State Fraud Laws Need to Be Tougher, Group Says

July 20, 2004

More states urgently need to pass targeted laws to bust widespread staged-accident rings and swindlers who sell fake commercial insurance around the U.S., the Coalition Against Insurance Fraud told state lawmakers at the recent National Conference of Insurance Legislators’ meeting.

“These swindlers have a strong incentive to profit at the expense of insurers and their policyholders. More states must show they will pass tough laws that get cons off the streets and in jail,” said Howard Goldblatt, the coalition’s director of government affairs.

Staged-accident rings continue spreading in many states around the United States. Phony injury claims remain highly profitable despite repeated crackdowns by law enforcement in many states, Goldblatt said. Insurers lose several billion dollars a year to staged accidents, thus driving up premiums for thousands of drivers.

But few states have laws designed to pressure an accident ring’s so-called runners — or recruiters. Laws should make it a crime for runners to recruit fake car passengers, and for a ring’s kingpins to hire runners, Goldblatt continued.

This will make it easier for prosecutors to convict leaders of staged-accident rings who hire runners. The threat of a long jail term also will convince many runners to turn in a ring’s kingpins in exchange for lenience, Goldblatt said.

According to the Coalition, only about six states have ring-busting laws even though staged accidents continue spreading in many regions of the U.S. Several are based on the Coalition’s own model bill.

But just a few states such as Massachusetts and New York are seriously debating bills. Utah, however, did pass a law earlier this year in response to growing losses from accident rings.

Fake liability insurance also remains a widespread problem because victims are vulnerable to cons selling discount commercial coverage during a time of rising premiums.

“Making it a crime to sell or market coverage will give prosecutors a tool that can increase conviction rates and impose lengthy jail terms and large fines on swindlers,” Goldblatt said.

Phony health coverage continues being sold to small businesses around the U.S. despite a continued crackdown. More than 200,000 policyholders have been bilked out of at least $252 million in unpaid medical bills so far, the General Accounting Office reported.

Illicit commercial liability coverage also is a problem. Fake insurance is being sold to small businesses in difficult lines often facing sharply rising premiums. Longhaul truckers, medical providers, beauty salons and other businesses have been sold bogus policies.

“Only a handful of states have laws making it a specific crime to sell fake coverage. Florida, Washington, Nevada and several other states have recently passed laws, but the safety net remains thin. States need more legal tools to shut down the cons and put them into jail for good,” Goldblatt said.

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