Key Signs of Insurance Fraud: NAIC & FBI

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The National Association of Insurance Commissioners (NAIC), and The Center for Insurance Policy and Research (CIPR) defines insurance fraud as, "An insurance company, agent, adjuster or consumer who commits a deliberate deception to obtain an illegitimate gain." Insurance fraud exceeds $100 billion every year.

Key signs you are dealing with a fake insurance company:

1. Phony insurance companies will offer policies at much lower rates compared to the traditional market price. Suspect any premiums that cost 15-20 percent less than what other companies offer. Fraudulent companies may have even legitimate agents. 

2. Overly aggressive agents or brokers that pressure consumers to act immediately present red flags. Threatening that policy prices will increase if customers don't sign up constitute a warning sign to consumers.

3. Consumers that have trouble getting a listed phone number, or difficulty reaching someone, should suspect the legitimacy of the company.

The NAIC created the Anti-fraud (D) Task Force to assist state insurance officials with detection, referral of investigation, and monitoring of insurance crime. It maintains a Special Activities Database (SAD) to keep track of entities involved with market activities and legal actions of firms involved with the insurance business.

Our Federal Bureau of Investigation (FBI) documents prosecution of insurance fraud. One example of chiropractic healthcare insurance fraud and two instances of healthcare fraud caught in two separate FBI sting operations follow below. Patterns evolve when company workers and clinics process fraudulent insurance claims.

Case #1: Chiropractor Jeffrey R. Shope, 44, of Blacklick, Ohio, pleaded guilty to insurance fraud in the U.S. District Court. Jeffrey Shope defrauded federal health care benefit programs while collecting $700,000 as the owner of True Health Chiropractic in Westerville, Ohio. He failed to render the equipment and services he billed insurance companies. Also, he would charge two separate applications of the same services to a patient in one day.

Case #2: The "Gotcha-sting-insurance-fraud" case was handled by Special Agent Terry Nestor at the FBI in Philadelphia. Nestor suggests that insurance representatives can see patterns when people stage accidents. The same patients, doctors, and lawyers will show up over and over again signaling the possibility of people staging phony accidents. These patients went to clinics that billed for services that nobody provided. This case involved more than 30 people who participated in a prescription billing scheme and were convicted of health care fraud, bankruptcy fraud, and wire fraud. "Staged Impact" was the second phase of this sting where the FBI invited the suspects to come to a phony clinic with the promise of a settlement payment once they allowed fake medical records to be generated for them. The convicted fraudsters had to pay back the insurance companies for $1.5 million in settlement claims and $300,000 in medical bills.

Case #3: In a $16 million health insurance fraud scheme, a father and son falsified patient records, forged patient signatures, and collected deductibles for free hearing tests and aids. Anderson Optical & Hearing fraudulently submitted claims to BCBS for free hearing aids on behalf of American Airlines employees. Anderson would then attempt to "collect deductibles and coinsurance years after the subscriber was offered a free hearing test and free hearing aids."

According to the FBI, more than 7,000 insurance companies bill $1 trillion each year in premiums. Insurance fraud costs the average U.S. family $400 to $700 a year in increased premiums, for a total of $40 billion. Health care fraud carries a $250,000 fine and a prison sentence of up to 10 years.