The current recession and the increased use of technology have resulted in the Maryland Insurance Administration receiving nearly double the referrals of fraudulent activity this year versus 2008.

Carolyn Henneman

Carolyn Henneman, who heads the MIA’s fraud division, said for fiscal 2008, the department received 1,400 referrals and for fiscal 2009, concluding June 30, the agency received roughly 2,600 complaints of insurance fraud.

A spokesperson for the MIA said the fraud data is a rough estimate as exact figures were being compiled as of press time.

Henneman told attendees at the recent Insurance Roundtable of Baltimore annual seminar that in the past decade, referrals of fraud to the MIA averaged about 1,300, but due in part to the national recession, those numbers spiked in the last fiscal year.

“So those media reports you see about the impact of the recession, there is actually something to that,” she said. “Insurance fraud is a crime mainly involving money, so when people get hard up for money, they view their policy as a savings account. They pay policies year after year and feel entitled to it.”

The second factor leading to the increased reporting, Henneman said, is the MIA’s membership in an electronic fraud reporting system sponsored by the National Insurance Crime Bureau and the Insurance Services Office.

Maryland is one of 46 states participating in the system where insurers input issues regarding fraud into a database that forwards it to state fraud bureaus. Henneman said 75% of the MIA’s referrals are coming in electronically.

While Maryland is a member, Henneman noted that neighboring jurisdictions Virginia and the District of Columbia are not. Virginia is in the process of becoming a member of the NICB reporting program, said a spokeswoman for the Virginia State Police, which handles insurance fraud for the state.

“Obviously, I feel the pain when my surrounding jurisdictions not being a part of this system because it is terrific,” she said. “It works wonderfully.”

‘Give ups’ going up

Among the state’s rising fraud trends, Henneman told agents and brokers at the event, are “give ups,” where policyholders falsely report their car stolen, and others actually burning their cars to collect insurance premiums.

“What we are seeing, particularly in this area of owner give-ups and car burns, is well-educated, middle-class people with no criminal records are doing this,” she said. “…They are under the mistaken impression that that will get them out of their financing, again viewing their insurance policy as a savings account. When we talk to these people, principals, colonels, police officers, teachers, they say ‘I’ve been paying premiums for years, I’m entitled to the money.’”

She said the MIA’s membership in Baltimore’s Regional Auto Theft Task Force (RATT) and the Washington Area Vehicle Enforcement (WAVE) unit are beneficial as each has dedicated officers assigned to possible insurance fraud cases.

“The beauty of that is that we can alert [agents and brokers] to watch for it, notify claims adjusters and avoid paying out,” Henneman said.

Agent fraud referrals rising

While the complete data set for fraud cases in fiscal 2009 has not been released, the MIA did confirm that consumer referrals regarding agent and broker fraud did jump 61% from 52 cases in 2008 to 84 in 2009.

A spokesperson for the MIA said the agency found much of that increase in title insurance cases “due to the troubles in the housing market.” The MIA is currently part of a commission to make recommendations for changes in title insurance laws.

The largest group of fraud referrals, Henneman noted, in 2008 was false applications with 524 cases. Henneman said that the cases are primarily referrals from the Maryland Automobile Insurance Fund, the state’s auto insurer of last resort.

“People lied about where they lived when they applied or lied about where they garage their car,” she said.

This story originally appeared in the November 2009 print edition of Insurance & Financial Advisor.