Fraud in Insurance 21

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CONTENTS

TOPICS COVERED PAGE

NUMBER

Introduction To Frauds

Insurance Fraud And Abuse

Schemes, Scams, Scammed

Real Eyes...Realize...Real Lies

Itching To Know Who Can Help?

Division Of Insurance Fraud

Deceptive Life Insurance Sales Practices Continue

Viatical Settlements Investment Fraud

Case Study

Be Aware, Dont Be A Victim

International Association Of Insurance Fraud Agencies(Iaifa)

Dealing With Fraud On The Net

Precaution Is Better Than Cure

Summary

Bibliography

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Insurance An Overview

In today's world we hardly come across anyone who is not familiar with the terminsurance. Our life is uncertain, we do not have any idea what will happen in our

future. But insurance has become one of the great ways to secure our future.Getting the right introduction to insurance is important so as to get more familiarwith the term. Well, you get started the right way here.

The idea of insurance is very simple. It can simply be defined as an instrumentused for managing the possible risks of the future. Throughout our life we mayface many kinds of risks such as failing health, financial losses, accidents andeven fatalities. Insurance addresses all these uncertainties on financial terms. Soone should understand the importance of insurance in their life. With us, you willget to know all the types of insurance plus the benefits.

As insurance covers risks against financial losses, it should not be taken as aninvestment instrument. There a need of insurance in every stage of our life andrisks always increases with the changing environment of our life. Insurance isessentially a mechanism that eliminates risks primarily by transferring the riskfrom the insured to the insurer. Its never too late to get insured. Insure now andsecure your financial future. Learn how to buy insurance online. Different typesof insurance companies discussed will broaden your horizon on insurance.

In the last few decades we have seen numerous changes in the insurance industrysince the need for insurance is more evident now than earlier. People's spendingpatterns are changing and more & more resources are needed for immediateconsumption. So review your insurance portfolio from time to time. This site willteach you everything you wanted to know about insurance.

History Of Insurance

The history of insurance is likely to date back to the very first human beings. Inthe ancient times, if a person's house was burnt down, the other members of thecommunity helped to build a new one by contributing the necessary resources.

The history behind insurance can be traced to the early 3rd and 2nd millenniaBC, where Chinese and the Babylonian traders practiced methods of risk transfer.The Chinese were famous for redistributing their wares across many vessels inorder to limit their loss that might occur due to ship sunk while traveling throughtreacherous river rapids.

Babylonians also practiced insurance in the form of a system, called the Code of

Hammurabi, c. 1750 BC. It was practiced by the early Mediterranean sailingmerchants. When a merchant takes a loan to fund his shipment, he would also

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pay an extra sum to the lender to would guarantee him to cancel the loan whenthe shipment is stolen or lost at sea.

History of insurance shows how Achaemenian monarchs of Iran were the first toinsure their people. They made it official by registering the progovernment notary office. Insurance was like a ceremony to them and performed

each year in Norouz, where the head of different ethnic groups presented gifts tothe monarch. The people of Rhodes invented the concept of the 'general average'.Merchants whose goods were being shipped together would pay a proportionallydivided premium which would be used to compensate any merchant whose goodswere abandoned during storm or sinkage. This was an interesting phase ininsurance history.

The Greeks and Romans introduced life and health insurance in 600 AD. Theyform an association called "benevolent societies" that took care of families and

paid funeral expenses of members upon death. "Friendly societies" also existed inEngland in the late 17th century, where people donated funds to be used foremergencies.

The concept of separate insurance contracts was introduced by the people ofGeneo in 14th century and the concept of marine insurance existed in a concreteform at the end of the 17th century.

Modern concept of insurance history can be traced to the Great Fire of London,1666 which destroyed 13,200 houses. In 1680, Nicholas Barbon of England

established the first fire insurance named 'The Fire Office' to insure bricks andframe homes. United State's first insurance company underwrote fire insuranceand was formed in Charles Town, South Carolina, in 1732. Benjamin Franklinpopularized the practice of insurance, particularly against fire in the form ofperpetual insurance. He also established the Philadelphia Contributionship for theinsurance of houses from loss by fire. Insurance has come a long way today.

Going through the history behind insurance will give you a deeper insight ininsurance and as well as comprehend it as a whole.

What Is Insurance ?

Well it simply means protection against future contingent losses. The concept ofinsurance is very simple; it involves paying someone to take on a certain risks.An insurer is a company selling the insurance and the one who is buying theinsurance is called the insured or policy holder. Read on to know all aboutinsurance.

When you buy an insurance policy, you agree to pay a certain amount of money

called premium to the insurance company. The company, in turn, agrees to pay aspecified amount of money in case something covered by your insurance isdamaged, lost, or stolen.

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Insurance allows you to protect against any financial loss that can arise due to thehappening of any unexpected events in your future. There are two ways in whichyou can insure in, one way is to visit an agent and consult him for the best optionyou can avail for your situation. The other way is to research and choose on yourown, the type of insurance which will be best suited for your situation.

You can buy insurance to cover any risk, the risk that you will die, or that youwill become ill and require medical attention, or that you will have a car accident,and many others. But before buying any insurance policy, it is necessary for youto know about the different types of insurance. A thorough information oninsurance is important.

You will find a wide variety of insurances such as life insurance, vehicleinsurance, home insurance, health insurance and many others. But insurance policies vary and it depends on the insured which insurance to opt for.

Most of the insurance companies will have all these services enlisted with them.

In order to opt for a company that suits your needs, it is important that someamount of research is done. You can consult your financial advisor so that youget an insight of the insurance companies which will provide you the best deals.Interact with genuine people, they will guide you and enhance your ability tofinancially stabilize your self.

Get the right information on insurance and insurance companies so as to choosethe insurance policy that fits your needs and financial plans.

Buying Insurance Online

Everybody wants to secure their life for future. Insurance is one such good optionto do so. There are many ways to buy insurance. One method that is gainingpopularity is buying insurance online. Today, it has become the quickest and themost effective way for many people to get insured.

It is important for us to know how to buy insurance online before we decide toget into any insurance policy. When you shop for online insurance, you willcome across many insurance companies that will allow you many of the differentcoverage's they can provide. Research on them and evaluate them against eachother and pick the one that most suits your needs.

You need to search around for the best price and also shop for the auto quotesthis will help you to find the right kind of insurance that is best for you. Thequotes online can show you how much each coverage cost. The insurance can be

viewed online and logged into after being purchased. Make sure that the policyyou finally decide meets all your needs and requirements in addition to being costeffective. Well, buying insurance on the internet has never been so easy.

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When you decide to buy insurance online, you need read those terms of use.Reading those small words can help you find the hidden fees and terms of use.The further points given below are necessary to keep in your mind in order toavoid getting into a raw share of the deal.

a) Before buying insurance on the internet make sure the company you choose is

credible and someone you can trust with your money. You need to check theauthenticity of the company or site of your choice before applying.

b) Use a web security check-site to verify the security of the website and someother security checks to ensure the authenticity of the online company.

c) Contact the customer care service desk and check-in. Talk to them personallybefore giving out your financial data like credit card info as there are many fakecompanies online.

d) It is advisable to consult an experienced friend or person before buyinginsurance online. Read the terms, conditions, exceptions, deductibles everything they offer carefully.

Types Of Insurance

As life is full of uncertain events; it is good idea to get insured. There aredifferent types of insurance provided by various insurance companies. You only

need to decide the perfect insurance that fits your financial plans. Given beloware different kinds of insurance. Choose the one that you require and need most.

Life insurance

Life insurance is one of the most well known and common insurance. Thisinsurance is taken against the risk of death. It provides cash benefits to thedecedent's family or other designated beneficiary and may specially provide forburial and other final expenses.

Auto insurance

Another kind of insurance that is often required is auto insurance. It is typicallytaken against the risks of road accident. It helps cover against theft, financial losscaused by accidents and any subsequent liabilities.

Health insurance

Health insurance is taken against the risks of sickness and accidents. It covers allthe medical expenses incurred because of sickness or accidents.

Property insurance

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This type of insurance protects you against loss from risks associated with avariety of types of property such as houses, cars, boats, businesses etc from fire,theft or weather damage.

Disability insurance

Disability insurance provides financial help to the policy holder when he/she isunable to work due to injuries or severe illness. It gives a monthly stipend thatreplaces a portion of the disabled person's income.

Liability insurance

This insurance type covers legal claims against the insured. The protection givenby this insurance is two fold, a legal defense in the event of lawsuit commencedagainst the policyholder plus indemnification with respect to settlement or courtverdict.

Business Interruption Insurance

Protecting individuals and companies against various financial risks, these typesof insurance also cover the failure of a creditor to pay money it owes to theinsured.

Pollution Insurance

This insurance kind consists of first-party coverage for contamination of insuredproperty either by external or on-site sources, arising from contamination of air,water, or land due to the sudden and accidental release of hazardous materialsfrom the insured site. Covering the costs of cleanup, it may include coverage forreleases from underground storage tanks.

Purchase insurance

The purpose of these types of insurance is to provide protection on the productspeople purchase. Purchase insurance can cover individual purchase protection,

warranties, guarantees, care plans and even mobile phone insurance.

Go through the above different types of insurance and choose the right insurancepolicy that fits your needs.

Pre-tax insurance benefits

Pre-tax benefits are added advantages to the policyholders. These benefits helpthem to save a large portion of their tax payment. When the tax-payment getsreduced, their disposable income increases.

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Types Of Insurance Companies

Getting insured is one great way to secure your future. While shopping for

insurance you will came across many insurance companies. Getting a rightknowledge about the types of insurance companies is very important.

Different kinds of insurance companies can be classified as:

Life insurance companies

These insurance companies sell life insurance, annuities and pension products. Itmainly deals with long and short-term monetary investments, college plans, andplans that mature and benefit your surviving family at the time of your death.

Non-life insurance companies

These are one of the different kinds of insurance companies are which sell othertypes of insurance. These companies are mainly concerned with protectingproperty from many risks and natural acts like fire, lightning, typhoon, flood andearthquakes.

Composite insurance companies

These insurance companies types sells both life and non-life insurance.

Insurance companies are also classified as either mutual or stock companies.Mutual companies are owned by policy holders whereas stock companies areowned by stock holders.

Reinsurance companies

Another of different types of insurance companies is the Reinsurance companies,

which sell policies to other companies. This helps them to reduce their risks andprotects them from huge losses. The reinsurance market is dominated by a fewlarge companies, with huge reserves.

Captive insurance companies

These are other kinds of insurance companies that can be defined as limitedpurpose companies. It is established with the main objective of financing risksoriginating from their parent groups or groups. It can be said as an in house selfinsurance vehicle. Captives also represents commercial, economic and tax

advantages to their sponsors. They help in risks management.

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Whatever insurance company you choose, it is always wise to get multiplequotes. Have a quick look at the background of the company and make sure theyare legitimate and financially sound.

Important Insurance Terms You Should Know

Insurance is always associated with many unique terms. Hence it becomesnecessary for us to know about the important insurance terms before buying anypolicy. Understanding these terms will help you to search affordable insurancepolicy.

Here are some of the useful insurance terms and their definitions given below:

Actual Cash Value (ACV) : It is the value of an item at the time it was damagedby the insured event. ACV is calculated as Replacement Cost Value (RCV) lessdepreciation.

Claim: A request for an insurance company to pay for a loss. Claims to your owninsurance company are known as 'first insurance company' while claims made byone person to another persons company are called 'third party claims'.

Claimant: A person who makes a claim against a party based on legal liability.

Coverage: It is the range of protection that you are provided under an insurancepolicy.

Deductible: It is the amount you are required to pay before the insurancecompany begins to pay.

Depreciation : Decrease in the value of an item due to age, usage, wear and tea.Most things decrease in value as they age.

Exclusive: Things that are not covered under the policy.

Grace period: It is the amount of time between the payment due date and when

the policy will be canceled if payment is not received.

Liability insurance: Liability insurance pays the loss of other people when youare responsible for that loss.

Peril: It is the cause of the possible loss or damage.

Policy: Policy is the legal document issued by the insurance company thatoutlines the general terms and conditions of the insurance.

Policyholder: The one who buys the insurance is called policyholder or insured.

Premium: It is the amount you need to pay to the insurance company.

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Introduction to frauds

In a broad strokes definition, fraud is a deliberate misrepresentation which causes

another person to suffer damages, usually monetary losses. Most people consider

the act of lying to be fraud, but in a legal sense lying is only one small element of

actual fraud.

A salesman may lie about his name, eye color, place of birth and family, but as

long as he remains truthful about the product he sells, he will not be found guilty

of fraud. There must be a deliberate misrepresentation of the product's condition

and actual monetary damages must occur.

Many fraud cases involve complicated financial transactions conducted by 'white

collar criminals', business professionals with specialized knowledge and criminal

intent. An unscrupulous investment broker may present clients wit

opportunity to purchase shares in precious metal repositories.

For example, His status as a professional investor gives him credibility, which

can lead to a justified believability among potential clients. Those who believe

the opportunity to be legitimate contribute substantial amounts of cash and

receive authentic-looking bonds in return. If the investment broker knew that no

such repositories existed and still received payments for worthless bonds, then

victims may sue him for fraud.

Fraud is not easily proven in a court of law. Laws concerning fraud may vary

from state to state, but in general several different conditions must be met.

One of the most important things to prove is a deliberate misrepresentation of the

facts. Did the seller know beforehand that the product was defective or the

investment was worthless? Some employees of a large company may sell a

product or offer a service without personal knowledge of a deception.

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The account representative who sold a fraudulent insurance policy on behalf of

an unscrupulous employer may not have known the policy was bogus at the time

of the sale. In order to prove fraud, the accuser must demonstrate that the accused

had prior knowledge and voluntarily misrepresented the facts.

Another important element to prove in a fraud case is justifiable or actual reliance

on the expertise of the accused. If a stranger approached you and asked for ten

thousand dollars to invest in a vending machine business, you would most likely

walk away. But if a well-dressed man held an investment seminar and mentioned

his success in the vending machine world, you might rely on his expertise and

perceived success to decide to invest in his proposal. After a few months have

elapsed without further contact or delivery of the vending machines, you might

reasonably assume fraud has occurred. In court, you would have to testify that

your investment decision was partially based on a reliance on his expertise and

experience.

The element of fraud which tends to stymie successful prosecution is the

obligation to investigate. It falls on potential investors or customers to fully

investigate a proposal before any money exchanges hands.

Failure to take appropriate measures at the time of the proposal can seriously

weaken a fraud case in court later. The accused can claim that the alleged victim

had every opportunity to discover the potential for fraud and failed to investigate

the matter thoroughly.

Once a party enters into a legally binding contract, remorse over the terms of the

deal is not the same as fraud.

The dictionary defines fraud as the intentional perversion of truth to induce

another to part with something of value or to surrender a legal right. Insurance

fraud can be hard or soft. Hard fraud occurs when someone deliberately

fabricates claims or fakes an accident. Criminals are using incre

sophisticated electronic schemes to defraud insurance companies.

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Soft insurance fraud, also known as opportunistic fraud, occurs when normally

honest people pad legitimate claims or intentionally understate the number of

miles they drive each year or, in the case of business owners, list fewer

employees or misrepresent the work they do to get a lower premium.

Those who commit insurance fraud range from organized criminals who steal

large sums through fraudulent business activities and insurance claim mills to

professionals and technicians who inflate the cost of services or charge for

services not rendered, to ordinary people who want to cover their deductible or

view filing a claim as an opportunity to make a little money.

Some lines of insurance are more vulnerable to fraud than others. Health care,

workers compensation and auto insurance are believed to be the sectors most

affected.

Hard vs. soft fraud

Insurance fraud can be classified as either hard fraud or soft fraud.

Hard fraud occurs when someone deliberately plans or invents a loss, such as acollision, auto theft, or fire that is covered by their insurance policy in order toreceive payment for damages. Criminal rings are sometimes involved in hardfraud schemes that can steal millions of dollars

Soft fraud, which is far more common than hard fraud, is sometimes alsoreferred to as opportunistic fraud. This type of fraud consists of policyholdersexaggerating otherwise legitimate claims. For example, when involved in acollision an insured person might claim more damage than was really done to his

or her car. Soft fraud can also occur when, while obtaining a new insurancepolicy, an individual misreports previous or existing conditions in order to obtaina lower premium on their insurance policy.

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Insurance Fraud and Abuse:

A Very Serious Problem

Fraud and abuse are widespread and very costly to any countrys health-caresystem. Fraud involves intentional deception or misrepresentation intended to

result in an unauthorized benefit. An example would be billing for services that

are not rendered.

Abuse involves charging for services that are not medically necessary, do not

conform to professionally recognized standards, or are unfairly priced. An

example would be performing a laboratory test on large numbers of patients

when only a few should have it. Abuse may be similar to fraud except that it is

not possible to establish that the abusive acts were done with an intention to

deceive the insurer.

Type of Fraud and Abuse

False claim schemes are the most common type of health insurance fraud. The

goal in these schemes is to obtain undeserved payment for a claim or series of

claims. Such schemes include any of the following when done deliberately for

financial gain:

Billing for services, procedures, and/or supplies that were not provided.

Misrepresentation of what was provided; when it was provided; the

condition or diagnosis; the charges involved; and/or the identity of the

provider recipient.

Providing unnecessary services or ordering unnecessary tests.

Many insurance policies cover a percentage of the physician's "usual" fee. Some

physicians charge insured patients more than uninsured ones but represent to the

insurance companies that the higher fee is the usual one. This practice is illegal.

It is also illegal to routinely excuse patients from co-payments and deductibles.

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(A co-payment is a fixed amount paid whenever an insured person receives

specified health-care services. A deductible is the amount that must be paid

before the insurance company starts paying. ) It is legal to waive a fee for people

with a genuine financial hardship, but it is not legal to provide completely free

care or discounts to all patients or to collect only from those who have insurance.

Studies have shown that if patients are required to pay for even a small portion of

their care they will be better consumers and select items or services because they

are medically needed rather than because they are free. Routine waivers thus

raise overall health costs. They are considered fraudulent because averaging them

with the doctor's full fees would make the "usual" fees lower than the amounts

actually billed for.

Other illegal procedures include:

Charging for a service that was not performed.

Unbundling of claims: Billing separately for procedures that normally are

covered by a single fee. An example would be a podiatrist who operates on

three toes and submits claims for three separate operations.

Double billing: Charging more than once for the same service.

Up coding: Charging for a more complex service than was performed. This

usually involves billing for longer or more complex office visits (for

example, charging for a comprehensive visit when the patient was seen

only briefly), but it also can involve charging for a more complex

procedure than was performed or for more expensive equipment than was

delivered. Medicare documentation guidelines describe what the various

levels of service should involve.

Miscoding: Using a code number that does not apply to the procedure.

Kickbacks: Receiving payment or other benefit for making a referral.

Indirect kickbacks can involve overpayment for something of value.

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For example, a supplier whose business depends on physician referrals may

pay excessive rent to physicians who own the premises and refer patients.

Another example would be a mobile testing service that performs diagnostic

tests in a doctor's office. Kickbacks can distort medical decision-making,

cause over utilization, increase costs, and result in unfair competition by

freezing out competitors who are unwilling to pay kickbacks.

Criminals sometimes obtain Medicare numbers for fraudulent billing

conducting a health survey, offering a free "health screening" test, paying

beneficiaries for their number, obtaining beneficiary lists from nursing homes or

boarding facilities, or offering "free" services, food, or supplies to beneficiaries.

Excessive or Inappropriate Testing

Many standard tests can be useful in some situations but not in others. The key

question in judging whether a diagnostic test is necessary is whether the results

will influence the management of the patient. Billing for inappropriate tests

both standard and nonstandardappears to be much more common among

chiropractors and joint chiropractic/medical practices than among other health-

care providers. The commonly abused tests include:

Computerized inclinometers: Inclinometers is a procedure that measures

joint flexibility. Inclinometer testing may be useful if precise range-of-

motion measurements are needed for a disability evaluation, but routine or

repeated measurements "to gauge a patient's progress" are not appropriate.

Nerve conduction studies: These tests can provide valuable information

about the status of nerve function in various degenerative diseases and in

some cases of injury. However, "personal injury mills" often use them

inappropriately "to "follow the progress" of their patients.

Thermographs: Thermo-graphic devices portray small temperature

differences between sides of the body as images. Chiropractors who usethermographs typically claim that it can detect nerve impingements or

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"nerve irritation" and is useful for monitoring the effect of chiropractic

adjustments on subluxations. These uses are not appropriate.

Unnecessary x-rays: X-rays examinations can be important to look for

conditions that require medical referral. However, it is not appropriate for

chiropractors to routinely x-ray every patient to look for"subluxations" or

to "measure the progress" of patients who undergo spinal manipulation.

Many insurance administrators are concerned about chiropractic claims for

"maintenance care" (periodic examination and "spinal adjustment" of symptom-

free patients), which is not a covered service. To detect such care, many

companies automatically review claims for more than 12 visits.

Personal Injury Mills

Many instances have been discovered in which corrupt attorneys and health-care

providers combine to bill insurance companies for nonexistent or minor injuries.

The typical scam includes "cappers" or "runners" who are paid to recruit

legitimate or fake auto accident victims or worker's compensation claimants.

Victims are commonly told they need multiple visits. The providers fabricate

diagnoses and reports and commonly provide expensive but unnece

services.

The lawyers then initiate negotiations on settlements based upon these fraudulent

or exaggerated medical claims. The claimants may be unwitting victims or

knowing participants who receive payment for their involvement. Mill activity

can be suspected when claims are submitted for many unrelated individuals who

receive similar treatment from a small number of providers.

Quackery-Related Miscoding

In processing claims, insurance companies rely mainly on diagnostic and

procedural codes recorded on the claim forms. Their computers are programmed

to detect services that are not covered. Most insurance policies

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nonstandard or experimental methods. To help boost their income,

nonstandard practitioners misrepresent what they do. They may also misrepresent

their diagnosis. For example:

Brief or intermediate-length visits may be coded as length

comprehensive visits.

Patients receiving chelating therapy may be falsely diagnosed as suffering

from lead poisoning; and the chelating may be billed as "infusion therapy"

or simply an office visit.

The administration of quack cancer remedies may be bille

"chemotherapy."

Nonstandard allergy testsmay be represented as standard ones.

Viatical Fraud

In viatical settlement transactions, people with terminal illnesses assign their life

insurance policies to viatical settlement companies in exchange for a percentage

of the policy's face value. The company, in turn, may sell the policy to a third-

party investor. The company or the investor then becomes the beneficiary to the

policy, pays the premiums, and collects the face value of the policy after the

original policyholder dies.

Fraud occurs when agents recruit terminally ill people to apply for multiple

policies. They misrepresent the truth and answer "no" to all of the medical

questions. Healthy impostors then undergo the medical evaluation. In many

cases, the insurance agent who issues the policy is a party to the scheme. The

agent or one applicant may even submit the same application to many insurance

companies.

Viatical settlement companies then purchase the policies and sell them to

unsuspecting third-party investors. The insurance industry is the biggest victim of

this fraud and could incur huge losses within the next few years. Some investors

receive nothing in return for their "guaranteed" investment.

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Bogus Health Insurance Companies

There have been two reports issued concerning the sale of health insurance plans

that lack legal authorization. These plans place the buyer at risk for financial

disaster if serious illness strikes. One report focuses on consumer vulnerability.

The other notes that from 2000 to 2002, 144 unauthorized entities enrolled at

least 15,000 employers and more than 200,000 policyholders who got stuck for

over $200 million in unpaid claims.

The investigators found that many of the entitles bore names similar to those of

legitimate companies. In response to the report, the Health Insurance Institute of

America is again urging the National Association of Insurance Commissioners to

create an online database of licensed health insurance companies so that anyone

can easily check the legitimacy of companies offering health insurance products.

Meanwhile, the Coalition against Insurance Fraud offers a few warning signs of a

possible swindle:

The plan readily accepts people with serious illnesses and other medical

conditions that other plans normally reject.

The insurance has few or no underwriting guidelinesthe agent or rep

appears almost too eager to sign you up.

You're approached by an insurance agent, phone or direct mail. Honest

group plans normally are sponsored by your employerand aren't sold

directly to individuals.

The plan isn't licensed in your state, and the agent (falsely) assures you the

federal ERISA law exempts the plan from state licensing.

The plan seems like insurance, but the agent or rep avoids calling

"insurance," and instead uses evasive terms such as "benefits."

The agent or rep doesn't have clear answers to your questions, seems ill-

informed, or avoids sharing information.

You've never heard of that health insurance companyand nobody else

has, either.

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Your hospital keeps calling you to complain that your health plan isn't

paying your medical bills. Often the plan's reps keep making flimsy

excuses, or stop returning phone calls altogether.

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Schemes, scams, scammed

Property/casualty insurance fraud cost insurers about $30 billion in 2004. Fraud

may be committed at different points in the insurance transaction by different

parties: applicants for insurance, policyholders, third-party claimants

professionals who provide services to claimants.

Common frauds include "padding," or inflating actual claims; misrepresenting

facts on an insurance application; submitting claims for injuries or damage that

never occurred; and "staging" accidents. Prompted by the incidence of insurance

fraud, about 40 states have set up fraud bureaus. These agencies are reporting a

record number of new investigations, significant increases in referrals tip

about suspected fraud and cases brought to prosecution.

DEVELOPMENTS

The hurricanes, especially Hurricane Katrina, are likely to result in a surge

in insurance fraud. In addition to the usual schemes, where homeowners or

renters make claims for stereos, televisions or other expensive items they

never purchased, and inflate claims for items actually destroyed, home

arsons are on the rise. Since many homeowners in the Gulf areas did not

have flood insurance, they may not be covered for some or all of the

damage caused by the hurricanes. Dozens of fires have broken out in many

affected communities, some of which may be the result of arson.

. The NICB warns that flooded vehicles may be cleaned up, moved and

sold in other areas of the country by unscrupulous operators. Although the

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vehicles were totaled by insurance companies and identified as salvage

on their titles, which means they are not fit for any use except for scrap or

parts, they could end up on the market in states where it is relatively easy

to apply for a regular title. A database was created in which vehicle

identification numbers (VINs) and boat hull identification numbers (HINs)

from flooded vehicles and boats could be stored and made available to law

enforcers, state fraud bureaus, insurers and state departments of motor

vehicles.

One in 10 paid bodily injury liability (BI) auto claims in California had the

appearance of fraud or misrepresented the facts of the claim, according to

the Insurance Research Councils Fraud. More common is the appearance

of buildup, or the padding of claims, which was found in one in five

claims. It found that between $319 and $432 million in BI payments were

attributable to fraud and buildup.

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Real eyes...Realize...Real lies

Short History of Antifraud Efforts

Fraud in insurance has undoubtedly existed since the industry's beginnings in theseventeenth century, but it received little attention until the 1980s because law

enforcement agencies had other priorities and were reluctant to provide the

training needed to investigate and prosecute cases of insurance fraud. And, given

the fine line between investigating suspicious claims and harassing legitimate

claimants, some insurers were afraid that a concerted effort to eradicate fraud

might be perceived as an anti-consumer move. In addition, the need to comply

with the time requirements for paying claims imposed by fair claim practice

regulations in many states made it difficult to adequately investigate suspicious

claims.

But by the mid-1980s the rising price of insurance, particularly auto and health

insurance, together with the growth in fraud committed by organized criminals,

prompted many insurers to reexamine the issue. Gradually, insurers began to see

the benefit of strengthening antifraud laws and more stringent enforcement as a

means of controlling escalating costs a pro-consumer move and they found

ready allies among those who been adversely affected by fraud. These included

consumers, who were paying for fraud through their insurance premiums; the

people used by organized fraud groups to file false claims, often the poor, who

sometimes found themselves on the wrong side of the law; and chiropractors and

other medical professionals who were concerned that their reputation as a group

was being tarnished by organized fraud ringleaders who had recruited their

members to make fraudulent claims for treatment.

In their fight against fraud, insurers have also been hampered by public attitudes.

Ongoing studies by the Insurance Research Council show that significant

numbers of Americans think it is all right to inflate their insurance claims to

make up for all the insurance premiums they have paid in previous years when

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they have had no claims, or to pad a claim to make up for the deductible they

would have to pay.

Antifraud activity on the part of state fraud bureaus and SIUs

investigative units within insurance companies) increased in the 1

Heightened antifraud activity along with growth in funding for fraud-fighting

personnel resulted in increased prosecutions. Successful prosecution not only

blocks future fraudulent activities by individuals who are repeat offenders, but

news of prosecutions also acts as a deterrent to others who may be contemplating

committing fraudulent acts.

While the focus initially was on auto insurance fraud, antifraud efforts also

encompass workers compensation fraud, where investigations are directed toward

employers who, to obtain a lower premium, misrepresent their payroll or the type

of work carried out by their employees. These two factors impact premiums.

Payroll is important because workers compensation insurance provides for lost

wages and insurers need to know the maximum they would have to pay if all

employees were injured in the same accident; the type of work carried out by the

firm affects the likelihood of injuries. Workers that use cutting tools, for

example, are more likely to get injured on the job than office workers. Some

employers also apply for coverage under different names to foil attempts to

recover monies owed on previous policies or to avoid detection of their poor

claim record, which would put them in a higher rating category.

Fraud and abuse take place at many points in the health care system. Doctors,

hospitals, nursing homes, diagnostic facilities and attorneys have been cited in

scams to defraud the system. One huge area of fraud is the Medicare and

Medicaid systems. Health care is especially susceptible to electronic data

interchange (EDI) fraud. EDI is direct filing of claims computer to computer

and is widely used for Medicare claims.

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In 1999, the Government Accounting Office released a study of the Medicare,

Medicaid and private health insurance sectors that confirmed that organized

crime is heavily involved in health care fraud. The investigation found that in

seven cases of health care fraud studied, about 160 health related groups

medical clinics, physician groups, labs or medical suppliers had submitted

fraudulent claims. The criminals identified in the report were not health care

workers but criminals already prosecuted for securities fraud, forgery and auto

theft. Apparently, these criminals had moved to health care because fraud was

relatively easy to accomplish.

Anti-Fraud Programs

Several large insurance companies have joined forces through the National

Health Care Anti-Fraud Association to develop sophisticated computer systems

to detect suspicious billing patterns. The Federal Bureau of Investigation (FBI)

and the Office of the Inspector General (OIG) each have assigned hundreds of

special agents to health-fraud projects. The Coalition Against Insurance Fraud,a

public advocacy and educational organization founded in 1993, inc

consumers as well as government agencies and insurers.

The Omnibus Consolidated Appropriation Act of 1997 authorized a Health Care

Anti-Fraud, Waste, and Abuse Community Volunteer Demonstration Program to

further reduce fraud and abuse in the Medicare and Medicaid programs. The

program enrolled thousands of retired accountants, health profession

investigators, teachers, and other community volunteers to help Med

beneficiaries and others to detect and report fraud, waste, and abuse.

The Inspector General's office has recovered over a billion dollars through fines

and settlements. Its Operation Restore Trust, which began in 1995, was a joint

federal-state program aimed at fraud, waste, and abuse in three high-growth areas

of Medicare and Medicaid: home health agencies, nursing homes, and durable

medical equipment suppliers. The questionable activities included:

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Billing for advanced life support services when basic life support was

provided. Documentation may be falsified to indicate a patient needed

oxygenwhich is a key indicator in establishing medical necessity for

advanced life support.

Billing for larger amounts of drugs than are dispensed; or billing for brand-

name drugs when less expensive generic versions are dispensed.

Billing for more miles than traveled for transportation.

Falsification of documentation to substantiate the need for a transport from

a hospital back to the patient's home. Medicare will only cover transport

from hospital to home if the patient could not go by any other means.

Insurers Antifraud Measures

Insurance companies are not law enforcement agencies. They can only identify

suspicious claims, withhold payment where fraud is suspected and to justify their

actions by collecting the necessary evidence to use in a court. The success of the

battle against insurance fraud therefore depends on two elements: the resources

devoted by the insurance industry itself to detecting fraud and the level of priority

assigned by legislators, regulators, law enforcement agencies and society as a

whole to eradicating it.

Many insurance companies have established special investigation units (SIUs) to

help identify and investigate suspicious claims; some insurance companies

outsource their units to other insurers.

These units range from a small team, whose primary role is to train claim

representatives to deal with the more routine kinds of fraud cases, to teams of

trained investigators, including former law enforcement officers, attorneys,

accountants and claim experts to thoroughly investigate fraudulent activities.

More complex cases, involving large scale criminal operations or individuals that

repeatedly stage accidents, may be turned over to the National Insurance Crime

Bureau (NICB). This insurance industry-sponsored organization has special

expertise in preparing fraud cases for trial and serves as a liaison between the

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insurance industry and law enforcement agencies. In addition, it publicizes the

arrest and conviction of the perpetrators of insurance fraud to help deter future

criminal activities. Insurance company surveys confirm that SIUs dramatically

impact the bottom line of many insurance companies.

In the mid-1990s insurers said that for every dollar they invested in antifraud

efforts, including SIUs, they got up to $27 back, but these returns have become

harder to achieve as the more apparent fraud schemes have been uncovered and

more effort is necessary to ferret out the sophisticated fraud that remains. A 2000

study by Conning Research & Consulting suggests that results vary widely.

Using the ratio of claims exposure reduction to the expense of running SIUs,the study found ratios ranging from a low of 3 to 1 to a high of 27 to 1,

depending on the year and line of insurance. Although some insurers are cutting

back on fraud investigation by outsourcing investigations and dissolving their

fraud units, advances in software technology, especially programs that sift though

the millions of claims that large health insurers process annually, are proving

effective in fighting fraud. These data mining programs can uncover repetitions

and anomalies and analyze links to fraudulent activities or entities.

The consolidation of insurance industry claims databases has put a valuable new

tool in the hands of investigators. The Insurance Services Office Inc.'s system,

known as Claim Search, utilizes a data-mining program. Claim Search is the

worlds largest comprehensive database of claims information. The NICB has

developed a program called Predictive Knowledge that collects and analyzes

information which can be disseminated to insurers and law enforcement agencies

to detect, investigate and prevent insurance fraud. In addition, the NICB, in

partnership with iMapData Inc., introduced CAT fraud, to identify potentially

fraudulent catastrophe/weather-related insurance claims.

A national fraud academy a joint initiative of the Property

Association of America, the FBI, NICB and the International Association of

Special Investigating Units was designed to fight insurance claims fraud by

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educating and training fraud investigators. It offers online classes under the

leadership of the NICB.

An emerging issue for insurers using data sharing services is their impact on

privacy. Financial institutions, including insurers, must respect the privacy of

their customers and protect their personal information, a practice that may deter

efforts to combat fraud.

Insurers may also file civil lawsuits under the federal Racketeering Influenced

and Corrupt Organizations Act (RICO), which requires proving a preponderance

of evidence rather than the stricter rules of evidence required in criminal actions

and allows for triple damages. Since 1997, some of the largest insurers in the

country, especially auto insurers, have been filing and winning lawsuits against

individuals and organized rings that perpetrate insurance fraud.

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Itching To Know Who Can Help?

Insurance Agent Fraud on the Rise

At the age of 90, Thomas Pickering was doing the twist.At the behest of his

trusted insurance agent, Pickering was buying and selling one annuity after

another in a deceitful industry practice called "twisting." That's when dishonest

agents persuade clients to cash in one investment for anotheragainst their

clients' best interests and for the agents' own financial gain.

In Pickering's case, he followed his agent's advice, sold investments before they

matured and lost 11,000/- in forfeited interest and penalties. He was about to lose

another 35,000/- cashing in one annuity to buy another,netting his agent 20,000/-

in commissions. When the company holding the annuity intervened. It suspected

Pickering was getting ripped off and called the authorities.An investigation led

Florida's Department of Financial Services (DFS) to revoke agent Peter Waldon's

license for fraud.

Barry Lanier of Florida's DFS says he's fielding more complaints about greedy

agents earning whopping commissions upfront by pitching unsuita

investments like annuities to older people. But Lanier and other experts say some

annuities are not considered to be wise investments for most olders because

they're based on life expectancy.Growing concern over the sale of annuities to

older people prompted the National Association of Insurance Commissioners(NAIC) to adopt regulations that assure that the annuities are suitable to the

buyer's needs.

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Division of Insurance Fraud

The Division of Insurance Fraud was originally formed in 1976 to investigate

only fraudulent automobile tort claims. In the early years, investigators had arrest

powers but could not carry firearms. Today, the division investigates all types of

insurance fraud crimes.

Investigators are assigned to work general fraud cases, workers compensation

fraud, medical and health-care fraud, and agent and company fraud. Areas of

assignment may include:

Insolvency - Fraud committed by insurance companies that

financially due to internal fraud by owners and corporate officers.

Unauthorized Entities - fraud, both criminal and civil, committed by

insurance companies operating illegally in the state.

Health Care Fraud - focuses on organized medical and health care

scams.

Workers Compensation - investigates employers for worker

compensation premium fraud.

Public Employee Fraud - investigates state and local governm

employees for workers compensation claimant fraud.

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Deceptive Life Insurance Sales Practices Continue

The life insurance industry has been hit with billion dollar verdicts and multi-

million dollar fines for deceptive sales practices.

The two largest companies, MetLife and Prudential, have each been hit with

billion-dollar-plus verdict.

Most major companies have also been sued for deceptive sales practices. The list

goes on and on, as successful lawsuits finally caught up with an industry that has

long bilked the public, misrepresented its product, and ignored the urgent need

for basic reforms to stop abuses.

With billion dollar judgments (and that is "billion" with a "b"), you'd think the

industry would learn its lesson. That's what you'd think but you'd be wrong.

The life insurance industry did establish the Insurance Marketplace Standards

Association (IMSA). Of course, there are now ads announcing that the life

insurance industry is committed to the fair treatment of policyholders. But early

returns on the industry's efforts suggest it is just a sham and a shell game

designed to prevent real reform by legislation and regulation.

Now a study by Professor Joseph Belth, publisher of the Insurance Reform, a

respected newsletter on the life insurance industry, finds the reforms are a sham.

I'd have to say as usual the life insurance industry wants to improve its public

relations, not its policy relations.

The Insurance Forum study correctly notes that much of the life insurance

deception comes about because the industry does not make full disclosure onrates of return and prices necessary to sound decision making by insurance

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buyers. By failing to disclose needed information, consumers are easily duped by

deceptive methods.

The Insurance Forum put the industry to a test by asking the chief executive

officers of 40 companies (31 of which are members of IMSA) for the kind of

information that should be freely and automatically available to prospective

policyholders.

Of the 41 companies surveyed, 27 did not participate. Only 13 companies (10 of

which are members of IMSA) participated in the study.

And some of the 13 participants provided deceptive information. Some provided

incomplete information. Some provided the kind of information that would not

be helpful to the typical consumer.

The Insurance Forum study concludes that IMSA will not bring about the needed

changes in the life insurance industry, but will simply delay their enactment.Most industries prefer "voluntary" action, so the foxes can continue to guard (and

eat) the chickens, also known as policyholders.

What's more, after the great life insurance scandals of the 1980s and 1990s, the

industry is determined to perpetuate a system in which life insurance rip-offs by

major and minor companies alike will continue to be standard operating

procedures.

The bottom line is that the life insurance industry has practices that are precisely

the opposite of its proclaimed ethical principles.

Here are some examples:

IMSA has an ethical principle that says its company members will "provide

competent and customer-focused sales and services." The Insurance Forum

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survey suggests that most companies will engage in business as usual, giving the

consumer no information, inadequate information or deceptive information.

IMSA has another ethical principle that says it will "engage in active and fair

competition." But by not providing information or by providing deceptive

information, it is clear that major segments of the industry will continue to

engage in competition by confusion.

As Bob Hunter of the Consumer Federation put it, "The proof of the pudding is in

the eating. It's hard to trust the life insurance industry, given its recent history.

They're going to have to reprove themselves as trustworthy."

Unfortunately, the life insurance industry is proving itself untrustworthy. And as

for the proof of its good intention being in the pudding, my advice is don't eat its

pudding. It's the same old stuff plus a phony sermon on ethical principles.

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Viatical Settlements Investment Fraud

Historically, some insurance companies have offered an accelerated death

benefits option which allows the insured an opportunity to receive up to 80% of

the death benefit at any time within the last year of their projected life. The

remaining 20% is then paid to the insured's estate.

On the other hand, the business of viatical settlements involves the selling of a

policy death benefit, at less than face value, by a terminally ill person to a third

party. This is accomplished, for a commission, with the assistance of a broker

who offers the policies to settlement provider companies for bid, with the highest

bidder obtaining the policy for resale to investors. The broker receives a

commission based on the sale price.

Size of the Industry

Fraud in the unregulated viatical settlement industry has become rampant; as

much as 40-50% of the life insurance policies viaticated may have been procured

by fraud.

Clean Sheeting

Unscrupulous individuals in the viatical industry procure policies by a practice

referred to as "clean sheeting" which is the act of applying for life insurance

while intentionally failing to disclose the applicant's status as being terminally ill.

They can get away with it initially because most insurance companies avoid the

added costs and invasiveness of medical exams and blood tests by relying on an

honor system below a certain policy face value.

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Many insurance agents and brokers assist and often encourage aviators in

committing the fraud because it not only provides more policies than would be

available though legitimate means, but it also provides a much higher rate of

return due to the fact they can be bought from aviators so cheaply.

In a legitimate transaction, the ill person usually receives 50%-70% of the face

value of the policy. However, a "clean sheeted" policy viaticated during the

contestable period may offer as little as 10% of the face value because it carries

the high risk of rescission, or cancellation by the insurance company, due to

fraud.

Wet Ink Policies

After the policy is issued, the insured person will sell his policy or multiple

policies from different insurance companies, sometimes within weeks, to a

settlement provider using a broker. This is referred to as a "wet ink policy"

because the ink on the contract is still "wet" when the policy is sold.

The odds against an individual finding out that he is terminally ill within weeks

of buying a policy are exceedingly high. To see that happen repeatedly within a

short period of time with the same broker or provider is strong evidence that they

are both well aware that the policies have been "clean sheeted".

To hide the fact that the policy has been viaticated shortly after issuance, con

artists will obscure viatication by simply changing the beneficiary to someone at

the settlement provider firm. A second way is to employ a

assignment" which is similar to where the insured seeks a loan from a third party

and secures the loan by pledging the death benefits of the policy. In fraudulent

transactions they pledge the death benefits but do not receive a loan.

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Contestability Period

Finally, some settlement providers merely delay reporting that the policy has

been viaticated until the contestability period is over; falsely believing that it is

not a crime then. An indication of culpability is that virtually all parties attempt

to hide the viatication of fraudulently obtained policies from the insurance

company for as long as possible.

The contestability clause for life insurance lasts for two years after issuance,

during which time it may be rescinded by the insurer for fraud in the application.

After this period ends, the insurer is obligated to pay the death benefit, regardless

of any fraud in the application. Because policies viaticated durin

contestability period may be rescinded, they bring, as mentioned, a much lower

price in the market.

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A Case Study

As an investor, you are offered the opportunity to purchase an interest in a life

insurance policy in which the insured is terminally ill (i.e., viatical settlement).

You are told:

that your investment will produce a 100% rate of return because you are

assigned a policy with a face value of twice your investment which you can claim

upon their death;

that you will have the option of reselling your policy once it becomes

incontestable (two years after the date the policy is issued) for 70% of the face

value.

and that if the policy is contested or canceled by the insurer, the promoters will

provide a replacement policy through a "replacement policy trust" managed by

them.

They say these are better investments than stocks, mutual funds, annuities, and

CD's because viatical investments have the following attributes:

"Full liquidity at maturity from rock solid 'A' rated insucompanies!"

"Tax advantaged & hassle free! 100% fixed rate of return which is fully

secured."

"Zero risk to principal, a totally safe investment with no load & no fees!"

"Short holding periods with early buyout options available as well!"

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"No speculation, no interest rate risk, no market risk, no economic risk!"

In addition they say you will be making a "humanitarian investment" because the

terminally ill person will be able to use the funds to receive improved health care;

pay off debts; take a vacation, reduce family stress, and enhance their quality of

life. In exchange for your money you receive a Membership Certificate certifying

that you are a member of Viatical Funding LLC.

After deducting the fees paid to sales agents, viator agents, an

intermediaries from your funds, you find that the ill person will actually be left

with very little. In this case only $5,400, which is only 12% of your investment

of $45,000, or 6% of the policy's face value of $90,000.

They fail to disclose to you that the insured was terminally ill prior to being

insured, that they concealed this fact on the application, and thus subjected the

policy to cancellation by the insurer.

Instead of being designated as the sole beneficiary you may find you share it with

creditors and family members, and that the option to resell the ownership

interests is not a guaranteed option, but rather an "assurance" that they will

"make an effort" to facilitate a resale.

In any event, you will not likely receive a promised 70% of the face value but

only the amount another investor would be willing to pay, less commissions,

which could be much less.

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They also fail to mention:

the risk of the insured living much longer than the estimated life expectancy,

thereby greatly reducing the annual yield;

the risk of their becoming insolvent and unable to replace a contested or

canceled policy;

the risk of the life insurance policy lapsing, or that you will often have to pay

the policy premiums for the duration of the policyholder's life;

the 15% commission the sales agent receives from your investment;

who is responsible for monitoring the health status and location of the insured,

obtaining a death certificate, and making a claim to the insurance company.

Life Expectancy of the Insured

To determine their rate of return investors rely on a report which projects the life

expectancy of the insured, but there are no minimum requirements as to who may

generate these reports or projections. One company used a nurse and a plastic

surgeon but could have used the janitor.

Viatical investing is highly speculative and risky. Even when the policyholder

exists and is terminally ill, there is a high degree of uncertainty in predicting

when they will die. New AIDS drugs and cancer treatments have compounded

the risk for investors because they help policyholders live longer.

Viatical settlements are illegal under Canadian insurance legislation so Canadian

investors should not be involved in these schemes at all.

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Not Enough Sick People

Financial Federated Title & Trust, and Asset Security Corporation pled guilty

after being charged with conspiring to recruit insurance agents to defraud more

than 3,000 investors while purchasing viaticated insurance policy investments

over a three year period.

Investors were told that their money would be used to purchase a beneficial

interest in viaticated insurance policies, and that medical overviews were being

performed on the insured persons whose policies were being bought.

Although at least $115 million in investor monies was taken in, the promoters

used only $6 million of these funds to buy insurance policies whose total face

value was just over $7 million. They used the balance of the money for purposes

totally unrelated to the purchase of viaticated insurance policies.

Industry Terminology

Cleansheeting: Refers to a fraudulent criminal act committed by a proposed life

insurance applicant, and by life insurance agents who knowingly assist or

conspire with the insurance applicants, by failing to disclose a pre-existing

medical condition in response to a question on a life insurance application which

would affect issuance of the policy.

Viator: A person who has a life threatening or terminal illness who sells or

assigns their life insurance policy.

Viatical Settlement: The life insurance policy of a terminally ill person sold or

offered for sale, generally at less than face value, through a viatical settlement

company.

Contestability: Policies are generally contestable for two years from the date of

issue and are subject to being rescinded by the insurer for cause, such as

application fraud and suicide.

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Viatical Settlement Provider: A person who enters into a viatical settlement

contract with a viator. Often referred to as a settlement company or funder.

Viatical Settlement Broker: A person who, for profit, offers or attempts to

negotiate a settlement contract between a viator and one or more viatical

settlement providers.

Viatical Settlement Sales Agent: A person other than a licensed viatical

settlement provider who arranges for the purchase of a viatical settlement or an

interest in a viatical settlement from a viatical settlement provider.

Mortality Profile Report: A report based on a review of a viator's medical

history, which gives a prognosis of a viators life expectancy. Usually done by a

health-care professional and generally at the behest of the viatical settlement

provider to calculate the value of a viatical contract.

Viatical Investment Broker: Defines a person or entity other than a licensed

viatical settlement provider who solicits investors to purchase a v

settlement interest from a viatical settlement provider

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We Chose to Keep Your Money

Personal Choice Opportunities mislead investors when they sold viatical

securities in the form of loan transactions. Investors lent money to PCO in order

for them to purchase the benefits of life insurance policies from terminally ill

individuals on the promise that they would receive a return on their investment of

21-25% per annum.

The funds, however, were not used to purchase life insurance policies but kept

instead. Over 1100 investors nationwide are believed to have invested $80-100

million in these transactions in just ten months. No evidence of any valid life

insurance policies being purchased has been discovered.

Repercussions for the Industry

Life insurance premiums are based on actuarial tables which are worthless in

fraudulent applications. Insurance companies cannot afford to pay out large death

benefits after collecting small premiums for only a few years. Even if they don't

go bankrupt the added costs are eventually passed on to other policyholders.

The viatical industry as a whole must take steps to better police itself. If it does

not, it risks ceasing to exist as an industry either by being legislated out of

existence or by being pushed out of the market after destroying investor

confidence in its product. If this fraud is to be stopped, it will require the total

commitment of the insurance industry. The first step is for the industry to wake

up to the existence and scope of the problem.

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Penalties

Currently a person charged with viaticating a fraudulently procured insurance

policy worth $100,000 face value, who stands to gain tens of thousands of

dollars, faces the same penalty as a shoplifter who takes a pack of cigarettes. A

mere sixty days in jail is an encouragement, not a deterrent which may be why

the industry watchdog has never received a single referral from the industry itself

reporting such fraud.

Life Settlements

Once thriving on those dying from a terminal illness, medical advances, which

are helping patients live longer, has caused the business to start targeting new

clients - usually seniors with high payoffs - who may be willing to sell their life

insurance policy to investors at a discount.

Life settlements, or the sale of a life insurance policy to a third party, are

sometimes referred to as "senior settlements" because most of the life insurance

policies purchased insure the life of a senior citizen.

The owner of the policy gets cash and the buyer becomes the new owner and/or

beneficiary of the life insurance policy, pays all future premiums and collects the

entire death benefit when the insured dies.

People decide to sell their life insurance policies for many reasons. Some

common ones are the changed needs of dependents, a desire to reduce or

eliminate premiums, and a need for additional cash to meet expenses.

State regulation of insurance generally does not extend to life settlements.

Certain aspects of these transactions may fall under the various Securities Acts so

there can be financial risks involved when entering into such arrangements.

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You should consider contacting a professional tax advisor to find out the tax

implications as life settlement proceeds are generally not tax free. Also know, if

you are the seller that you will be required to provide certain medical and

personal information to third parties who will be paid the proceeds from your

policy upon your death. These third parties may sell your policy and pass along

your medical and personal information to other individuals.

Typically, life settlements are offered to buyers, for resale to investors, at a

discount from the death benefit. The discount is for the entire life of the policy,

not an annual rate of return. An annual rate of return cannot be guaranteed. Your

rate of return depends on when the insured dies, and no one can predict a person's

life expectancy. Keep in mind that a life settlement is not a liquid investment

because the return on such an investment does not occur until the insured dies.

Spreading the Risk

The Alabama Securities Commission issued a Cease and Desist Order against

Viatical & Elderly Settlement Providers, LLC (VESPERS) Washington, D.C.,

to stop conducting business in a few states after they received information that

they were engaged in the illegal offer and sale of investment contracts involving

fractionalized viatical settlement contracts there.

VESPERS, though not licensed to sell this type of security in the state, have

solicited independent insurance agents to sell interests in viaticals issued by

them with promises of low risk and high returns of 28-70 percent on two to five

year investments for a 10% commission.

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Be Aware, Dont Be a Victim

The Coalition Against Insurance Fraud (CAIF) is a national ad

organization of consumer groups, public interest organizations, government

agencies and insurers. Its website notes insurance fraud is hard to measure

because so much goes undetected, and complete research has yet to be done.

Still, we have enough evidence to know that fraud is widespread and

expensive.

National studies conducted by the Insurance Research Council (IRC) show that

auto insurance, workers compensation and health insurance are the lines that are

most vulnerable to fraud. The IRC estimates that one-third of all bodily injury

claims from auto accidents contain some amount of fraud, usually in terms of

padding or exaggerating a claim, but only 3% are totally fraudulent such as

staged accidents. Another form of fraud, lying on applications in order to reduce

premium, costs auto insurers $13.7 billion annually (Insurance Information

Institute, or III).

As to workers compensation fraud, one of the most common forms of workers

compensation fraud in Maine is a faked or exaggerated injury, an area within the

jurisdiction of the Maine Workers Compensation Boards Fraud and Abuse Unit

to investigate. There are, however, other forms of workers compensation fraud

are employers who misrepresent payroll or the type of business in order to reduce

their insurance premiums and real or bogus entities that purport to provide real or

bogus workers compensation coverage or alternatives to coverage

employers.

In late 1999 the Governmental Accounting Office found that organized crime is

heavily involved in health insurance fraud and that the criminals identified were

not health care workers, per say, but individuals already prosecuted for securitiesfraud, forgery and auto theft. With the enactment of HIPAA (Health Insurance

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Portability and Accountability Act of 1996) detection and prosecution of health

insurance fraud received a boost. The Department of Justice calls health care

fraud and abuse its number two law enforcement priority, after violent crimes. In

1996, according to the FBI, Congress provided an added $54 million over seven

years for health care fraud enforcement.

Property insurance, based upon the Bureaus data, had the third highest fraud

and abuse count by line of business at 165 reported cases. According to the

National Fire Protection Association, arson or suspected arson account for nearly

500,000 fires each year, or one in four fires in the United States. Arson and

suspected arson are the largest causes of property damage in the U.S.

Despite what may appear to be a bleak picture, a number of tools exist for

combating fraud. In addition to those Maine Insurance and Criminal Code

provisions, previously discussed, several federal laws are used to address fraud.

These include: The Federal Mail Fraud Statute, the Racketeer Influenced and

Corrupt Organizations (RICO) and the Health Insurance Portability

Accountability Act (HIPAA). Also, the Violent Crime Control and

Enforcement Act of 1994 makes insurance fraud a federal crime when it affects

interstate commerce.

Certain state agencies work with insurers to address fraud, as well. The Workers

Compensation Boards Fraud and Abuse Unit tackles issues such as fakes or

exaggerated injuries, the Fire Marshals Office investigates possible arson, and

the Department of Human Services takes on Medicare and Medicaid fraud.

Recently, one DHS employee received the Office of the Inspector General

Integrity Award for her investigative and logistical support in a Medicare and

Medicaid fraud case in Bangor Federal Court.

Fraud has also gotten the attention of the National Association of Insurance

Commissioners (NAIC), which encourages the insurance industry to take aproactive role in controlling fraud. The NAIC offers states support through their

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Antifraud Task Force.

The mission of the Antifraud Task Force is to serve the public interest by

assisting state insurance supervisory officials, individually and collectively, in the

following fundamental antifraud activities:

Promotion of the public interest through the detection, monitoring and

appropriate referral for investigation of insurance crime, both by and

against consumers.

Provision of assistance to the insurance regulatory community through the

maintenance and improvement of electronic databases regarding fraudulent

insurance activities.

Disseminate the results of research and analysis of insurance fraud trends

as well as case-specific analysis to the insurance regulatory community

and state and federal law enforcement agencies.

Provision of the liaison function between insurance regulators,

enforcement and other specific antifraud organizations.

Highlights of the 2004 charges of the Antifraud Task Force include: compile and

maintain detailed information on antifraud databases maintained by antifraud

organizations, financial regulators, and law enforcement; consider developing

further guidelines for use by the industry in determining when suspicious claims

should be reported; review industry compliance with antifraud initia

develop methods to enhance the investigation and prosecution of financial

services fraud; and establish guidelines on the investigation and prosecution ofinsider insurance industry fraud.16

Additionally, in 2005 the NAIC created a Fraud Web line, an online insurance

fraud reporting system located on the Web site of the National Association of

Insurance Commissioners (NAIC). The system allows consumers to provide

information anonymously.

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International association of insurance fraud

agencies(IAIFA)

The IAIFA and its members are continually working to improve the quality of

data available to members and break down the jurisdictional barriers by working

with regulators, companies and other law enforcement agencies.Those who break

the law are adept at using these jurisdictional boundaries as a protective shield.

IAIFA is trying to cut red tape involved in the various (often necessary)

jurisdictions' "privacy" laws in an attempt to track down crime and encourage

other enforcement agencies to share information to the mutual benefit of all who

are involved in assuring a high level of integrity throughout the insurance

industry.

Goals:

IAIFA's goal is "to co-ordinate the efforts, training and education of law

enforcement agencies, government bodies, and the insurance industry to move

more efficiently prevent and combat insurance fraud worldwide." IAIFA has kept

its focus on insurance fraud, which its members view as a crime against all

segments of society - not a victimless felony, as some would define it.

WHEN do they meet

IAIFA meets annually. The annual conference hosts eminent speakers whose

presentations update the members on critical developments. It also enhances

personal contacts and exchange of information between members throughout the

year.

IAIFA cooperates in regional seminars which focuses on such topics as how to

effectively use the laws to prosecute and recover assets gained by fraudulentmeans. Added to this, these meetings have widened the network of contacts for

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members from Europe, Asia, Australia, the Caribbean, Africa, and North

America.

Between meetings, ournewsletter keeps members informed of the various

projects undertaken by the Association and its members, as well as presenting

new trends in the field of insurance fraud, both from a criminal and law

enforcement perspective.

WHERE are they found?

International is the first word in IAIFA's name. That means what it says. While

IAIFA began in North America, the founders were not so insular to believe that

they had a unique place in insurance fraud. More than ever, sharing intelligence

and finding ways to successfully prevent and combat crimes is essential for the

members to do their job effectively.

This is why the IAIFA wants even more countries to join in this worldwide

effort. It is a classic case of the sum of the whole being greater than the sum of its

parts. The interchange of information is invaluable, and should be available to

everyone in their fight against sophisticated global fraud

WHO are the members?

It could be you and your organization. IAIFA's members include government

insurance departments and fraud bureaus, law enforcement agencies, respected

insurance companies, and related firms with a strong interest in combating

insurance frauds.

You may obtain the application by logging on the site or by contacting them for a

mailing of the application. Upon receipt, your application will be considered by

IAIFA's executive committee. If you are accepted, you and your organization will

have made a major step forward in beating insurance crime. This will be true not

only for you in your own jurisdiction, but for your colleagues elsewhere, who

will welcome hearing how you cope with escalating problems of insurance fraud.

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WHY were they formed?

Insurance fraud is recognized internationally as a multi-billion dollar problem.

IAIFA was created after a group consisting of the Directors of Insurance Fraud

Agencies from the U.S.A. and Canada met to confront this burgeoning problem

which is not restricted by jurisdictional boundaries.

It soon became apparent that if the agencies could share information they would

increase their degree of effectiveness. Rapid communication is of the essence in

catching fraud artists who know how to move money literally at the speed oflight. From those early beginnings in 1986, with only a handful of members in

North America, IAIFA now encompasses the Globe.

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Dealing with fraud on the Net

As time goes on, the number of attacks will only increase and network forensics

will become a part of our lives, who could put you on the track by helping record

and analyse previous security threats.

In a perfect world, network security wouldnt be required. Unfortunately this

isnt a perfect world, and even if there are many who will throw up a firewall and

other such security measures as solutions, this doesnt stop the problem. No

firewall is impenetrable and theres no such thing as a perfect security measure.

Theres always a way to get around them, and the number of people trying to do

that keeps increasing.

According to the US General Accounting Office, approximately 250,000 break-

ins were attempted into Federal computer systems alone in 1995 and this number

gets bigger every year. Only one to four per cent of these attacks ever get

detected.

Network forensics is the capture, recording, and analysis of network events in

order to discover the source of security attacks or other problem incidents. It

attempts to prevent hackers from attacking a system, and searches for evidence

after an attack has occurred.

There are three parts to network forensics: intrusion detection; logging (the bestway to track down a hacker is to keep vast records of activity on a network with

the help of an intrusion detection system); correlating intrusion detection and

logging.

The ultimate goal of network forensics is to provide sufficient evidence to allow

the criminal perpetrator to be successfully prosecuted. The practical applicationscould be in areas such as hacking, fraud, insurance companies, data theft

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industrial espionage, defamation, narcotics trafficking, credit card clon

software pir

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