According to a recent report released by Penn.-based Insurance Research Council (IRC), a nonprofit research organization funded by property/casualty insurers, auto injury fraud and buildup adds an estimated $5.6 and $7.7 billion in excess claims payments in 2012.
The comprehensive report, Fraud and Buildup in Auto Injury Insurance Claims, is based on more than 35,000 auto injury claims closed with payment. Twelve insurers, representing 52 percent of the private passenger auto insurance market in the United States, participated in the study. The report is part of an ongoing series of research on auto injury claims being conducted by the nonprofit.
Vickie Kilgore, director of research for the IRC, discussed the report findings with Claims Journal recently.
In order to understand the report more fully, Kilgore explained the difference between fraud and buildup.
“We define fraud as a material misrepresentation of some facts in the claim. On the other hand, we see buildup in claims which we define as excessive or inflated expenses related to a claim,” said Kilgore.
The report noted that buildup is sometimes referred to as ‘soft fraud’.
Kilgore outlined key findings of the report.
The excess payments represented between 13 and 17 percent of total payments under the five main private passenger auto injury coverages.
Twenty-one percent of bodily injury (BI) claims had the appearance of fraud and/or
buildup in 2012, according to file reviewers.
“That was a slight increase among the BI claims from 2002, when we first did the fraud and buildup part of this study,” said Kilgore.
The IRC noted 18 percent of personal injury protection (PIP) claims closed with payment in 2012, an increase of 13 percent since 2002.
The most common type of abuse identified was claim buildup, defined as the inflation of otherwise legitimate claims. Claims with the appearance of buildup accounted for 15 percent of dollars paid for BI and PIP claims in 2012.
While there was some evidence of staged accidents, most of the fraud reported appeared to be opportunistic in nature. Kilgore said this may be due to the fact that the study only looked at claims that were closed with payment.
Claims with the appearance of fraud and/or buildup were more likely than other claims to involve chiropractic treatment, physical therapy, alternative medicine and the use of pain clinics.
PIP Claims Reveal Geographic Differences
The prevalence of apparent fraud and buildup varied widely among states, especially no-fault states.
“We saw enormous variations according to where the accident happened, “ Kilgore said.
States with the highest rates of fraud and buildup among PIP claims included:
- Florida (31 percent)
- New York (24 percent)
- Massachusetts (22 percent)
- Minnesota (22 percent)
Some no-fault states, like Kansas and Pennsylvania had very little reported fraud and buildup.
“We saw wide variations by state and even within states,” she said.
When reviewing PIP claims nationwide, 27 percent of claims arising from accidents that occurred within central cities had the appearance of fraud and buildup versus 14 percent of claims in medium cities and small town/rural areas.
The study revealed the top ways in which adjusters identify questionable claims:
- Using index bureau checks.
- Utilizing IMEs and peer reviews to ensure treatment plans are appropriate.
- Referring claims to special investigation units.
Kilgore said the study revealed certain patterns in claims that had the appearance of fraud and buildup. These included:
- Claims that have sprain/strains injuries;
- Chiropractic treatment;
- Treatment by a pain clinic;
- MRI’s for non-severe injuries.
The additional costs associated with fraud-fighting efforts were not included in the IRC estimates of excess payments.
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