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Fall 1998

Research Magazine > ARCHIVE > Fall 98 > Article

Insurance Fraud: A Victimless Crime?
By Judy Bolyard Purdy

Staged accidents, padded claims, faked medical reports.

Last year Americans shelled out between $85 billion and $120 billion on insurance fraud, said Rob Hoyt.

"It's the second leading economic crime, right behind tax evasion," said the UGA professor of risk management and insurance. "Lots of people pad their claims."

Crime does pay, or at least it did a decade ago when Hoyt began studying fraud's causes and cures. Back then, the possibility of being caught was slim, and the penalty was almost nil.

"It was not hard to see why this had become a great industry," he said.

Even for life insurance, fraudulent claim estimates run as high as $9.6 billion a year in the United States. Yet there's hardly any research on how to stop it.

When Hoyt and his former doctoral student, Lee Colquitt, now a professor at Auburn University, examined data from 349 insurance companies - representing 93 percent of the U.S. life insurance market - they found that:

  • states with large urban populations have higher rates of life insurance fraud;
  • larger companies and those that emphasize investigating and settling claims do a better job of detecting fraud;
  • companies that require medical exams and inspection fees experience less fraud; and:
  • fraudulent claims are greatest in states where people have an accepting attitude toward fraud, where unemployment is high or where the economy is not robust.

Hoyt broadcasts such findings to insurance companies and regulatory agencies in an effort to strengthen anti-fraud practices. And he's having an effect. For example, his findings are included in the International Claim Examiners' training syllabus.

But the public's attitude remains a big obstacle to halting insurance fraud.

"People see it as a victimless crime, but that's not true," Hoyt said. "Most costs are passed back through the system, and then everyone's costs go up."

Take Medicare and Medicaid, for instance. "The government is the biggest insurer of health benefits, and [we] are getting zapped with billions of dollars of costs from fraudulent claiming," he said.

Recent statistics show a slight downturn in insurance fraud. How much is due to a strong economy and how much is better anti-fraud measures is anyone's guess.

Hoyt and Colquitt are now studying the cost effectiveness of anti-fraud programs and plan to publish their findings next year.

"We are convinced that return on investment is pretty high," Hoyt said. The situation is improving, but there's still a long way to go.

"There have been documented cases of groups teaching courses on how to commit insurance fraud," he said. "I continue to be surprised at the amount of creative brainpower devoted to committing these crimes."

For more information, e-mail Rob Hoyt at rhoyt@terry.uga.edu or access http://www.arches.uga.edu/~rhoyt/bio.html.


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