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Insurance agents can play a big role in helping states to fight insurance fraud. And with insurance fraud costing California alone $15 billion each year, or $500 per resident, the cost of which is eventually passed onto consumers, they should provide assistance.
In fact, because they are on the front lines of insurance transactions, agents might see and hear things before the insurance company, claims department or insurance investigator even hears about a problem, according to Howard Goldblatt, director of government affairs for the Coalition Against Insurance Fraud. “They are the grassroots. They are in the streets, in the neighborhoods.”
As a result, an agent may see things in a neighborhood that would raise questions with an anti-fraud department. “They may know of someone that they’ve insured who is having economic problems, and all of a sudden there’s a claim filed by that person,” Goldblatt said.
When that happens, there are steps an insurance agent can take to help with a Department of Insurance investigation, said Fraud Bureau Chief Cindy Schmell of the Iowa Division of Insurance and Anti-Fraud Division Director Ted Clark of the Kansas Department of Insurance.
“Insurance agents can help us immensely with our insurance fraud investigations if they document information,” Schmell said. “For instance, if someone comes to an agent wanting to purchase insurance, they can verify the identity of that person. If they uncover something that indicates the person maybe isn’t who he says he is, [the agent] can document that and provide that to [the insurance department] when we come to interview them in our investigation.”
Clark agreed, noting that agents should obtain positive identification from the person proposing to be insured. He also recommended agents actually inspect vehicles prior to insuring them, to determine upfront whether there is pre-existing damage or problems with a car.
“Agents can certainly assist us in fraud investigations,” Clark said. “In many fashions, they are the gatekeepers of information of the insured. Second, there are things [insurance agents] acquire as far as identification, pre-existing condition of vehicles and such, before they are insured.”
Then, it’s important for agents also to report any kind of false information they receive from someone trying to purchase insurance to their state insurance fraud bureaus, Schmell recommended. “And then, of course, agents can cooperate with the authorities when we proceed with our investigations.”
Analyzing Employees
Beyond scrutinizing customers, Clark and Schmell said insurance agencies should scrutinize their own employees when hiring, as well. Based on a survey of 2.6 million job applicants, 44 percent lied about their work experience, 23 percent fabricated credentials or licenses and 41 percent lied about their education. And “past behavior is the best predictor of future behavior,” Schmell said.
When you consider that occupational fraud and abuse costs organizations about $600 billion annually, or roughly 6 percent of gross revenues, according to the Association of Certified Fraud Examiners, and the fact that insurance agents have access to a wealth of customers’ personal information, it’s important to examine a potential employee’s track record.
“Agencies should screen their employees prior to employment because there are many issues that can be addressed by pre-screening employees,” Clark said. “One would be to make certain that the information that the agency has is not subject to identity theft. Other things would be [to make certain] that the agency is less likely to have an employee that might themselves perpetuate some sort of internal theft or participate in some sort of insurance fraud scheme.”
Oftentimes, companies will do background checks on senior management, but not examine other personnel such as janitors or office assistants, Schmell said. She noted it is important to evaluate all employees, looking at such areas as their criminal history, civil litigation history, collections/credit history, employment history, address history, claims history, mental illness or addition, education and professional licensure.
Outside vendors can assist with researching a person’s background, Clark and Schmell said. Checking the person out on cyberspace, such as on Google, YouTube, and social networking sites like Facebook and MySpace also can provide insight on a person’s background. Nevertheless, they noted “there is no suitable substitute” for an in-person interview where employers can watch for meta-messages and ask the candidate what else they will find. “You’d be surprised what potential job applicants tell you,” Schmell said.
While researching a potential employee’s background might seem like an invasion of privacy, remember that insurance agencies are entrusted with a lot of personal information, both for the insureds and insurance companies they represent, Schmell said. The law also is on the agency-employer’s side. “There is a federal law that says someone who’s been convicted of a felony for a breach of trust crime cannot participate in the business of insurance — unless they are provided a waiver by that state’s insurance commissioner,” Schmell concluded.
Clark, Goldblatt and Schmell were speakers at the National Association of Insurance Commissioners Insurance Fraud Seminar held in March 2009 in San Diego.