermont has no insurance crisis. The sponsors are trying to sell the bill as an antidote for when fraud does start spiking.

On another fraud front, staged-accident rings are literally driving up auto premiums in several states.

A predatory gang even killed a nice old grandmother in New York two years ago when her car crashed during a botched staged accident in Queens. But neither death nor some of the highest auto premiums in the U.S. have convinced New York’s legislature to strike back. Even modest bills making it a crime to recruit henchmen into the staged-accident gangs have fizzled in Albany for several years.

Inbred gridlock and feuding between Senate and Assembly leaders have kept reforms on the shelf while auto premiums remain among the highest anywhere. A similar bill is floating around Albany again this year, but most observers consider it a quixotic effort.

Declining auto premiums could further deflate odds of passage. What New York lacks in useful reform laws, it’s law enforcement and prosecutors make up in sheer tenacity.

Contrast this inaction with Massachusetts, which in January decisively passed an aggressive law leaning on recruiters and crooked chiropractors after public outcry over widespread staged accidents and high auto premiums. The push began when a great grandmother died in a staged accident she was helping set up.

Also look to Florida, which remains among the nation’s hotbeds of accident rings. A bill would impose a minimum mandatory jail term of two years for filing police accident reports to make fake injury claims from fake crashes. Medical clinics also would have to post the hotline number and reward information sponsored by the Department of Financial Services.

This effort comes on the heels of get-tough reforms two years ago, imposing two-year mandatory minimums for taking part in staged accidents, or recruiting henchmen for the swindles. Lack of money is another big roadblock to fraud fighting today. Many state fraud bureaus are being forced to pinch pennies. Budgets for these crime-busting agencies around the U.S. are flat, and this can materially affect their fraud-fighting.

Updated computers are rare. Some investigators can’t find money to travel for investigations. Nevada’s fraud-bureau had to scrounge for bookshelves and cash for training. Lawmakers are going to bat in some hard-hit states, however. The Nevada legislature has passed a bill boosting the fraud bureau’s budget 50 percent. However, the governor has vetoed the bill, though supporters are considering a vote to override the veto.

And in South Carolina, the AG would get six more insurance-fraud prosecutors if a Senate committee can convince lawmakers to pony up another $400,000 annually. Right now, the attorney general has only one fraud prosecutor–who somehow handles 600 cases a year.

Fighting fraud effectively requires tough laws, bright budgets and defiant willpower. Different states have different mixes of each. All of these qualities, or their lack thereof, are on display in state capitols this spring.

Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud. Visit www.insurancefraud.org for more information.