insurance fraud: are policyholders the only victims?
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Insurance Fraud: Are Policyholders the Only Victims?. Conference of State Governments, Eastern Region Annual Meeting Atlantic City, NJ July 21, 2012. Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist - PowerPoint PPT PresentationTRANSCRIPT
Insurance Fraud:Are Policyholdersthe Only Victims?
Conference of State Governments, Eastern RegionAnnual MeetingAtlantic City, NJ
July 21, 2012
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038Office: 212.346.5540 Cell: 917.494.5945 [email protected] www.iii.org
2
Beyond the Ones We Catch, From an Economic Viewpoint,
What is the Scope of the Fraud Problem?
3
Estimate of Annual Fraud, Assuming10% of P/C Claim Expense, 2000-2011
$30.2
$34.3
$30.9 $31.3
$34.8
$27.2$28.0
$28.7$30.1
$31.2
$28.7
$20
$25
$30
$35
$40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The cumulative total of assumed fraud over this 11-year period is $335.4 billion; the average yearly amount was $30.5 billion.
Source: Insurance Information Institute calculations and research from ISO/PCI Fast Track data.
$ Billions
4
Average No-Fault (PIP) Claim Severity, 2012*
$17,998
$9,804$8,259
$5,260$4,185
$3,095$1,981 $1,961
$38,693
$7,560$5,530 $5,304
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
MI NJ FL NY MN ND HI KY PA KS MA UT
MI, NJ, FL, NY, and MN appear to have severe and growing problemswith rampant fraud and abuse in their No-Fault Systems.
*Average of the four quarters ending 2012:Q1.Source: ISO/PCI Fast Track data; Insurance Information Institute.
The variation in no-fault claim severity is extraordinary.
MI is five times higher than MN.NJ is four times higher than PA.NY is four times higher than MA.
5
Increase in No-Fault Claim Severity: Selected States, 2004-2012*
*2012 claim severity figures are for the 4 quarters ending 2012:Q1. Sources: Insurance Information Institute research from ISO/PCI Fast Track data.
$38,693
$17,998
$9,804$7,560 $8,259
$5,871$5,198$6,674
$12,136
$24,385
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
Michigan New Jersey Florida Minnesota New York
2004 2012*
The no-fault systems in MI, NJ, NY, FL, and MN are under stress due to fraud and abuse, which leads to higher premiums for honest drivers.
+58.7%
+48.3%
+40.7%+46.9% +45.4%
In this time span, the price of medical care for the nation
as a whole rose 30%
We Focus on Medical Costs in PIP Because They Dominate PIP Claims*
Type of Loss:
82% 87% 87%
15% 11% 10%3%2%3%
0%
20%
40%
60%
80%
100%
1997 2002 2007
Medical Wage loss Other
*data for MinnesotaSource: IRC
7
NJ No-Fault (PIP) Average Claim Severity Has Trended Up Sharply Upward, 2000-2011
$1
3,2
90
$1
4,6
53
$1
6,0
75
$1
7,2
61
$1
6,4
68
$1
7,7
66
$9
,02
4
$9
,91
1
$1
0,1
06
$9
,96
6
$1
2,0
68
$1
2,4
55
$7,500
$10,000
$12,500
$15,000
$17,500
$20,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The average amount of a PIP claim in New Jerseynearly doubled from 2000 t0 2011
No-Fault claim severity (average cost per claim) rose 7.9% in 2011
Source: Insurance Information Institute calculations and research from ISO/PCI Fast Track data.
8
NJ No-Fault (PIP) Claim Frequency Fell but Since 2007 Leveled Off, 2000-2011
1.34
1.201.15 1.17
1.25
1.17
1.801.74 1.75
1.65
1.50
1.33
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Rising PIP claim costs in NJ are no longer being offsetby declining claim frequencies
Source: Insurance Information Institute calculations and research from ISO/PCI Fast Track data.
315
340
365
390
415
440
465
490
515
540
04
:40
5:1
05
:20
5:3
05
:40
6:1
06
:20
6:3
06
:40
7:1
07
:20
7:3
07
:40
8:1
08
:20
8:3
08
:40
9:1
09
:20
9:3
09
:41
0:1
10
:21
0:3
10
:41
1:1
11
:21
1:3
11
:41
2:1
$5,600
$6,600
$7,600
$8,600
$9,600
Medical care index NY
Why Did NY PIP (Auto No-Fault) Claim Severity Growth Outpace NY Medical Care Cost Growth? Fraud Growth
Sources: Insurance Information Institute calculations based on ISO/PCI Fast Track Data
Medical Care Cost Index
Medical Care Cost Index
Average NY PIP Claim Severity
Fra
ud
Ga
p?
NY PIP Avg. Claim Severity
Big PIP Fraud case cracked
Percentage of PIP Claimants Who Have Chiropractic Treatment
15%17%
19%21%
22%23%23%
25%26%
30%31%
33%34%
36%
43%47%
42%
MichiganHawaii
DelawareSouth Carolina
KentuckyKansas
MarylandUtah
PennsylvaniaOregon
MassachusettsNew York
TexasNew JerseyMinnesota
FloridaWashington
Note: data are from states with at least 100 PIP claims in the IRC sample.Source: IRC study
It likely isn’t just a coincidence that the states with fastest
growing PIP claims are the ones with the highest
percentage of chiropractic treatments
Average Number of Visits per MinnesotaPIP Claimant Receiving Treatment
4
35
6
15
3
33
3
13
2
32
4
12
GeneralPractitioner
Chiropractor Orthopedist PhysicalTherapist
1997 2002 2007
Source: IRC
Average Total Charges by Provider Type, Minnesota PIP Claims
$572
$3,125
$1,921
$1,655
$771
$3,797
$1,830
$1,785
$529
$2,558
$2,341
$4,550
Generalpractitioner
Chiropractor
Orthopedist
PhysicalTherapist
1997 2002 2007
} 20%
Source: IRC
Distribution of Total Provider Charges byType of Provider, Minnesota PIP Claims, 2007
12%
11%
8%
6%5%
58%
Chiropractor
Other
Physical Therapist
General Practitioner
ER Physician
Orthopedist
60%
12% 12%9%
58%
13% 16%12%
56%
X-ray MRI CT
1997 2002 2007
+33%
Percentage of Minnesota PIP Claimants With Each Type of Diagnostic Procedure
Average Charge per Diagnostic Procedure, Minnesota PIP Claimants
$589
$1,191
$144
$1,117
$1,432
$239
$1,193
$1,812
$245
CT
MRI
X-ray 1997
2002
2007
} +27%
Distribution of Total Diagnostic Charges by Type of Procedure, Minnesota PIP Claims in 2007
7%22%
26%
45%
Other
CT
MRI
X-ray
17
Commercial Lines, such as Workers Comp,
are also affected
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
CPI-Medical % change WC Med Cost per lost-time claim
Workers Comp Medical Severity Growth vs.Medical Care Cost Growth? Fraud Growth?
Sources: BLS, NCCI
Fra
ud
Ga
p?
19
Legislation Can Change the Fraud Outlook…
20
New York State No-Fault AutoClaim Severity, 2001:Q1–2004:Q4
Sources: ISO/PCI Fast Track data; Insurance Information Institute.
$8,3
27
$7,8
88
$7,5
07
$8,2
34
$9,2
35
$8,7
27
$8,5
77
$7,7
73
$7,3
11
$6,9
58
$6,8
70
$6,1
56
$6,0
52
$5,8
20
$5,9
91
$5,6
15
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
1:01 1:03 2:01 2:03 3:01 3:03 4:01 4:03
No
-Fau
lt C
laim
Sev
erity
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
No
-Fau
lt Claim
Freq
uen
cy
Avg. Claim Severity
Frequency
Following Legislation in 2001, From 2002:Q1 to 2004:Q4, NY No-Fault Claim Costs Fell to Roughly Half of What They Were
21
…But The “Bad Guys”Can Change, too
22
New York State No-Fault AutoClaim Severity, 2001:Q1–2011:Q4
Sources: ISO/PCI Fast Track data; Insurance Information Institute.
$8,3
27$7
,888
$7,5
07$8
,234
$9,2
35$8
,727
$8,5
77$7
,773
$7,3
11$6
,958
$6,8
70$6
,156
$6,0
52$5
,820
$5,9
91$5
,615
$6,0
94$5
,914 $6
,250
$6,2
69 $6,5
30$6
,606 $7
,063 $7
,323
$7,3
61$7
,257 $7
,648
$7,7
08$8
,421
$8,1
73 $8,4
90$8
,015
$8,5
63$8
,726
$8,6
46$8
,830
$8,6
46 $8,9
90$8
,647
$8,4
07$7
,394
$8,2
85$8
,062
$7,9
60$8
,717
$5,000
$6,000
$7,000
$8,000
$9,000
$10,0001:
01
1:03
2:01
2:03
3:01
3:03
4:01
4:03
5:01
5:03
6:01
6:03
7:01
7:03
8:01
8:03
9:01
9:03
10:0
1
10:0
3
11:0
1
11:0
3
12:0
1
No
-Fau
lt C
laim
Sev
erity
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
No
-Fau
lt Claim
Freq
uen
cy
Avg. Claim Severity
Frequency
Average PIP Claim Costs Are Now Nearly Back to their 2002 peak.
Avg. Claim Severity
Peaked in 2002
23
Concluding Comments
Insurance Fraud Victimizes…
Policyholders, both Personal and Commercial
Customers of, and Investors in, Victimized Businesses
Investors in Insurance Companies
Taxpayers (lower insurer profits => lower tax payments)
www.iii.org
Thank you for your timeand your attention!
Download at www.iii.org/presentations
Insurance Information Institute Online:
24