fraud awareness, identification and action training · • the “hit and run” occurs when an...

Fraud Awareness, Identification and

Action Training

Please turn cell phones to silent, vibrate or off.

Marshall Katz [email protected]

Why is this Course important to You as a member of the insurance community and as a Consumer?

• Fighting fraud can keep rates down

• Fighting fraud can keep your agency’s loss ratios down

• Lower loss ratios = profitability

• Profitability = boss may be able to stay in business

• Help your customers get paid by encouraging them to tell the truth

• Aiding and abetting fraud is a felony.

• And…its required under the MA Auto Insurance Plan (MAIP) Rules

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Aiding and Abetting• Who is required to report insurance fraud suspicions? Generally,

insurance company personnel who have reason to believe that a Massachusetts insurance transaction may be fraudulent, or who have knowledge that a fraudulent insurance transaction is about to take place, or has taken place in Massachusetts, are required by law to report the suspected fraud to the Insurance Fraud Bureau of Massachusetts within 30 days. Insurers and insurance personnel licensed under G.L.c. 175 and exempt from the licensing requirments of G.L.c 175 and others engaged in the business of insurance under the IFB enabling statute must comply with the mandated reporting provision.

Massachusetts St. 1990, c. 338 as amended by Section 99 of 398 Mass Acts 1991, and Section 13 of 427 Mass Acts 1996 and Section 5 of 279 Mass Acts 2002

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MAIPMassachusetts Automobile Insurance Plan

• Current ARPs (Assigned Risk Producers) and their employees are required under Rule 31 to receive training on claim reporting and fraud recognition

• New employees trained within 6 months of hire that touch an auto policy in any way

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New Hire Checklist

The Fraud Problem

The Property Casualty Insurer Association of America found that:

• Every year approximately $30 billion is lost industry wide to insurance fraud. It is estimated that $12.3 billion is related to automobile insurance.

• Fraudulent insurance claims – whether related to automobile, medical or workers’ compensation – take more than 30 cents out of every dollar your customers pay for insurance premiums …

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The Fraud ProblemThe Coalition Against Insurance Fraud shows that:

• Nearly one of ten Americans would commit insurance fraud if they knew they could get away with it.

• Nearly three of ten Americans wouldn't report insurance scams committed by someone they know.

• Nearly one of four Americans says it’s ok to defraud insurers.

• Two of five people are “not very likely” or “not likely at all” to report someone who ripped off an insurer.

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INTRODUCTIONThe purpose of this seminar is to train the Massachusetts Insurance Community on fraud recognition and claim reporting. It has been developed by the Claims Advisory Producer Training Subcommittee whose members include representatives from Insurance Company Underwriting, Claims, and Training Departments and Special Investigative Units, Commonwealth Automobile Reinsurers, the Massachusetts Association of Insurance Agents, and the MA Insurance Fraud Bureau. The information presented provides an overview of the impact of fraud on the Massachusetts insurance market and indicates how producers and their staff can assist in the fight against fraud. Agents should follow the procedures and requirements given to you by the insurance companies you represent.

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Course Objectives• Provide information that will increase agent

awareness of policy fraud.

• Provide information regarding the legal consequences of policy fraud and the effect on your clients’ claim payout.

• Review the questions on the application that if answered falsely, incompletely, or in a misleading or deceptive way can give rise to an insurer’s right to take action.

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Course Objectives• Discuss the rights that an insurer may have

under provisions of the Mass. Auto Policy when false information is provided.

• Discuss what you can do up front to recognize and stop premium fraud so that your clients’ claims can be processed without delays.

• Provide a listing of “Red Flags” that should alert you to the suspicion of potential fraud on both premium and claims transactions.

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At the conclusion of the session you will be able to:• Recognize major indicators of fraud within the

application process.

• Identify fraud indicators which are present within the loss reporting process.

• Understand your role in the effort to identify and combat fraud.

• Develop an approach for reporting application and loss reporting fraud to the issuing company.

• These four objectives will be covered in the skill practice workshops.

Student Objectives

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Fraud Defined• What is Fraud?

• Webster's Dictionary defines Fraud as:

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An intentional perversion of the truth in order to induce another to part with something of value or to surrender a legal right; an act of deceiving or misrepresenting.

Fraud Defined• The key element of fraud is a false and material

misrepresentation made by one who either knows its falsity or is ignorant of its truth. In Massachusetts, misrepresentation also includes unintentional acts such as failing to notify the company of any changes that would increase the risk of loss.

• Fraud in Insurance might be defined as the abuse of the insurance mechanism for financial gain.

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Types of FraudPremium Fraud

• Falsifying information on an insurance application which results in a lower rate

• Failing to inform or omitting on the policy renewal or Renewal Questionnaire (statement of fact) of changes that would increase the premium such as a new address or operator.

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Types of FraudClaims Fraud

• Inflating a claim to cover a deductible

• Having a car stolen or burned

• Exaggerating an injury and over treating to qualify for a higher settlement

• Staged accidents

• Jump-ins of passengers claiming to be in accident

• Paper cars14

Types of FraudProvider Fraud

• Doctors over treat or falsify treatment records

• Lawyers work with Doctors to inflate medical bills

• Body shops cause additional damage to inflate repair costs or total vehicle

• Fraud can be perpetrated by the insured or someone working on their behalf or by another party against your insured.

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First Party Fraud• First party fraud is fraud committed with the

involvement of the insured and or someone subject to first party benefits.

• The insured is aware and participating in the fraudulent activity.

• Investigating this type of fraud is made difficult by the issues presented when an insured is involved in fraud. A Reservations of Rights needs to be considered. If the claim does not resolve, litigation is complicated by the involvement of the insured.

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First Party FraudEXAMPLES

• The “Hit and Run” occurs when an insured uses a damaged vehicle and claims to be the victim of a hit and run. The police are often called to verify the damage.

• “Paper Accidents” are just that – they occur only on paper. An owner fabricates an accident report to cover existing damage, or to collect insurance money for non-existent damage.

• Application Fraud occurs when vehicle owners use a friend’s or relative’s address or misrepresent how far they drive to work, all for the sake of obtaining a lower auto insurance premium.

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Third Party Fraud• Third party fraud is fraud committed by someone

against another person or business, without an insurer/insured relationship. The fraudster is generally an outsider.

• The insured may be unaware and not consciously participating in the fraudulent activity.

• This fraud is very difficult to identify and fully investigate because one party (the insured) is not involved in the fraud. To this individual a legitimate accident occurred and their statements will be truthful. 18

Third Party FraudEXAMPLES• The “Swoop and Squat” – The vehicle in front of you stops abruptly, and

you find yourself the responsible party in a rear-end collision. Only this is no accident – the other driver planned the collision, and expects to submit vehicle damage and personal injury claims against your insurance company.

• The “Drive Down” – When you try to merge into traffic or out of a parking space, the fraudster helpfully waves you ahead, then intentionally drives into you. Then, of course, the driver denies waving you on. Often there will be a “witness” nearby who claims to have seen the whole thing and corroborates the fraudster’s version.

• The “Side Swipe” – In a dual left-turn at a busy intersection, the driver in the inside lane drifts into the outer lane, intentionally forcing a collision.

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Anti-Runner Law• This new law, passed January 3, 2005, now

makes it a felony to act as a runner for the purpose of defrauding an insured or an insurance carrier. “Runners” are individuals who are paid to stage accidents and to direct clients to health care providers.

• *Runners may approach agency personnel and offer them money or gifts to provide the names of injured insureds.

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CAR Rules of OperationRule 31 – Assigned Risk Producer Requirements

B. Ongoing Exclusive Representative Producer Requirements:15. The ARP must notify the MAIP & ARC of any

suspected fraud surrounding a loss;

16. The ARP must cooperate with the ARC and MAIP personnel during all audits and investigations;

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CAR Rules of OperationRule 30 – Assigned Risk Company Requirements

B. 4 c. Verify that information contained in the application for insurance is accurate as to classification, garaging, discounts, credits, vehicle use, vehicle description and, to the extent verifiable, other rating factors.

B. 4 i. Monitoring of Assigned Risk Producers: ARCS will be responsible for notifying the MAIP of ARP infractions that may result in the revocation of the ARP’s MAIP certification as follows:

(5) Failure to notify the ARC of any suspected fraud in the application for insurance or in the underwriting or rating process or in the payment of premium obligations or surrounding a loss;

(6) Failure to assist the Servicing Carrier during any audit or investigation.

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Premium/Application Fraud

Common Scenarios

• Falsifying garaging location

• Failing to list operator

• Listing principal operator as occasional operator

• Failing to report any changes during the policy period including address changes or new operators that would increase the risk of loss.

• Neglecting to return the renewal application or statement of fact if required by the company.

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MA Auto Policy Language

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(Massachusetts Automobile Insurance Policy, 2008 Edition, General Provisions and Exclusions, p. 28.)

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Vehicle Usage Affidavit (personal lines)Client name policy numberI am aware of the following language in my policy: If you or someone on your behalf gives us false, deceptive, misleading or incomplete information in any application or policy change request and if such false, deceptive, misleading or incomplete information increases our risk of loss, we may refuse to pay claims under any or all of the Optional Insurance Parts of this policy. Such information includes the description and the place of garaging of the vehicles to be insured, the names of all household members and customary operators required to be listed and the answers given for all listed operators. We may also limit our payments to those amounts that we are required to sell under Part 3 and Part 4 of this policy.

I understand if the usage changes, I will notify the above insurance agency so that an adjustment can be made to the policy. If I fail to notify the above insurance agency and a loss takes place, the insurance company may act in accordance with the above paragraph.

Date Insureds Signature

Vehicle Usage Affidavit (commercial Lines)

customer name

policy number

I am aware of the following language in my policy: “Except with respect to the coverages your are required to purchase in order to register your auto in Massachusetts, we may refuse to pay claims if any oral or written misrepresentation or warranty made in the negotiation of this policy by you, or on your behalf, was made with an actual intent to deceive or if the matter misrepresented or warranted increased the risk of loss.” We may also limit our payments to those amounts that we are required to sell under Part 3 and Part 4 of this policy.

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95 GMC 03 Chevy 07 SUV 08 Mercedes

Garaging

Farthest location driven

to

_________ x______________________________date insured signature

I understand if the usage changes, I will notify the above insurance agency so that an adjustment can be made to the policy. If I fail to notify the above insurance agency and a loss takes place, the insurance company may act in accordance with the above paragraph.

MA General LawsMGL Chapter 175: § 186. Misrepresentations

by insured; effect.

“No oral or written misrepresentation or warranty made in the negotiation of a policy of insurance by the insured or in his behalf shall be deemed material or defeat or avoid the policy or prevent its attaching unless such misrepresentation or warranty is made with actual intent to deceive, or unless the matter misrepresented or made a warranty increased the risk of loss.” 27

Increase Risk of Loss

• Premium charged not commensurate with the risk undertaken

• Underwriting writes a policy that it would not have if it had the true and complete information

• Underwriting writes a coverage that it would not have if it had the true and complete information

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Consequences of Auto Policy Fraud• Deny all Optional Coverages: BI, Med Pay,

Collision, Comprehensive, Substitute Transportation, Towing, Underinsured

• Recovery from insured of amounts that must be paid to a lienholder

• Reduce Compulsory Coverage to those limits that an insurer is required to sell by law– Part 3---Uninsured Motorist---35/80

– Part 4--Property Damage---$5k

• Collect back premium for compulsory coverage

• Cancel Policy 29

Help Prevent Premium Fraud• Carefully review application/policy change

request with your customer• Prepare for the meeting with your customer by

doing some “pre” work as suggested in the "Application Best Practice Guide"

• Ask your customers questions utilizing the "Application Best Practice Guide“

• Encourage the customer to ask you questions if they are unsure of their responses

• Educate the customer as to the possible consequences of providing false or incomplete information 30

Help Prevent Premium Fraud• Obtain policyholder signature on all applications

and policy change requests• Review the Notice of Information on the Application

regarding false and deceptive information with the policyholder

• Conduct a visual inspection of the vehicle if driven to your agency. Look for old damage, broken glass, business lettering and verify that operator is listed

• Report to Underwriting any cases of suspected Premium Fraud

• Advise customer to verify information on the Statement of Facts and notify us of any changes

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Help Prevent Premium Fraud

• Advise customer to review Coverage Selection Page each year at renewal

• Advise customer to report changes in circumstances to us as soon as possible

• Obtain photocopies of the licenses of the policyholder and each listed operator

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Taking the Application

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Applicant’s Information

• Is address and/or mailing address correct?

• Is applicant a Massachusetts resident?

• If yes, they must have a Massachusetts license

• If not, is the vehicle utilized in Massachusetts in excess of 30 days per year?

• If not, applicant is not eligible for a Massachusetts policy.

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Red FlagsRed Flags that Apply to Applicant’s Information

• Is never available to meet in person and supplies all information by telephone.

• Neither works nor resides near the agency.

• Has loss & violation history outside of the coverage venue.

• Gives a post office box in place of a residential address or mail must be sent to insured in care of another.

• Has lived at the address less than six months or has a history of being transient.

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• Has no telephone number or provides a pager number.

• Is reluctant to use the mail.

• Submits an incomplete, unsigned or backdated application.

• Has a problem remembering their date of birth or Social Security Number.

• Works through a third party. 36


• Wants to pay premium in cash or to put as little as possible down.

• Suggests price is no object when applying for coverage but pays the minimum amount down.

• Has had a driver’s license for a significant period of time, but never owned a vehicle or purchased insurance.

• Identification reflects different addresses than those shown on registration and title application.

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• Is insuring multiple vehicles yet there is only a single operator.

• Is unwilling to respond to questions concerning the ownership and principle place of garaging.

• Often questions the questions asked.

• Is reluctant to, or cannot answer questions about household members or others that may use the vehicle.

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Applicant:

• questions agent closely on claim handling procedures or is overly familiar with insurance terms or procedures.

• has address discrepancies. (e.g. driver’s license has one address yet applicant claiming another.)

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Vehicle Information• Principal place of garaging

– Where vehicle is most of the time that the owner/principal operator is asleep during the policy period

– If no principal place of garaging, residential address of operator

– If no residential address, Mass. business address

• Away-at-School scenario– Principal place of garaging is school location

• Out of State scenario– Affect on rating – territory 9

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Vehicle Information• Special Equipment

– Anti-theft

– Affects discount

– Obtain certificate

• Annual Mileage

– Discount given on an earned basis

– RMV—MI screen

– Yearly safety inspection indicates mileage

– Need to complete Annual Mileage form

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Red Flags for Vehicle• When inspected, vehicle was driven to site or

your agency by unlisted operator.

• Vehicle is not available for inspection.

• Vehicle has unusual amount of aftermarket equipment (e.g. wheels, high priced stereo, and car phone) or receipts for aftermarket equipment are in another person's name.

• Vehicle inspection by agent uncovers discrepancy between Vehicle Identification Number listed on title/bill of sale, VIN plate on dashboard, and/or manufacturer’s sticker on door. 42

Red Flags for Vehicle

• Remember: There are no letters “O”, “Q” or “I” in a VIN; There are numbers “0” and “1”.

• Vehicle title or authenticated bill of sale cannot be produced.

• No Lienholder is reported for new/or high value vehicle.

• Loss payee is not a legitimate lending institution (e.g. bank or finance company).

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Driver InformationWho must be listed?• All licensed household members who will operate

the vehicle• HH members who will not operate can be

excluded via the Excluded Operator endorsement• HH members with other policies can be deferred

to those policies if the deferral is proper (see General Information section of the application)

• Anyone who customarily operates the vehicle (whether they live in the household or not)– Gray area with regard to what constitutes “customary

operation” 46

Driver Information• What affects the premium?

– SDIP– Driver Class

• Prime Factors affecting Class–Experience (less than 3 years or greater than 6 years)–Age –Driver Education (inexperienced operators only)–Business Use

– Date First Licensed – Obtain copy of valid license– Driver Training - Driver Training Certificate if 0-3

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Driver Information

• Percentage of Use– Principal v. Occasional

– Measured relative to use of other operators

– Effect on rates--inexperienced principal operator charged more than experienced principal operator

– It does matter who owns the vehicle

• Massachusetts Residents– If anyone who operates the vehicle is a MA resident

who does not have a MA license, a policy should not be issued

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Driver InformationFailure to List• Actionable if there is an increased risk of loss

– Unlisted operator is a higher SDIP Rating than other listed operators and/or

– Rating class would result in higher premium charged if listed

• Not actionable if no increased risk of loss• SDIP Rating on same level or lower than other

operator(s) and rating class would not result in higher premium or

• Operator could have been properly deferred to another Massachusetts policy

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Driver InformationAn insurer can refuse to write physical damage coverages when

the vehicle is:

1. customarily driven by or owned by persons who have within the last five years been convicted of vehicular homicide, auto insurance related fraud, or auto theft.

2. customarily driven or owned by persons who have within the last three years, been convicted of any category of driving under the influence of alcohol or drugs.

3. customarily driven by or owned by persons who, within three years preceding the effective date of the policy, have been involved in four or more at-fault auto accidents. An at-fault auto accident is one in which the owner or any person who customarily drives the auto was more than 50% at fault.

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From the 2008 Edition of the MA Auto Policy

Driver InformationAn insurer can refuse to write physical damage coverages when the

vehicle is:4. designated as a "high-theft vehicle" which does not have at least

a minimum anti-theft or auto recovery device as prescribed by the Commissioner of Insurance. (Refer to Rule 23.)

5. customarily driven by or owned by persons who have two or more total auto theft or fire insurance claims within the three years immediately preceding the effective date of the policy.

6. customarily driven by or owned by persons who have within the last five years made an intentional and material misrepresentation in making claim under Collision or Comprehensive coverage.

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Foreign Licenses• Persons with foreign licenses from countries that were parties to

the "Roads Conventions" may legally drive for one year from the date of arrival in the U.S. A policy should not be issued if the person cannot provide proof that the license is valid. Acceptable proof is a stamp on a passport or visa or other proof that the person has left the U.S. and returned.

• Agent must verify eligibility utilizing RMV screens

• Required: Clear photocopies of the actual foreign license

• International licenses are not acceptable unless they are issued by the government agency that normally issues such licenses in the person's country of residence (a small number of countries do issue an international version of their licenses). International driving permits are not acceptable.

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MA RMVPlease note:

An International Driving Permit cannot be converted to a Massachusetts Driver's License. An International Driving Permit does not confer any driving privileges but is a translation into ten major languages of the relevant information contained on the driver's home country license. An International Driving Permit must be issued by the person’s country of residence.

Caution: The Registrar and law enforcement agencies know that individuals or organizations have sold fraudulent documents as "International Driver Licenses" or International Driving Permits." The Registrar does not recognize as valid any Document purporting to be an "International Driver License" or any other document that confers driving privileges unless issued by the government agency that issues such licenses in the driver's country of residence and the driver is validly licensed. A person operating a motor vehicle with a fraudulent Massachusetts license is subject to arrest pursuant to MGL c. 90, §10.

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Verifying Licenses

Verifying Out of State and Foreign Licenses:

• The Drivers License Guide Company issues ID checking guides for all U.S. states and most foreign countries (http://www.driverslicenseguide.com/).

• The company publishes, among other guides, two guides (U.S. and Foreign) that contain pictures and descriptions of valid licenses.

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Red Flags for Licenses

• Applicant cannot provide a driver’s license or other identification or has a temporary, recently issued, out-of-state or driver’s license from another country.

• Signature on license does not match signature on application.

• License appears tampered with or altered.

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General Information• Do you presently owe any motor vehicle premium, payable in the

last twelve months?• Has any automobile insurance policy been canceled or

non-renewed for any reason?– An insurer can refuse to write a policy if the applicant or any

person who usually drives the vehicle has failed to pay an insurance company any motor vehicle insurance premiums due or contracted during the preceding 12 months. M.G.L. CH. 175 sect. 113H

– If the applicant has been in default in the payment of any premium for automobile insurance or merit rating surcharge during the preceding 24 months, the entire policy premium charges are payable in advance.

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General Information• Are any listed operators included on another

policy or do they have their own Massachusetts personal automobile policy?– If so and a premium is being paid on that policy for

the operator, that operator can be deferred on this policy

– Deferral must be proper to a valid, active MA Policy

• Is any auto used to commute to work or school?– Good opportunity to inquire as to location of work

or school if applicant is claiming low mileage discount

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General Information• Is any auto used to transport:

– Fellow employees, passengers, or students for a fee?

– Persons employed by you?

• Is any auto used in Business?– If van/pick-up, is it used to deliver/transport goods?

– Is gross vehicle weight 10,000 pounds or more and not assigned an ISO rating symbol?

• Both affect whether a personal lines policy should be issued.

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Red Flags for General Info.

• Full coverage is requested for an older vehicle.

• No prior insurance coverage is reported although applicant’s age would suggest the probable prior ownership of a vehicle.

• Unsolicited business.

• Application is processed at noon, end of day or business cycle or at other times when agent and staff may be rushed.

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Premium Fraud WorkshopCase examples of premium/application fraud using the Massachusetts application are included in your handout. Agents will work in a group setting to illustrate your understanding of the above information.

– CASE STUDY 1 – Diana Long

– CASE STUDY 2 – Todd Richards

– CASE STUDY 3 – Raymond Smith

– CASE STUDY 4 – Louidon Miller61

Case #1

Diana Long

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And the Answer Is…

Case #1 - Diana Long• Operator involved in loss not listed on policy

• Operator involved in loss has same residential

address

• Operator involved in loss – relation to insured –

husband with worse driving record than insured

END RESULT

• Denial of Optional Coverage in claim and/or Policy cancellation for failure to list an operator

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Case #2

Todd Richards

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Case #2 – Todd Richards

• No date first licensed on application

• State of New Hampshire violations on MA RMV history

• Choicepoint history of licensure and violations in NH

END RESULT

• Policy Cancellation for material misrepresentation of garaging and violations listed on the application

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Case #3

Raymond Smith

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Case #3 – Raymond Smith• Residence town different than mailing town.

Territory is higher for mailing town

• Operators 1 and 2 same first name, same DOB, same SDIP step

END RESULT

• This policy had a claim and the investigation proved that Raymond Smith and Raymond Jones were one and the same person.

• Denial of Optional Coverage in claim and/or

• Cancellation of Policy. 79

Case #4

Louidon Miller

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Case #4 – Louidon Miller• Change to mailing address . Territory is higher for

mailing town.• Change to mailing address completed within 2 weeks of

effective date of policy• Change to mailing address completed on same day as

loss reported, two days after date of accident.• Loss in same town as new mailing address• Insured vehicle located in same town as newly listed

mailing address.

END RESULT• Denial of optional coverage in claim and/or

cancellation of policy.86

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http://www.mass.gov/rmv/ums/userman/20847.pdf

Get a copy onto the office server for reference.

Summary – Premium Fraud• Premium Fraud results in lost premium dollars,

higher rates, and claim denials.

• The agent taking the application has the best opportunity to recognize and prevent premium fraud before a loss occurs.

The best defense: AWARENESS

• Fraud (Stealing) is not just a “Claims” problem; it is a problem the WHOLE Industry must fight … Agents, Underwriters, and Claims

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Claims Reporting GuidelinesNote: Agencies should follow the instructions of their insurance carriers regarding the reporting of claims as many companies prefer the direct reporting of claims by policyholders. If the claim is reported to your agency the following guidelines will ensure that information important to the investigation of the loss is provided to your carrier.

Notify the carrier as soon as a claim is reported. Do not delay reporting while waiting for further information. The goal is to have all new losses reported within 24 hours.

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Accident ReportsIt is strongly recommended that you obtain the following information when reporting losses:

– Home, work, and cell phone numbers of the insured– E-mail address, if available– The location at which the car can be seen. Please

include street address and telephone number if the car is located at a shop or tow yard.

– A detailed description of the loss– Names, addresses, telephone numbers (day and

night), dates of birth, and social security numbers of injured parties or other operators involved in the loss

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Accident Reports– Ensure that operators will be available for statements when

required

– Ensure that the accident locus is specifically pinpointed in the loss report

– Ask the insured for the identity and contact information of all occupants and their placement within the vehicle at the time of loss (i.e. front passenger, backseat passenger left side)

– Location of the damage on the insured vehicle and whether any estimates were obtained

– Determine whether the police were at the scene and obtain specifics from the insured (i.e. officer name and badge #, police department and precinct)

– Ask the insured if there were any witnesses to the accident and obtain the contact information if available 91

Claim Red FlagsPolicy Coverage

• Loss on a new policy that was recently issued.

• Coverage minimal and exclude collision coverage.

• The coverage was changed just prior to reporting this claim.

• Policy in cancellation status.

• The insured has no record of prior insurance coverage yet the vehicle was purchased long before buying insurance on it.

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Insured/Operator/Person Reporting

• Insured lives in or near another state.

• The address given is different than the address you have on file.

• Phone number given has different area code & is not the same phone number given at the time of the application for insurance.

• The insured uses a P.O. Box or suite # to receive mail.

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Insured/Operator/Person Reporting• The operator is different than the insured.

• The person reporting this claim is not your insured and seems unsure about the facts.

• The insured seems to have a lot of knowledge about the claims process.

• The insured has no home or business phone where he can be reached.

• The insured is excessively eager or overly pushy about resolving the claim.

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Accident Facts• The accident occurred in a different state.

• There are multiple passengers

• One of the vehicles is a phantom (unknown) vehicle.• This a clear cut liability type of accident where the

insured assumes liability.• This address is seen frequently by the agency due to

claims volume.

• Accident happened late at night with no witnesses and

no police response.

• The description of the accident does not support the

injuries being reported.95

Vehicle• There are a lot of high value extras on this

inexpensive car.• There is no lienholder on the vehicle.• Alleging numerous repairs prior to theft• Insured wants to retain total loss.• No lienholder on new model.• Accident reported by Attorney.

If you see several of these fraud indicators while taking a claim, please pass that information on as you report the claim to the insurance company.

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ConclusionSteps for handling applications and loss reporting where you have

recognized fraud indicators

• While taking first reports within an agency setting it is important to apply the skills you have learned here to contribute toward the industry goal of recognizing fraudulent activity so that it may be properly investigated.

• The applications and first reports you complete carry an additional responsibility on the part of the agency representative.

• In these instances, the agency customer service representative holds the important role of speaking directly with at least one party involved in this loss. It is possible that the insurer will not have the opportunity to hear the information repeated exactly as it is stated to you.

• The accuracy and detail of the information you gather can have a bearing on the actions taken by the insurer. It may also contribute to the direction of any investigation.

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Fraud Prevent – A Partnership

Our Joint Mission...

• Control losses through the detection and successful investigation of Fraudulent applications and claims.

• “It’s the right thing to do.”

• The insurance community are the first line of defense when it comes to battling insurance fraud.

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How You Can Make a Difference• Make fraud awareness a business principle.

• Understand the impact of fraud.

• Be cognizant of what appears abnormal.

• Be familiar with known fraud indicators.

• Educate & encourage customers to make appropriate decisions.

• Call your company SIU (Special Investigations Unit)! We can discuss any concerns you may have.

• Call the Fraud Bureau (800) 32-Fraud100

Fraud Bureau

Insurance Fraud Bureau of Massachusetts101 Arch StreetBoston, MA 02110-1131

Phone: (617) 439-0439Fax: (617) 439-0404

Email: [email protected]

Newsletter: Focus Fraud – get on their mailing list

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Your Partners in Fighting FraudInsurance CompaniesAll Servicing Carriers writing MA automobile insurance are required by statute to have a Special Investigative Unit to investigate suspicious or questionable motor vehicle insurance claims for the purpose of eliminating fraud.

Commonwealth Automobile ReinsurersCAR’s Rules of Operation outline specific requirements for Producers in the handling of residual market business. The CAR Special Investigative Unit is charged with monitoring the efforts of the Servicing Carriers to control fraud.

Governor's Auto Theft Strike ForceThe Governor's Auto Theft Strike Force operates a confidential, toll free auto theft tip line, 1-800-HOT-AUTO (1-800-468-2886), that provides cash rewards of up to $10,000 for information that leads to the arrest of a car thief or the location of a chop shop. 102

Your Partners in Fighting FraudMA Insurance Fraud Bureau

The Insurance Fraud Bureau of Massachusetts is a unique and multifaceted Investigative agency dedicated to the systematic elimination of fraudulent insurance transactions. Authorized by an Act of the Massachusetts Legislature and signed into law in 1990, the Insurance Fraud Bureau undertakes cases for investigation and preparation for criminal prosecution. The IFB has established Community Insurance Fraud Initiative programs (CIFI) in Boston, Brockton, Chelsea, Lawrence/Methuen, Lowell, Lynn, New Bedford/Fall River, Revere, Springfield/Holyoke, and Worcester (as of 8/9/07).

MA Association of Insurance Agents

Your Agent’s Association provides education and support to the Massachusetts agency community.

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Best Practice Application Taking Guide

• This guide was prepared by Premier Insurance Company incorporating feedback from their agents following training sessions on premium and application fraud. Premier has generously agreed to allow CAR and MAIA to provide this resource to Agents.

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Best Practice Application Taking GuideHelpful Tips When Taking Applications

Things to do prior to the meeting…• Schedule appointments to meet face to face to take the Application so

you can have some uninterrupted time with the Applicant. • Run RMV records prior to the meeting for driving, license and insurance

history and to determine if applicant owes prior earned premium.• Determine how many vehicles of which the applicant is the principal

operator.• Request that they bring their license, copies of prior declarations pages,

copies of declarations pages of any policy that an operator is listed on, copies of alarm certificates, copies of driver training certificates, copy of commuter passes, registration.

• Check to see if anyone in household was newly licensed.

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Things to scrutinize carefully…• Walk-in business

• Applicants who do not live or work close to the agency

• Applicants with international driver’s licenses/driving history

• Applicants with out of state driving history

• Applicants who do not garage vehicle at principal residence

• Applicants whose mailing address is different from place of garaging

• Applicants who do not work or live near garaging location.

• Applicants who work out of state.

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Things to do at the meeting…Interview Techniques• Develop a rapport with the applicant – use small talk to your advantage.• Ask open ended questions.• Ask questions specific to issues that need to be addressed.• Rephrase their answers back to them.• Rephrase questions if you do not get a response the first time. • Practice active listening• Use silence to your advantage. Do not answer questions for them.• Notice who drove to and from the agency. • Look at the vehicle – especially if it is a truck. Any writing on side?

Also, note any existing vehicle damage or broken or cracked glass.• Note who accompanies applicant? Who does most of the talking?• Pay attention to phone numbers provided – do they match addresses?

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Things to do at the meeting…Educate Applicant as to the Consequences of Premium Fraud• Read with the applicant the language at the bottom of the first

page of the application regarding the consequences of failing to list an operator and of providing false, deceptive, misleading or incomplete information.

• Advise of the criminal implications of Insurance Fraud.• Show quotes to applicants and explain that difference in premium

may be small compared to their loss if a claim is denied.• Have applicant sign quotes.• Explain the Excluded Operator’s form and the consequences if an

excluded operator drives the vehicle.

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Things to do at the meeting…Complete the Application• Have applicant complete the second page of the application. • Have applicant initial the list of operators and garaging location.• Ask detailed questions regarding vehicle use if annual mileage

discount is claimed and have applicant complete the Annual Mileage form and explain that they will be required to complete it each year prior to getting the discount.

• Utilize the remarks section. • Obtain signatures on ALL applications and policy change requests. • Have the applicant sign in your presence and be sure the time and

date of signature are entered. • Be certain you sign and date the application.

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Things to do at the meeting…

Protect Yourself

• If applicant takes minimal limits, have them sign an acknowledgment that it was their own decision to do so – or have them sign a “rejection of higher limits” form (noting agency recommended higher limits).

• If applicant requests high limits on one vehicle and minimum limits on another, question why?

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Things to do at the meeting…

Discuss Renewal and Changes in Circumstances

• Explain the Statement of Facts.

• Encourage applicant to let you know immediately of any changes to the information provided.

• Advise applicant to review Coverage Selection Page at renewal and inform you of any inaccurate information.

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Things to do after the meeting…• Advise Underwriting of any suspected fraud

issues.

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Fraud in Massachusetts

• USA PATRIOT ACT

• Fraud is a felony in Massachusetts -MGL c. 266, § 111B

• Garaging Violations is a Crime in Massachusetts –M.G.L c 90 §3.5 (c)

• Perjury: Statement Alleging Motor Vehicle Theft - MGL c 268 §39

• Theft: Removal or Concealment to Defraud Insurer - MGL c 266 § 27A

• Falsification of License or Registration - MGL c 90 § 24B

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The Law and the ConsequencesVarious State and Federal laws pertain to insurance fraud. References to these laws are contained in Addendum A.

Addendum A

MA and Federal Laws Regarding Insurance Fraud

Addendum AMA and Federal Laws Regarding Insurance Fraud

USA PATRIOT ACT

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), signed into law on 10/26/2001, imposes strict requirements on the financial services industry, including the insurance industry and our other insurance and broker-dealer affiliates to detect and prevent possible instances of money laundering and, when appropriate, to report suspicious activity to the regulatory authorities. 115


USA PATRIOT ACT (continued…)

Representatives and agency staff are on the front-line of the battle against money laundering. In connection with the USA Patriot Act, representatives must comply with the customer verification requirements. In addition to the standard background information captured in conjunction with suitability documentation, representatives must verify the identify of their clients by reviewing and recording information contained on a government issued photo ID (i.e., US driver’s license, passport, etc.) on the applicable Statement of Client Information.

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USA PATRIOT ACT (continued…)

Procedures are the first line of defense against illegal activities including money laundering. “Knowing Your Customer” information is collected at the point of sale. The Insurance Companies you represent will give you further information regarding their compliance program with the PATRIOT Act.

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Fraud is a Felony in MassachusettsMGL c. 266, § 111B

“Whoever, in connection with or in support of any application for or claim under any motor vehicle, theft or comprehensive insurance policy issued by an insurer, and with intent to injure, defraud or deceive such insurer knowingly presents to it, or aids or abets in or procures the presentation to it of, any notice, statement, or proof of loss, whether or not the same is under oath or is required or authorized by law or the terms of such policy, knowing that such notice, statement or proof of loss contains any false or fraudulent statement or representation of any fact or thing material to such application or claim, shall be punished by imprisonment in the state prison for not more than 5 years or by imprisonment in the house of correction for not less than 6 months nor more than 2 ½ years or by a fine not less than $1,000 nor more than $10,000, or by both such fine and imprisonment.”

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Garaging Violations a Crime in Massachusetts

M.G.L c 90 §3.5 ©

Any person who improperly registers a motor vehicle or trailer in another state or misrepresents the place of garaging of the motor vehicle or trailer within the Commonwealth, for purposes of evading the payment of motor vehicle excise, sales and use taxes or insurance premiums, or to reduce the amount of such payment, shall be punishable by a fine of not less than $200 nor more than $1,000 for each offense.

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Perjury: Statement Alleging Motor Vehicle TheftMGL c 268 §39

Whoever knowingly makes a false written statement on a form bearing notice that false statements made therein are punishable under the penalty of perjury, to a police officer, police department or the registry of motor vehicles alleging the theft or conversion of a motor vehicle, shall be punished by imprisonment for a first offense not less than five months, nor more than two years, or a fine not less than two hundred and fifty dollars and not more than two thousand five hundred dollars, or both. A person found guilty of violating this section for a second or subsequent offense shall be punished by imprisonment not less than one, nor more than five years, or a fine of not less than five hundred dollars and not more than five thousand dollars, or both.

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Theft: Removal or Concealment to Defraud InsurerMGL c 266 § 27A

Whoever, with intent to defraud the insurer, removes or conceals a motor vehicle or trailer belonging to himself or another which is at the time insured against theft, or whoever, with intent as aforesaid, aids or abets in such removal or concealment, shall be punished by imprisonment in the state prison for not more than five years or by imprisonment in jail or house of correction for not less than one year nor more than two and one-half years, and a fine of not less than five hundred or more than five thousand dollars.

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Falsification of License or RegistrationMGL c 90 § 24B

Whoever falsely makes, steals, alters, forges or counterfeits or procures or assists another to falsely make, steal, alter, forge or counterfeit a learner’s permit, a license to operate motor vehicles, an identification card issued under section eight E, a certificate of registration of a motor vehicle or trailer, or an inspection sticker, or whoever forges or without authority uses the signature, facsimile of the signature, or validating signature stamp of the registrar or deputy registrar upon a genuine, stolen or falsely made, altered, forged or counterfeited learner's permit, license to operate motor vehicles, certificate of registration of a motor vehicle or trailer or inspection sticker,

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Falsification of License or Registration (continued…)MGL c 90 § 24B

Or whoever has in his possession, or utters, publishes as true or in any way makes use of a falsely made, stolen, altered, forged or counterfeited learner’s permit, license to operate motor vehicles, an identification card issued under section eight E, certificate of registration of a motor vehicle or trailer or inspection sticker,

And whoever has in his possession, or utters, publishes as true, or in any way makes use of a falsely made, stolen, altered, forged or counterfeited learner’s permit, license to operate motor vehicles, certificate of registration of a motor vehicle or trailer inspection sticker,

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Falsification of License or Registration (continued…)MGL c 90 § 24B

And whoever has in his possession , or utters, publishes as true, or in any way makes use of a falsely made, stolen, altered, forged or counterfeited signature, facsimile of the signature or validating signature stamp of the registrar or deputy registrar, shall be punished by a fine of not more than five hundred dollars or imprisonment in the state prison for not more than five years or in jail or house of correction for not more than two years.

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Anti-Runner LawMGL c 464 f the Acts of 2004SECTION 7. Chapter 266 of General Laws is hereby amended by inserting after section 111B the following section: -

Section 111C. (a) as used in this section, the following words shall have the following meanings: -

“Runner”, a person who, for a pecuniary benefit, procures or attempts to procure a client, patient or customer at the direction of, request of, or in cooperation with a provider whose purpose is to seek to fraudulently obtain benefits under a contract for insurance or fraudulently assert a claim against an insured or an insurance carrier for providing services to the client, patient or customer. “Runner” shall not include a person who procures or attempts to procure clients, patients or customers to a provider as otherwise authorized by law.

(b) Whoever knowingly acts as a runner or uses, solicits, directs, hires or employs another to act as a runner for the purpose of defrauding an insured or an insurance carrier shall be punished by imprisonment in the state prison for not more than 5 years, by imprisonment in a jail or house of correction for not less than 6 months nor more than 2 ½ years or by a fine of not less than $1,000 nor more than $4,000.

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MGL Chapter 175: § 186. Misrepresentations by insured; effect.

“No oral or written misrepresentation or warranty made in the negotiation of a policy of insurance by the insured or in his behalf shall be deemed material or defeat or avoid the policy or prevent its attaching unless such misrepresentation or warranty is made with actual intent to deceive, or unless the matter misrepresented or made a warranty increased the risk of loss.”

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AIB Rule 28 Private Passenger Classifications

EXPERIENCED OPERATORS-NON BUSINESS USE

Effective January 1, 2004, if any named insured or operator new to Massachusetts has a driver’s license issued outside the United States, the named insured or operator must provide evidence of licensure from the country where the named insured or operator was licensed. The evidence of licensure must specify the date first licensed of the years of driving experience. If necessary, a certified English translation may be required.

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The most frequent types of automobile insurance fraud include:

• Staged auto accidents with faked reports of injuries

• Jump-in passengers who are added to the claim and/or accident report but were not in the vehicle at the time of the accident

• Exaggerated injury claims with prolonged treatment

• False reports of auto theft

• Vehicle damage enhanced after the accident

• Vehicle damage claims for pre-existing damage

• Vehicle is garaged in another town than listed on the policy

• Reports of falsified claims that occurred before the policy period began

• False report of a hit-while-parked accident

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The most frequent types of workers' compensation claimant insurance fraud include:

• Staged accident at work with a falsified report of injuries

• Working while collecting workers' compensation benefits

• Exaggerated injury claims with prolonged treatment

• Report of a pre-existing or non-work related injury

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The most frequent types of workers' compensation premium evasion fraud include:

• Company misclassifies employees on payroll (such as classifying roofers as office workers)

• Company understates its payroll to reduce workers' compensation premium payments

• Company claims employees are independent contractors

• Company fails to carry workers' compensation insurance

• Company re-incorporates to avoid accurate modification classification

• Company pays for medicals directly to hide a potential claim 130

The most frequent types of property fraud include:

• False report of theft of property in a home or vehicle

• Exaggerating the value of stolen items or submitting falsified receipts for items reported

• Intentionally damaging property

• Inflating the estimate or bill to coverage the policy deductible

• Concealing that the residence is used as a rental

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The most frequent types of provider fraud include:

• Medical provider (such as medical doctor, chiropractor or physical therapist) bills for services or procedures not rendered

• Medical provider performs unnecessary services or charges for more expensive services than actually provided

• Employing a "runner" to bring in motor vehicle accident victims for treatment

• A employee of a licensed medical provider performs services and charges under medical provider's name and license (false credentials)

• Money laundering/tax evasion schemes

• Recruitment and training of "runners" by legal service providers

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The most frequent types of insider fraud include:

• Agents issuing authorized or unauthorized coverages with premium billed and retained by agent

• Insurance company personnel creating fictitious claims in order to issue checks to themselves or others in complicity with them

• Kickbacks with body and glass shops

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Provider FraudCase Update – Former Boston Man Indicted for OperatingFraudulent Physical Therapy ClinicsBoston - Tu Quy Mai was sentenced on October 15, 2009 to 121 months inprison to be followed by three years of supervised release. Mai, formerly ofBoston, pleaded guilty in December 2008 to a 54-count indictment charginghim with engaging in a scheme to defraud insurance companies by means ofstaged auto accidents and false and fraudulent medical and physical therapybilling claims which occurred from 2000 through 2006. At his sentencing,Mai was also ordered to pay $3,758,588 in restitution and a $5,400 specialassessment. Mai established and operated clinics in various locations inMassachusetts, including Worcester, Quincy, Brockton, West Roxbury andat least five different locations in Dorchester. In addition to paying peopleto stage auto accidents, Mai paid others to pretend to have been in auto accidents,whether real or staged, in order to seek treatment at Mai’s clinics, forwhich he submitted claims to insurance companies. Mai also routinelycaused physical therapists and physical therapist assistants who worked forhim to prepare false records, including evaluation reports and notes of allegedtreatments, when no actual evaluation or treatment had been performed.In order to avoid detection by insurance companies, Mai routinelychanged the name of his clinics and billing companies and caused others tohold themselves out as the owners. Insurance companies paid more than $4million in claims submitted by Mai’s clinics and billing companies. The casewas investigated by the U.S. Postal Inspection Service, the IFB and the NationalInsurance Crime Bureau. It was prosecuted by Assistant U.S. AttorneysMark Balthazard of U.S. Attorney Carmen Ortiz’s Economic CrimesUnit and Gregg Shapiro of the U.S. Attorney ’s Civil Division.

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Case Update—Former Charleston Insurance Agent Falsely Pockets Half Million Dollars in PremiumsCharlestown –Anthony Marino pleaded guilty to eight counts of larceny on December 9, 2009 in MiddlesexSuperior Court. On January 8, 2010 he was sentenced to two years in the House of Correction with five years of probation. He was also ordered to pay a total of $456,994 in restitution. Marino, while employed by Amity Insurance Agency as a licensed Massachusetts insurance agent, defrauded numerous victims by issuing false certificatesof insurance and falsely billing customers for non-existent policies. Marino sold umbrella and excess insurance policies to fourteen owners and property managers for residential housing units who were existing customers of the Amity Insurance Agency. Amity collected more than $547,000 in premiums from the customers. However, unbeknownst to Amity, Marino had secured a mail box under the name Delaware Valley UnderwritingAgency (DVUA) and utilized DVUA to pocket premiums for non-existent policies by causing DVUA to invoice Amity for the premium alleged to be owed. Amity then paid DVUA. Money paid to DVUA went into a bank account which had been opened by and for Marino doing business as DVUA. Marino created fictitious certificates of insurance and pocketed premiums totaling approximately one half million dollars. Assistant District Attorney Elisha Willis of Middlesex District Attorney Gerry Leone’s Office prosecuted the case.

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Automobile Insurance FraudRhode Island Man Alleges Injuries in Providence, RI AccidentRiverside, RI – A Riverside, Rhode Island father and son were arraigned on November 6, 2009 in Dudley District Court on insurance fraud charges. The father was charged with one count each motor vehicle insurance fraud, attempt to commit a crime and conspiracy. The son was charged with conspiracy. The father reported that he was the alleged driver of a vehicle that was involved in a three-car motor vehicle accident on November 15, 2004 which occurred in Providence, RI. Another vehicle operated by a Massachusetts resident and insured by Commerce Insurance Company under a Massachusetts policy, hit the vehicle allegedly operated by the father. The father did not report injuries at the time of the accident, however he subsequently treated for alleged injuries sustained in the accident. His attorney later made a $20,000 demand to Commerce Insurance Company on behalf of his client. During a deposition, Commerce’s insured described the operator of the vehicle he hit asa young male in his early 20s. The son, not the father, was allegedly the driver of the vehicle at the time of the November 2004 accident. The case is being prosecuted by Assistant Attorney General Audrey Cosgrove of Attorney General Martha Coakley’s Insurance and Unemployment Fraud Division.

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Case Update – It’s All in the Story TellingMedford – On October 26, 2009 in Dudley District Court, a Medford woman admitted to sufficient facts on charges of motor vehicle insurance fraud, conspiracy and larceny. The charges were continued without a finding for six months. She was ordered to pay $5,075 restitution. An Arlington man reported that his truck was struck from behind by a Kia Sedona on January 20, 2008. The Kia left the scene of the accident before he could exchange papers with the operator. However, the Arlington man followed the Kia and reported the licenseplate to police and filed an accident report regarding the incident. On February 9, 2008, the Medford woman filed an accident report and a claim with Commerce Insurance Company regarding an incident that purportedly took place on January 28, 2008 in which she reported a vehicle backed into her Kia. Arlington police determined that the Kia owned by the woman was involved in both losses and referred the case to the IFB. The case was prosecuted by Assistant Attorney General Marina Moriarty of the AG’s Insurance and Unemployment FraudDivision.

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Case Update—Three Subjects Arraigned on Motor Vehicle Insurance Fraud ChargesWorcester - In January 2010, insurance fraud charges against three individuals were continued without a finding for two years. A Randolph woman was ordered to pay $1,080 restitution and to perform 50 hours of community service. Her son was ordered to pay $6,000 restitution and to perform 100 hours of community service. A third subject, a Braintree man, was ordered to pay $13,550 restitution and to perform 100 hours of community service. The Randolph woman reported that her son was driving her 2001 BMW on September 29, 2004 in Worcesterwhen a 1999 Volkswagen, driven by the Braintree man, collided with the BMW. The son stated to an Encompass Insurance Company adjuster that he was the only driver of the BMW and that the vehicle was garaged in Dorchester. The insurance policy listed the BMW as garaged in Randolph with the mother as the primary driver. As a result of the garaging change, the insured avoided over $1,000 in premium per year. In addition to the garaging issue related to the claim, an accident reconstruction determined that there was no contact made betweenthe BMW and Volkswagen to cause the heavy damage to each vehicle. Furthermore, the damage reported to the BMW was not related to an accident but was deliberately caused by a blunt object. Despite heavy damage to both vehicles, no police or ambulance were called to the accident scene. Commerce Insurance Company insured the Volkswagen. The case was prosecuted by Assistant Attorney General Jeremy Eisemann of the AG’s Insurance and Unemployment Fraud Division.

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