Auto Insurance Fraud in Florida Auto Insurance Fraud in Florida Stats & Facts Lynne McChristian Fraud Coalition Meeting October 5, 2010/Tallahassee, FL.

Auto Insurance Fraud Auto Insurance Fraud in Floridain Florida

Stats & Facts

Lynne McChristianFraud Coalition Meeting

October 5, 2010/Tallahassee, FL

Florida’s anti-fraud statute

Insurers required to investigate suspected fraud.

Florida Statute (Section 626.9891) requires insurers with $10 million or more in direct premiums annually to have either an in-house unit or contract with an outside entity to investigate possible fraudulent claims.

Insurers with less than $10 million in direct premiums must adopt an anti-fraud plan.

Insurers’ anti-fraud plans must detail procedures for:

Detecting and investigating possible fraudulent acts.

Mandatory reporting of fraud to the Division of Insurance Fraud.

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Definition of a Questionable Claim

The National Insurance Crime Bureau (NICB) calls a questionable claim (QC) one that is referred to their organization for closer review and investigation based on one or more indicators of possible fraud.

A single claim may contain up to seven referral reasons.

Referral reason categories of claims— property, casualtycasualty, commercial, workers' compensation, vehiclevehicle and miscellaneous.

The NICB has more than 1,000 members, including property/casualty insurers, self-insured organizations, and transportation-related firms.

3

Florida Crash Statistics

Number of Crashes/Injuries

2008 2009 % Change

243,342 / 199,658 235,778 / 197,214 -2.1% / -1.2%

4

Crash Rate*

2008 2009

122.6 120.0

•Rate is calculated by multiplying the number of crashes by 100,000 and dividing by vehicle miles of travel.

Source: Florida Dept. of Highways Safety & Motor Vehicles

5

Increase in No-Fault Claim Severity: 2004-2009*

*2009 figure is for the 4 quarters ending 2009:Q4.**Since 2006 the increase in Florida was 17.3% (average severity that year was $6,344). Sources: Insurance Information Institute research from ISO/PCI Fast Track data.

$32,778

$17,198

$8,716 $7,524$6,674$5,871

$12,136

$24,385

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Michigan New Jersey New York Florida

2004 2009

The no-fault systems in MI, NJ, NY and FL are under stress due to rising fraud and abuse which will ultimately lead to higher premiums for drivers.

+34.4%

+41.7%

+48.5% +18.6%**

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Average No-Fault Claim Severity, 2009:Q4

$1

7,7

27

$8

,86

2

$8

,67

0

$5

,51

7

$5

,19

8

$4

,88

7

$4

,32

7

$4

,12

1

$4

,03

1

$2

,99

8

$2

,89

5

$2

,99

1

$2

,55

1

$2

,21

9

$1

,74

9

$3

7,4

89

$8

,18

6

$7

,53

8

$6

,94

4

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

MI NJ NY DC DE FL MN KY ND HI WA PA OR TX MD KS SC UT MA

Several States Have Severe and Growing Problems With Rampant Fraud and Abuse in their No-Fault Systems. Claim Severities Are Up Sharply.

Source: ISO/PCI Fast Track data; Insurance Information Institute.

MI, NJ, NY and FL currently are the largest states that have the most severe

problems in their no-fault system

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No-Fault (PIP) Liability in Florida: Frequency and Severity Trends

*2010: Q1 figure represents change from 2009 Q1.Source: ISO/PCI Fast Track data; Insurance Information Institute

Annual Change, 2005 through 2010*

Florida is Experiencing Severe Fraud and Abuse Problems within the No-Fault Auto Insurance System.

Florida Vehicle Referrals for Fraud

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Referral Reason

1st Half 2008

1st Half2009

1st Half2010

% Change2009-2010

Water/Flood Damage

11 11 14 27%

Phantom Accident

77 93 109 17%

Faked Damage

214 216 242 12%

Inflated Repairs

35 43 40 -3%

Fire/Arson 74 82 63 -23%

QuestionableTheft

401 441 324 -27%

Auto Glass 8 88 51 -42%

Up 1000%

Source: National Insurance Crime Bureau

#1

#2

#3

9Source: National Insurance Crime Bureau

#1. Questionable Theft#2. Faked Damage#3. “Paper Accident”/Phantom Accident

Florida Vehicle Referrals for Fraud

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Referral Reason

1st Half 2008

1st Half2009

1st Half2010

% Change

Staged Accident

415 625 1109 77%

Excessive Treatment

392 520 904 74%

Faked orExaggeratedInjury

615 781 1327 70%

Prior Injuries 229 248 407 64%

Billed for Services Not Rendered

679 628 829 32%

Solicitation 102 97 120 24%

Florida Casualty Referrals for Fraud

Source: National Insurance Crime Bureau

#2

#3

#1

Source: National Insurance Crime Bureau

#1. Faked/Exaggerated Injury#2. Staged Accident#3. Billing for Services Not Received

Florida Casualty Referrals for Fraud

P/C Insurers Experience Inflation More Intensely than 2009 CPI Suggests

Source: CPI is Blue Chip Economic Indicator 2009 estimate, 12/09; Legal services, medical care and motor vehicle body work are avg. monthly year-over-year change from BLS; BI and no-fault figures from ISO Fast Track data for 4 quarters ending 09:Q3. Tort costs is 2009 Towers-Perrin estimate. WC figure is I.I.I. estimate based on historical NCCI data.

-0.4%

2.7% 3.0% 3.1%3.8%

4.3%

5.5%6.2%

-2%

0%

2%

4%

6%

8%

OverallCPI

LegalServices

US TortCosts

MedicalCare

MotorVehicleBodyWork

BodilyInjury

Severity

WC MedSeverity

No-FaultClaim

Severity

(Percent)

Healthcare and Legal/Tort Costs Are a Major P/C Insurance Cost Driver. These Are Expected to Increase Above the Overall Inflation Rate (CPI) Indefinitely

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Communicating Fraud Trends

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Communicating the extent of the problem does not motivate people to join the fight against fraud. Yet, consumer awareness is essential to combat it.

Consumer education must concentrate on what they think is important, i.e., lower insurance rates.

• Keep a positive orientation. What is working right – and how do we do more of that?

• Are the rewards of reporting fraud important to people? Are the punishments strong deterrents?

• Tell “inside stories” of how consumers benefit from insurers’ actions to prevent and detect fraud.

www.iii.org

www.InsuringFlorida.org

Thank you!

Insurance Information Institute Online: