Marc Dittenhoefer

Yes, Virginia, There is Auto Insurance Fraud

For years now the debate has been raging in the public media as to whether or not there is systemic fraud in the field of automobile accident and No-Fault insurance. Industry spokespersons have long been pointing to “phony” lawsuits and illegitimate claims pressed by felonious claimants and their dishonest lawyers and doctors, all with the purpose of invading the insurance policies that some of America’s largest and most profitable corporations sell to drivers at exorbitant rates. These industry mouthpieces have all the while been saying that it is the ‘fraud’ running rampant throughout these types of cases that is the driving force behind the rise in auto insurance rates to their present unconscionable levels, and that all that needs to be done to restore balance to the world of auto insurance – as well as fairer rates to the consumer – is to crack down on this fraud.

At long last, despite years of intense stonewalling and high level misdirection and disinformation, there is proof that they are right!

CNN recently concluded an 18-month investigation into the policies and practices of some of our nations largest and most renowned insurers and how they treat their own clients – especially those who have been involved in accidents that the companies classify as “ minor crash claims”. The practices employed by insurers, led by industry giants Allstate and State Farm, but by no means limited to those megalomerates, have been described by one Insurance law Professor and student of the industry as “institutionalized bad faith”.

Following a strategy first devised in the 1990s by an industry consultant, McKINSEY & CO., these insurers have adopted the tactic of trying all within their power to make the victims look like they are trying to defraud the insurance company for merely making legitimate and valid claims against insurance policies that they themselves have paid good money to be covered by. This tactic includes advertisements to the public pushing their products while at the same time reinforcing in people’s minds that the reason insurance is so costly is that nearly everyone making a claim in trying to get something for nothing: trying to defraud the Company! This has many benefits for them, not the least of which is that it subtly yet indisputably poisons the jury pools against people who have the gumption to want to test their rights out in Court. Believe it or don’t, most jurors today have at least some degree of subliminal bias against people making claims.

But this strategy does not end there. These companies have also developed a “3-D” approach to injured claimants: remember the vast majority of these are people who have been their customers for years, making premium payments regularly and dependably and making claims very seldom, if at all. (Stop and think for a moment. Have you ever heard of anyone getting into a car accident and settling up with the other car for cash without ever reporting it to the insurance companies involved? What other product in American life has been so duplicitously marketed that so many of us would rather pay through the nose to have it, yet try NOT to use it when it’s needed for fear that we’ll be punished with our renewal rates, or dropped altogether?)

When a legitimate claim IS made the “3-D” scenario calls for the Insurance Company (or “carrier” in industry lingo) to (1) deny the claim or the legitimacy of any aspect of it that they possibly can; (2) delay as much as possible in either coming to any final determinations or in their participation in whatever enforcement proceedings exist for asserting rights under the policy; and (3) defend the case in Court to the utmost whether or not there is a viable defense to offer. This is calculated in the hopes of accomplishing two things, both of which are good for the carrier.

First of all, they have significant success in this regard in breaking down and wearing out legitimate claimants, and thereby browbeating them into settling their claims for far less than they would otherwise be entitled to. Secondly, they hope to make this whole process so onerous, expensive and time-consuming that lawyers would start to refuse to help accident victims. (So much for the All-American respect for the right to counsel!)

Of course, lawyers have not been scared away, though several states have tried to legislate them out of existence via outlawing many types of recoveries that were considered bedrock victim’s rights just a few short years ago. Nevertheless, many so-called “reforms” have been instituted in nearly every state that make it harder, costlier and more complicated to maintain a claim. And juries have grown colder in the face of Big Business’ assault on the civil justice system that has jaundiced so many members of our jury pools.

The supposed justification for this is, of course, reducing fraud and cutting costs to the consumer (i.e., the insurance premium payer). In the name of this goal, the Legislatures have been convinced to make it harder to sue and to limit what one can win when they do. The carriers treat their own customers as if they are all cheats, notwithstanding State regulatory admonitions that they not do so. And juries today have been preconditioned to see the multi-billion dollar, multi-national Corporation as the victim when sued by a single mother who was rear-ended by a kook on a cel phone and who only wants to recover her medical bills, lost wages, babysitting charges for the times she had to attend the doctor, and a few bucks for the pain and suffering and interruption of her already-difficult life!

One would think that ‘fraud’ must be getting under some degree of control after all of this, and insurance companies might once again look forward to a rise in profits that they say have been suffering, and a resulting lowering of insurance rates for the rest of us, right?

Well guess what. According to the New York City Comptroller, already “auto insurance companies are profiting at unprecedented levels from New York drivers who are spending more on insurance premiums while the industry pays out less in claims”. In New York, earned premiums have gone up $2.3 billion in five years while losses have dropped 20% in that same time. Nationally, while losses did increase by 12.9%, premiums went up 33.8%! Loss ratios – that portion of the premium dollar that goes to paying claims, as opposed to operating expenses and profits – are at their most favorable point in years for the carriers: maybe the best ever.

In New York this translates to insurance rates to the consumer being roughly 15% higher than they need to be to turn a respectable profit and still meet all obligations to policyholders. (Nation-wide, that percentage is probably a wee bit less in order to be on the “up and up”.)

Nevertheless, when it comes to that tiny percentage of claimants who do try and steal from insurance companies by filing phony claims, they need to be rooted out and punished, and forced to pay back all of the monies they illegally obtain.

But they are not responsible for the real institutional “fraud” here. They are, in the end, a few grains of sand on the beach. The ‘fraud’ done TO insurance companies is almost laughably insignificant by any measure when compared to the ‘fraud’ committed BY insurance companies. The sooner we all realize this, the sooner we will all get lower rates, better coverage, a freer market, more protection and a return to a legal system that is on a truly level playing field once again.

Its getting so obvious, even a cave-man could see it!

Marc Dittenhoefer: Author Bio | Other Posts
Posted at 9:02 AM, Feb 23, 2007 in
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Good post.

It's late but I want to suggest something to add to your article.

Gotta be brief as I need to sleep.

What is the deal with getting a traffic ticket or two and having your rates go through the ceiling?

I'm all for safe driving but they carry this way too far.

Posted by: jharp | February 24, 2007 2:37 AM

Insurance needs to be reformed in the USA.

Posted by: Jim C | February 25, 2007 12:24 AM