Under the Radar

Insurers can’t afford to underestimate the effect that even the smallest claim can have on their bottom line. By investigating claims with red flags, regardless of their size, insurers can deter criminals from future attempts at insurance fraud.

Although every company is a potential target for claim fraud, the Chubb Group of Insurance Companies works to reduce its exposure by sending the message that it will investigate all types of claims. When insurers consistently investigate suspect claims and resist paying them, they earn a “discouraging” reputation among criminals who might move on to the next victim.

Claims fraud can occur at many points during an insurance transaction. A third-party claimant can fake a slip and fall. Insureds can burn down their homes. An in-house claims adjuster can even partner with vendors and customers to fabricate a claim. The myriad claim fraud scenarios have led some to estimate that it is a $60-billion-a-year problem in North America alone. Clearly, insurers have a vested interest in the reduction of this staggering amount, but are they doing all they can to identify and prevent claims fraud?

Claims for the smallest amounts can hurt the industry the most, especially when multiplied hundreds of thousands of times over. Some insurers refuse to investigate claims below a certain dollar amount because they feel that the investigatory costs outweigh the benefits of fraud discovery and claim rejection. While this may appear to be a sound business decision, some criminals know that companies are doing this and often target them accordingly.

Take, for example, the network of claim fraud that Chubb helped uncover in March 2004. Chubb received a claim for $50,000 alleging that claimant, Brenda Alexander, had fallen, injuring herself outside a family-owned company that cashes checks. Chubb’s investigation revealed a witness to the alleged incident who admitted that the claimant never fell. Before the case went to court, the personal injury attorney, Allen Litt, had reduced the payment demands, trying to settle the case before going to arbitration, which, it turns out, was a common strategy of his.

Chubb denied the claim and referred the case to the Philadelphia District Attorney’s Insurance Fraud Unit. After an investigation, Litt was found to have run a large-scale insurance fraud operation for more than two decades, using more than 100 runners to bilk 15 mostly major insurers out of at least $2.5 million through hundreds of fraudulent personal injury claims.

According to the investigation, Litt’s runners would recruit individuals to participate in fraudulent personal injury schemes by offering them a percentage of the eventual insurance fraud payout. Litt instructed the runners to find holes and cracks in front of well-off businesses that were not big enough to have attorneys to fight a case. The fraudulent claimants were then instructed to visit emergency rooms and seek medical care from pre-selected physicians, who would charge inflated medical bills. Litt would then file fraudulent insurance claims based on doctors’ bills and runners’ photographs and split the eventual claim payment with each conspirator.

One of Litt’s runners was Nathaniel Shaw, a slum lord who recruited his down-on-their-luck tenants as bogus claimants and brought Litt 132 claims, resulting in the payment of more than $1 million. Alexander was one such claimant. When the District Attorney convinced claimant Alexander to come clean, she revealed the role played by Shaw, who, in turn, rolled on Litt.

Aside from the effect that case-by-case losses can have on insurers’ bottom line, criminals and networks of fraudsters can harm insurers’ customers as well. By adopting a strong philosophy against fraudulent claim activity, insurers can protect their customers from increased deductibles, tainted loss histories and higher future premiums. This investigative effort can also protect customers’ reputations by preventing potential negative media publicity.

By looking for red flags and investigating the claims that contain them, even when perceived to be inefficient, insurers can work together to insulate the industry from criminals. Timely detection and thorough investigation will bring more arrests and convictions, which will lead criminals to think more than twice before committing insurance fraud. Both insurers and their customers will reap the benefits of the collaborative effort to fight fraud.

Philip DiDomenico is an assistant vice president, Chubb & Son, and worldwide casualty claim manager in Chubb’s Special Investigation Unit in Warren, NJ. Sean Scanlan is a casualty special investigator based in Chubb’s Philadelphia branch.