More insurance agents ‘cutting corners,’ engaging in fraud, group says

The number of insurance agents involved in suspected frauds has risen since the recession took hold, a new survey found.

Meanwhile, funds devoted to investigating and prosecuting all insurance frauds appears to be decreasing among states and insurers, the Coalition Against Insurance Fraud (CAIF) survey found.

“We are seeing [state] fraud bureaus and insurers cutting back,” Dennis Jay, CAIF’s executive director, told “That’s not a healthy combination. I think we are all going to be paying for it in the future.”

The majority (69%) of state insurance department fraud directors participating in the survey said agent fraud was up “slightly” or “much higher” than in 2008. One quarter of the 37 state fraud bureaus said agent fraud levels were the same as in 2008, and one credit agency reported a decline.

‘Pressure on agents’

Jay, who authored the report, said he found the agent fraud responses surprising, but blamed the economy.

“With premiums down, the number of policies written down, and commissions either stable or going down, I think there is a lot of pressure on agents,” Jay said. “I think those on the edge are cutting corners.”

As companies and individuals look more closely at their premiums, policies and other insurance information, seeking ways to cut costs, the chances of identifying improper or illegal insurance activity increases, Jay said. The same logic has explained why the massive Ponzi schemes of Bernie Madoff and others have come to light since the recession’s start.

Pursuing smaller claims

Jay, whose organization brings together insurers, public interests groups, government entities and consumer groups to battle insurance fraud, also pointed to the possibility that smaller claims are being pursued in a recession. In cases where agents have not actually filed a policy, these small claims can lead to a discovery that the person or business does not have actual coverage.

In other cases, agents just don’t write policies. For instance, Jolie B. Bonvillian, 40, an independent agent from Violet, La., was charged in December 2009 with 85 counts of insurance fraud, three counts of theft, 424 counts of forgery and other charges for allegedly stealing $2.9 million by issuing 85 fraudulent commercial auto policies. The case, initiated from a complaint by Progressive Insurance Co., centers on Bonvillian’s alleged use of fake names, international drivers license information and vehicle information to facilitate 339 bogus premium finance agreements, authorities said.

What is troubling to the coalition is that as agent frauds and some other economy-related frauds are increasing, funding of state-based insurance fraud investigatory units appears to be declining, the survey found.

Fewer dedicated funds

In many states, fraud bureaus are funded through dedicated funds – in some cases by a portion of the premium tax. With premiums decreasing, the amount of money being put in the fraud bucket is correspondingly falling, Jay said.

But in other cases, states have been trimming their fraud investigatory units’ budgets, Jay said.

His office is “very concerned” and investigating the apparent trend more fully. The coalition’s legal staff is evaluating state constitutions and other laws in those states where cuts have occurred to determine if they are legal. If they are, then the coalition may seek legislation action to end the possibility of future cuts to fraud bureau funding, Jay said.

“Not only are states cutting their funds in some cases, but insurers are cutting back, too,” Jay said.

The state cuts in fraud enforcement in some ways mirror insurers, who Jay said also have lessened their financial commitment to the fraud investigations.