Transcript 2002 Reported Frequency (COMP

Insurance Fraud
The Lecture
Richard A. Derrig, Ph.D.
OPAL Consulting LLC
Visiting Scholar, The Wharton School
University of Pennsylvania
[email protected]
University of Illinois
December 2, 2005
Agenda
 What
Is Fraud?
 How Much Fraud Is There?
 Who Are The Fraud Fighters?
 What do Companies do about Fraud?
 What is the “Lawrence” story?
Fraud Definition
PRINCIPLES



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Clear and willful act
Proscribed by law
Obtaining money or value
Under false pretenses
Abusive/Unethical: Fails one or more Principles
Fraud Types
Insurer Fraud
– Fraudulent Company
– Fraudulent Management
 Agent Fraud
– No Policy
– False Premium
 Company Fraud
– Embezzlement
– Inside/Outside Arrangements
 Claim Fraud
– Claimant/Insured
– Providers/Rings

FRAUD AND ABUSE
THE TOP TEN DEFENSES

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1. Adjusters
2. Computer Technology
3. Criminal Investigators
4. Data and Information
5. Experts
6. Judges
7. Lawyers
8. Legislators
9. Prosecutors
10. Special Investigators
10%
Fraud
Target Claims
DM
Easy
Paid
Routine Adjusting
Investigation
Investigative Paid
Suspected
Fraud SIU
Build-up
Negotiation
Civil
Proceeding
Not Guilty
Criminal
Referral
Prosecuted
Guilty
DATA
DM
Databases
Scoring Functions
Graded Output
Non-Suspicious Claims
Routine Claims
Suspicious Claims
Complicated Claims
Data Mining

“Misplaced faith in black boxes: Data Mining is
sometimes perceived as a black box, where you
feed the data in and interesting results and
patterns emerge. Such an approach is
particularly misleading when no prior knowledge
or experience is used to validate the results of
the mining exercise”
– Exploratory Data Mining and Data Cleaning, by Dasu
and Johnson
Patterns, The New Data
To Manage
Red Loveseat by
Mae West by
DCD
The Detail Claim Database
Seminar on Insurance Fraud
Boxborough, MA
November 19, 2003
Seminar on Insurance Fraud



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
DCD
Auto Injury Claims Closed Since 1/1/94
Over 1,646,000 Claims
Data: Claimant, Insured, Injury, Medical & Legal
Providers, Claim Payment, Bills, Claim Handling
IME, Med Audit, Special Investigation
On-Line Access for Company Adjusters and SIU
Personnel through Internet
Company Oversight: Claim Committee,
Operations Subcommittee
Special Investigation (SI) Yes/No
Special Investigations (SI) are performed on claims
suspected of fraud. Special Investigations may
be performed by SIU personnel or other
personnel trained to handle suspicious claims
using activity checks, surveillance, accident
reconstruction, statements or examinations
under oath. Special Investigations also
includes third party expert analysis of
documents associated with suspicious claims.
Liability investigations are not considered to be
special investigations.
SI Results
Report a valid SI Result Code:
Code
SI Result
1 – No Change Recommended
 6 – Claim Denied
 7 – Claim Compromised
 9 - Unknown or Pending

SIU Result by Attorney Representation
Attorney
No Attorney
60.0
Percent
50.0
40.0
30.0
20.0
10.0
0.0
No Change
Recommended
Claim Denied
Claim Compromised
Result
Source: AIB/DCD 1995/1997 Accident Year
Unknown or Pending
Injury Type Changes
Inj
89
96
Fracture
14%
5%
Inpatient
7%
4%
Serious Visible
Prior Inj.
14%
6%
2%
27%
Source: AIB Final Report (2003)
The Lawrence Fraud
Problem
A Crisis Needing a Special
Solution
Lawrence Auto Insurance Rates
 Why
are rates so high?
 Causes
 Solutions
WHY ARE RATES SO HIGH?
 Statewide
average rate
 Lawrence
average rate
$1,176
$2,145
Commissioner’s rates, 2002 (BI, PIP, PD, U-1, U-2, COMP, COLL)
WHY ARE RATES SO HIGH?
Claims Paid Per Car
Statewide
Lawrence
2002
$714
$2,061
2002 Reported Pure Premiums (BI, PIP, PD, COMP, COLL)
WHY ARE RATES SO HIGH?
 Statewide
# of claims as a
percentage of policyholders
28%
 Lawrence
# of claims as a
percentage of policyholders
66%
2002 Reported Claims (BI, PIP, PD, COMP, COLL)
WHY ARE RATES SO HIGH?

In 2002, Lawrence rates are 1.82 times
the statewide average
– accident rate is
1.5 X state avg.
but...
– PIP (no-fault) claims are4.9 X state avg.
– BI Liability claims are 4.9 X state avg.
2002 Reported Frequency Indices (PD, PIP, BI)
WHY ARE RATES SO HIGH?

In 2002, Lawrence rates are 1.82 times
the statewide average
– accident rate is
1.5 X state avg.
but...
– Collision claims are
avg.
– Theft claims are
1.9 X state
10.3 X state avg.
2002 Reported Frequency Indices (PD, COLL, COMP-theft)
WHY ARE RATES SO HIGH?
1 out of 260 cars insured for theft in
Mass. were stolen in 2002
 1 out of 25 cars insured for theft in
Lawrence were stolen in 2002

2002 Reported Frequency (COMP-theft)
WHY ARE RATES SO HIGH?

For every 100 accidents in the state
43 injuries are reported!

For every 100 accidents in Lawrence
141 injuries are reported!
2002 Number of Claims Per 100 Accidents (PIP)
Similar Population Size
# Cars Insured
20,053
23,666
Salem
19,771
Lawrence
0
1993
2002
26,689
10,000
20,000 30,000
Insured population relatively similar in
size for both towns
Claims Very Different
Dollar Amount of BI Claims
Salem
Lawrence
$0
$3,800,000
$5,400,000
1993
$7,300,000
2002
$16,900,000
$9,000,000
$18,000,000
Claims have soared in Lawrence while only
increasing slightly in Salem
ROOT CAUSES OF HIGH RATES
Auto theft out of control
 Disproportionate # of Injuries to Accidents
 Network of high volume medical and legal
professionals aggressively ready to assist
in filing your insurance claim!

PIP Average Amount Billed
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Statewide All
Providers
$2,112
PIP Average Amount Billed
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Statewide All
Providers
Statewide
Chiropractors
$2,846
$2,112
PIP Average Amount Billed
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Statewide All
Providers
Statewide
Chiropractors
$3,625
$2,846
$2,112
Lawrence
Chiropractors
PIP Average Amount Billed
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Statewide All
Providers
$4,123
$3,625
$2,846
$2,112
Statewide
Chiropractors
Lawrence
Chiropractors
Lawrence Back
& Neck
Spring promotion 2001
…each time you refer a patient injured in
an auto accident…”WE WILL PRESENT
YOU WITH A VOUCHER WORTH $200”...
...Free transportation
...Treated 10,000 people injured in auto accidents
But Lawrence only had 7
auto accidents per day!!!
The Anatomy of an
Investigation
9/4/03
Altagracia Arias a 65-year-old grandmother, dies in a staged car
accident in Lawrence.
9/11/03
Lawrence and State Police arrest Hairo L. Gomez, 26, of
Lawrence, charging him with manslaughter in connection with the
fatal crash. An arrest warrant for the same charge is also issued
for Jacinto Maldonado, 22, of Lawrence, who is the driver of the
car in which his grandmother was killed.
9/12/03
Eagle Tribune publishes front page story titled ”Police: Scam crash
killed grandmother.
9/17/03
Police arrest Jason Pimentel, 22, of Lawrence, a front seat
passenger in the car that Altagracia Arias was killed in. He is
charged with insurance fraud, under a new felony law that carries
up to five years in prison and a $10,000 fine. Two other
passengers in the two-car crash are later charged with insurance
fraud.
September 25, 2003
The Lawrence Task Force, working with
several major insurance companies,
launch an investigation into staged
accidents in Lawrence. They hope the
probe will lead to dozens of arrests and
deal a body blow to a cottage industry of
fraudulent personal injury claims that cost
honest drivers hundreds of dollars a year
in added insurance premiums.
Lawrence Insurance Fraud
Task Force
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Lawrence Police Department
Attorney General
Essex County District Attorney
Insurance Fraud Bureau
Insurance Industry
Partnerships
Continuous
involvement with a
designated prosecutor
 Partnership with the
local newspaper to
“keep the story in the
news”

February 26, 2004

6 people charged with staging an accident.

5 people apprehended.

5 people confess to the staged accident in another city
(Methuen).

Cooperative effort with another police agency.

Leads investigators to Chiropractor Sean Nisivoccia.
March 2, 2004
Chiropractor Sean
Nisivoccia from Health
Group of New England
arrested at his place of
employment for taking
part in staging
accidents.
March 15, 2004
First conviction sends a clear message.
Doel Miranda, one of 52 people charged in a sweeping
investigation that began in September 2003, pleaded
guilty to three charges stemming from a fake hit & run
accident in January 2003.
Sentence: One year in jail and probation for a year and
a half.
September 22, 2004
Grand Jury Indictments
4 Chiropractors
 3 Lawyers
 Others working in their offices
 1 insurance agency manager
 Runners

 16
in all!
To Date in Lawrence
Task Force Totals: 130 people charged in
connection with 42 cases of insurance fraud.
Charges include:
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Manslaughter
Motor Vehicle Insurance Fraud
Conspiracy to Commit Insurance Fraud
Perjury
Larceny
False Report to Police
To Date in Lawrence
Task Force Totals:
Seven individuals pleaded or found
guilty.
18 individuals continued without a
finding.
EFFECTS OF PROGRAM
Claims Paid Per Car
Statewide
Lawrence
2002 2004
$714 $614
$2,061 $951
2004 Reported Pure Premiums (BI, PIP, PD, COMP, COLL)
EFFECTS OF PROGRAM

In 2002, for every 100 accidents in
Lawrence
141 injuries are reported!

In 2004, for every 100 accidents in
Lawrence
60 injuries are reported!
2004 Number of Claims Per 100 Accidents (PIP)
EFFECTS OF PROGRAM
2002 insurance claims in Lawrence
$48.6 million
2004 insurance claims in Lawrence
$19.8 million
Savings $28.7 million!
2004 Total Loss Amount (BI, PIP, PD, COMP, COLL)