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Insurance Fraud: Are Policyholders the Only Victims?

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

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Insurance Fraud: Are Policyholders the Only Victims?

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  1. Insurance Fraud:Are Policyholdersthe 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 Insurance Information Institute  110 William Street  New York, NY 10038 Office: 212.346.5540  Cell: 917.494.5945  stevenw@iii.org  www.iii.org

  2. Beyond the Ones We Catch, From an Economic Viewpoint,What is the Scope of the Fraud Problem? 2

  3. Estimate of Annual Fraud, Assuming10% of P/C Claim Expense, 2000-2011 $ Billions 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. eSlide – P6466 – The Financial Crisis and the Future of the P/C

  4. Average No-Fault (PIP) Claim Severity, 2012* 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. 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. eSlide – P6466 – The Financial Crisis and the Future of the P/C

  5. Increase in No-Fault Claim Severity: Selected States, 2004-2012* +58.7% In this time span, the price of medical care for the nation as a whole rose 30% +48.3% +46.9% +45.4% +40.7% 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. *2012 claim severity figures are for the 4 quarters ending 2012:Q1. Sources: Insurance Information Institute research from ISO/PCI Fast Track data. 5 12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

  6. We Focus on Medical Costs in PIP Because They Dominate PIP Claims* Type of Loss: *data for MinnesotaSource: IRC

  7. NJ No-Fault (PIP) Average Claim Severity Has Trended Up Sharply Upward, 2000-2011 No-Fault claim severity (average cost per claim) rose 7.9% in 2011 The average amount of a PIP claim in New Jerseynearly doubled from 2000 t0 2011 Source: Insurance Information Institute calculations and research from ISO/PCI Fast Track data. eSlide – P6466 – The Financial Crisis and the Future of the P/C

  8. NJ No-Fault (PIP) Claim Frequency Fell but Since 2007 Leveled Off, 2000-2011 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. eSlide – P6466 – The Financial Crisis and the Future of the P/C

  9. Why Did NY PIP (Auto No-Fault) Claim Severity Growth Outpace NY Medical Care Cost Growth? Fraud Growth Medical Care Cost Index NY PIP Avg. Claim Severity Big PIP Fraud case cracked Average NY PIP Claim Severity Fraud Gap? Medical Care Cost Index Sources: Insurance Information Institute calculations based on ISO/PCI Fast Track Data

  10. Percentage of PIP Claimants Who Have Chiropractic Treatment 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 Note: data are from states with at least 100 PIP claims in the IRC sample.Source: IRC study

  11. Average Number of Visits per MinnesotaPIP Claimant Receiving Treatment Source: IRC

  12. Average Total Charges by Provider Type, Minnesota PIP Claims } 20% Source: IRC

  13. Distribution of Total Provider Charges byType of Provider, Minnesota PIP Claims, 2007

  14. Percentage of Minnesota PIP Claimants With Each Type of Diagnostic Procedure +33%

  15. Average Charge per Diagnostic Procedure, Minnesota PIP Claimants } +27%

  16. Distribution of Total Diagnostic Charges by Type of Procedure, Minnesota PIP Claims in 2007

  17. Commercial Lines, such as Workers Comp,are also affected 17

  18. Workers Comp Medical Severity Growth vs.Medical Care Cost Growth? Fraud Growth? Fraud Gap? Sources: BLS, NCCI

  19. Legislation Can Change the Fraud Outlook… 19

  20. New York State No-Fault AutoClaim Severity, 2001:Q1–2004:Q4 Following Legislation in 2001, From 2002:Q1 to 2004:Q4, NY No-Fault Claim Costs Fell to Roughly Half of What They Were Sources: ISO/PCI Fast Track data; Insurance Information Institute. 20 12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

  21. …But The “Bad Guys”Can Change, too 21

  22. New York State No-Fault AutoClaim Severity, 2001:Q1–2011:Q4 Avg. Claim Severity Peaked in 2002 Average PIP Claim Costs Are Now Nearly Back to their 2002 peak. Sources: ISO/PCI Fast Track data; Insurance Information Institute. 22 12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

  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)

  24. Insurance Information Institute Online: www.iii.org Thank you for your timeand your attention! Download at www.iii.org/presentations

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