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SUMMER 2009

MORTGAGE FRAUDS ADD SMOKE

Cons steal homes for low prices, then burn them for insuranceThe recession continues clanking through the fraud world. Desperation and

anxiety are driving normally honest consumers to burn homes and cars for insurance payouts. But coldly exploitive schemes run by cunning criminals also are rearing up.

Organized home arsons fueled by mortgage fraud are spreading, some investigators say. Shady low-cost health plans aimed at cash-strapped consumers and small businesses also are surfacing as consumers and small businesses struggle with spiking health premiums.

“What is new is mortgage fraud, a lot of it with foreclosed and vacant properties. We’re starting to see large negative numbers. This always goes on, but we’re seeing a lot more of it in the recession,” says Douglas Ashbridge, director of special investigations for Farmers Insurance Group.

The scams come in many flavors. People buy abandoned or distressed homes for lowball prices. Some buy multiple properties. They may get a crooked Realtor to help grease the deal, and have a shady appraiser falsify documents to obtain a higher mortgage and homeowner policy for a fraudulently inflated home value, Ashbridge says.

The owners then might torch the places for large insurance payouts, or stage burglaries or vandalisms that churn out large property claims.

“It’s a spawning ground for arsons, but a lot of it also is water damage and vandalism,” Ashbridge says. “People are taking furniture and other expensive possessions out of their homes, then damaging and vandalizing the homes, making a large damage claim and putting the stuff back.”

Akiva Abraham allegedly torched a vacant Saratoga, N.Y.-area concert hall for $475,000 in insurance money just a month after buying it. He acquired it for nothing from the previous owners, then allegedly used a fraudulent mortgage loan to buy a suspiciously large policy on the empty building. Accelerants were found inside and outside the building, which also had no power.

“There are a few areas in which the homeowner purchases a property in foreclosure for a substantially reduced price, which does not involve a mortgage,” adds Becky Abel, Claim Service Manager, SIU, with Allstate Insurance.

“Within a short period of time a fire ensues, which is given the appearance to be accidental, not incendiary in nature. There is no intent to rebuild the structure and the policyholder receives the insurance settlement.”

Economy could drainfraud-fighting effortsThough ditched vehicles have taken

center stage during the downturn, other suspicious claims are emerging. Consider this recent report by the National Insurance Crime Bureau, which shows these spikes in the first quarter of 2009 over the same period last year:

Cloudy claims for suspicious vehicle fires/arsons rose 27 percent;

Slippery slip-and-fall claims soared 60 percent under casualty policies, and 77 percent under commercial policies;

Potentially unworkable workers comp claims bounced upward 71 percent;

Few will hail the whopping 407-percent rise in slippery hail claims; The report covers questionable

claims by NICB’s member insurance companies, which reviewed them and classified them as potentially bogus. “Desperate times sometimes cause people to take desperate measures,” says Joe Wehrle, NICB’s president and “…They are breaking the law, risking jail time and causing everyone else to pay more for their insurance coverage,” police chief John Timony recently told Reuters.

INSIDE

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The Coalition Against Insurance Fraud is an independent, nonprofit alliance of consumers, government agencies and insurers dedicated to combatting all forms of insurance fraud through public information and advocacy. Fraud Focus is published four times a year. Material may not be reproduced without prior permission. Contact Information: 1012 14th Street, NW, Suite 200, Washington DC 20005; phone 202-393-7330; fax 202-318-9189; email info@insurancefraud.org.

2009 The Coalition Against Insurance Fraud, Inc.

Board of DirectorsDennis Schulkins, Co-ChairState Farm Insurance CompaniesJames Brown, Co-ChairCenter for Consumer AffairsUniversity of Wisconsin-MilwaukeeDoug Ashbridge, TreasurerFarmers Insurance GroupSteve Perry, SecretaryNational Association of Insurance Commissioners

Allstate Insurance Jim MurrayAmerican Council on Consumer Interests John BurtonAmerican Family Insurance Scott StrainAmerican Insurance Association Peter Foley

Citizen Advocacy Center David Swankin CNA Jim MartinConsumer Action Ken McEldowneyConsumer Alliance Don RoundsConsumer Federation of America Stephen Brobeck

Consumer Federation of the Southeast Walter DartlandErie Insurance David RiouxFlorida Consumer Action Network Bill NewtonHanover Insurance Group Frank SztukHartford Insurance Group John McGoldrick

International Association of Insurance Fraud Agencies Robert F. Craig Liberty Mutual Group Glenn D. WolfLouisiana State Police Robert BennettMassMutual Barbara CarraMetLife, Auto & Home John Sargent

National Association of Consumer Agency Administrators Elizabeth OwenNational Association of Insurance CommissionersHon. Sandy PraegerNational Conference of Insurance Legislators Hon. Brian KennedyNational Criminal Justice Association Cabell C. CropperNational District Attorneys Association Sean MorganNational Fraud Information Center vacantNational Insurance Crime Bureau Joe Wehrle

National Urban League Robert McAlpineNationwide Insurance David BanoOffice of Attorney General, Pennsylvania Hon. Tom CorbettOneBeacon Insurance Boris Shekhtman

Pennsylvania Insurance Fraud Prevention Authority Ralph BurnhamProgressive Insurance Jeff MoorePrudential Insurance Helene GurianSentry Insurance John D. Kloc

Travelers Insurance Ken JonesUnum Group Dave CovinoZurich North America Brian Wilson

StaffDennis Jay Executive DirectorHoward Goldblatt Director of Government AffairsJames Quiggle Director of CommunicationsKendra Smith Executive Assistant

2 Summer 2009 • Fraud Focus

C O V E R S T O R Y

But illegally ditching unwanted vehicles for insurance payouts remains the recession’s iconic insurance crime. Some recent reports:

Referrals for suspected vehicle dumping spiked 37 percent in Miami from 2007 to 2008. Suspected fraud-related vehicle arsons rose 11.6 percent statewide during his period, the Department of Financial Services says.

Vehicle giveups increased 35 percent in New York State from 2007 to 2008, the state frauds bureau reports.

Vehicle arson cases have doubled in Louisville since 2007. Most involve high-end, big-dollar vehicles.

Burned cars have soared 50 percent in Las Vegas over the last two years, says one news report. They’re also driven off cliffs, sunk into nearby Lake Mead and hidden in Red Rock Canyon.

But how much staying power the so-called “vehicle giveup” trend will retain is a question. Cases have leveled off at Farmers Insurance, Ashbridge says.

Shady health-insurance plans also are showing up. Vulnerable families and businesses are struggling with double-digit premium hikes are the main targets. Typically, health cons lure victims with discounted premiums and easy signup despite preexisting conditions.

“Companies that are not licensed by the state to sell insurance might lead consumers to think they are operating legitimately, all while attempting to evade state insurance regulations,” says Tennessee insurance commissioner Leslie A. Newman.

One outfit called the National Trade Business Alliance of America has been shut down by regulators in several states in recent months.

The New Jersey-based firm peddled low-cost but phony coverage via blast-fax ads. The group provided a tollfree number but no physical address. It collected premiums through automatic bank-account withdrawals. About 800 people in Florida were stuck with $100,000 in claims the Alliance didn’t pay, Florida’s Department of Financial Services says.

In Texas, Paula Garst received 37 months in federal prison for selling phony health coverage to small businesses and self-employeds. Her firms were called Direct Marketing Services, Healthcare Solutions and Advanced Marketing Group.

Fake health plans spread rapidly between 2000 and 2005 until state regulators shut most down. It’s unclear if the latest health cons will spread as far because regulators are far more alert today.

Whatever the line of insurance, fraud likely will continue spiking as long as the recession retains its grip on America.

“We’re seeing more investigative action than we’ve ever seen,” says one property-casualty SIU manager. “We’re in the biggest case assignment month we’ve ever had. Our case scorecard is up 30 percent over last year with the same staff, and claim severity also is up. I’ve talked to five other carriers and they all said the same thing. I believe much of it is tied to the economy.”

Mortgage Arsons — Continued from Page 1

“We’re seeing more investigative action than we’ve ever seen,” says one

SIU manager. “We’re in the biggest case assignment

month we’ve ever had. Our case scorecard is up 30

percent over last year with the same staff, and claim

severity also is up. I’ve talked to five other carriers and they

all said the same thing.”

Summer 2009 • Fraud Focus 3

F R A U D N E W S

New consumer ads unveiled in PennsylvaniaMany Pennsylvanians might commit insurance fraud if they had a chance. That’s among the findings of a public-opinion study used to develop a new statewide awareness campaign by the Pennsylvania Insurance Fraud Prevention Authority (IFPA). First the good news: Nearly seven of 10 Pennsylvanians would never commit

fraud. But…that also means about 2.5 million people would consider doing a scam. Only one of six Pennsylvanians even knows what fraud is, fewer realize it’s a felony, and few people even want to learn about fraud. Nearly all Pennsylvanians believe insurance schemers are rarely busted, and just one of four people are likely to report a suspected con. IFPA is striking back with TV and radio spots, a revamped website (www.helpstopfraud.org), and outreach to business and other groups. One 30-second TV spot features a man thinking of inflating a burglary claim to scam a bigger TV. That’s a bad move, his friend says. “We want more consumers to understand that lying to their insurance company is a felony for which they can be investigated, charged and punished,” says Ralph Burnham, IFPA’s executive director.

Hate bait: Bigotry used to camouflage insurance scamsMasquerading insurance cons as hate crimes may be an increasingly common tool

in the arsonist's fraud toolbox. Richard Wu said bigots took him and a friend to an Asian restaurant in Columbus, Ohio. The abductors spray-painted an anti-Chinese slur on a wall, then set the place on fire and left Wu and his friend to die, Wu said. But Wu burned down the place himself. The owner paid him $2,500 to torch the place for insurance money. Wu botched the job, however, ending up in the hospital with burns. Investigators confiscated two backpacks from a car near the owner’s home. The packs contained scorched clothing smelling of gasoline. Wu faces up to 20 years in federal prison when sentenced. Meanwhile in Houston, Samuel White allegedly torched his home for an insurance bailout to avoid foreclosure. The African-American man spray-painted racial slurs on the walls to hide his crime, prosecutors contend. A Georgia woman burned down her home but claimed bigots targeted her for supporting Barack Obama’s presidential candidacy, prosecutors say. Mizra Akram tried to torch his failing grocery store in Everett, Wash., spray-painting anti-Muslim graffiti around the store to make the fire seem like a religious hate crime.

Insurer suit puts brakes on suspected staged-crash conState Farm was awarded more than $15.4 million in a federal RICO suit against

nine medical professionals who inflated claims for treating victims of auto crashes. Philadelphia osteopath Dr. Arnold Lincow allegedly led the con. State Farm said he prescribed full menus of tests, treatments, prescriptions and medical equipment whether or not the crash victims needed them. Lincow then routinely billed the insurer for phantom treatments, State Farm argued. He ordered Dr. Stephen Sachs to incorrectly interpret diagnostic tests as positive or abnormal to exhaust the victims’ auto coverage limits, State Farm contended. Lincow also had pharmacist Stephen Hirsh fill unneeded prescriptions. The pharmacist paid kickbacks to Lincow disguised as inflated rent payments to retain exclusive access to the shady business Lincow and his cronies funneled his way. One doc wrote prescriptions even though he wasn’t the treating prescription and didn’t appear on the patients’ charts. Lincow was hit hardest during sentencing; the court ordered him to pay State Farm $5 million.

In Brief

Nominations are being sought for the coalition’s Prosecutor of the Year Award to honor insurance prosecutors for courtroom

excellence or overall leadership. Deadline is Sept. 1. Contact Jim Quiggle at 202-393-7331 or jamesq@InsuranceFraud.org…The once-downtrodden city of Lawrence, Mass. is a better place to live. Auto premiums have dropped 34 percent since 2004, thanks in large part to a

taskforce’s withering crackdown on staged-accident rings that once ruled the streets…The New York frauds bureau is lending attorneys to counties free of charge to help handle complex cases that often go un-prosecuted for lack of special skills such as accounting. One prosecutor rang up seven felony convictions in just his first few months…The sagging economy is literally driving more people to ditch their vehicles for insurance money. This is a big mistake that could cost them dearly if they’re caught, the coalition warned in a Good Morning America story on spiking vehicle giveups…Clear Vision in an Unclear Economy. That’s the title of the coalition’s annual report. Learn how the coalition broke the national news trend of recession-driven home and vehicle arsons. See why Al MacKenzie’s convicting schemers for tax fraud earned him the Prosecutor of the Year award. Discover how insurers joined to combat rampant medical fraud. Download the report at http://www.insurancefraud.org/downloads/annualReport08.pdf.

Send Us Your NewsLet us know how your organization is combating insurance fraud. Send your news to: Fraud

Focus, 1012 14th St. NW, Suite 200, Washington DC 20005 or fax to 202-318-9189 or email to news@insurancefraud.org.

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Summer 2009 • Fraud Focus 4

P R O F I L E

B y J A M E S Q U I G G L E

With momentum rapidly building for overhaul of America’s aching health system, fraud fighters are working to ensure the onrushing proposal includes a large spoonful of medicine for cheaters who loot the system of billions annually.

The seismic push in Congress, the Administration and many sectors of private industry for an extreme makeover of the $2.5-trillion healthcare behemoth gives fraud fighters a once-in-a-generation chance to embed potentially game-changing anti-crime reforms that have languished on Washington’s back burners for years.

“Systems carefully designed and set up to provide the best possible health care have turned out to be fabulously attractive targets for criminal fraud,” says Malcolm Sparrow, professor of public management at Harvard’s Kennedy School of Government.

“So healthcare policymakers find themselves plunged into the crime control business, whether they like it or not. Many don’t like it.”

In fact, fraud is a significant cost driver in the bloated healthcare system. Private health insurers and taxpayer health programs such as Medicare and Medicaid alone could easily lose $100 billion annually to cheaters, guesstimates the National Health Care Anti-Fraud Association.

But pandemic piracy goes well beyond traditional healthcare schemes. Auto and workers comp insurers lose tens of billions annually to medical

cons. This makes health scams—or more accurately, medical fraud—a money-slurping fraudopotamus that loots private insurers, consumers and

taxpayer-funded programs across diverse lines of insurance.

Bogus injury claims from staged crashes or workers comp medical mills, for instance, are multi-billion crime sprees. Well-organized gangs also are prolific multi-taskers. Cabals of Russian or Asian immigrants who pillage Medicare, for instance, also may stage car crashes targeting auto insurers.

Consider also: The credit-card industry’s threshold of acceptable risk is one tenth of a percent of transaction volume. The health industry routinely estimates losses of about 10 percent—100 times the credit-card industry’s risk level, Harvard’s Malcolm Sparrow says.

Add the large toll in damaged lives, societal disruption and lost productivity, and stanching medical schemes has gained a prominent place at the negotiating table as overhaul picks up steam in Democrat-controlled Washington.

The massive reform bill could easily emerge by Capitol Hill’s August recess. By Washington standards, this is a break-neck pace for such steroidal

change. Legislatively, this is almost akin to driving at 90 mph through the hairpin turns of Italy’s mountainous Amalfi Coast. Congress and the Administration are consulting the National Insurance Crime Bureau (NICB) and Coalition Against Insurance Fraud, among other anti-fraud groups. NICB is playing a lead role for property-casualty insurers, and has set up crucial meetings with policymakers that are helping fashion an anti-fraud agenda that crosses diverse lines of insurance. The coalition’s national expertise

uniquely spans diverse lines of insurance, plus a highly credible consumer voice.

A consensus still is forming on a crime-busting platform. But a fraud genie would pull ideas such as these from his magic reform lamp:

Embed accountability. A federal fraud czar within the Department of Health and Human Services should direct the anti-fraud effort, and be accountable for results. A truly encompassing surge will involve too many players for the clampdown to self-manage. Dozens of federal and state agencies, private and taxpayer-funded insurers, law enforcement and others must work in tandem.

Impose overwhelming force. Medical schemes must be hunted down with crushing force. The focused weight of private and public agencies working in partnership can impose lethal firepower on embedded swindles.

Health reform an Rx for medical cons?Fraud fighters negotiating fraud antidotes into reform plan

“So healthcare policymakers find themselves plunged

into the crime control business, whether they like it or not.

Many don’t like it.”

Summer 2009 • Fraud Focus 5

These partnerships must be a primary anti-fraud strategy.

Empower state crackdowns. Many medical fraud schemes are first detected by state and local agencies. But they’re often the least-funded and worst-equipped to combat medical fraud. Federal grants can help fund state fraud bureaus with investigators, prosecutors and others to clamp down on medical schemes. Grants also can help state anti-fraud agencies and medical boards better train to investigate medical fraud.

Mine better field intel. Incredibly, this multi-trillion-dollar business lacks decent fraud data. Databases are scattered and not connected, and modern datamining often is limited.

Creating a national database of suspect medical providers who may be defrauding both public and private payers will help turn this around. Fraud

fighters will have better intel to uncover schemes. We’ll know more about what schemes are being launched, where, and by whom. Fraud fighters finally can deploy strategy, manpower and budgets where most needed.

Ensure tough penalties. Like the Sword of Damocles, a valid threat of tough but fair punishment can deter wrongdoers, sweep convicted cheaters off the streets, and recover stolen money.

But right now we don’t know if jail terms, fines and restitution are strong enough or consistently applied at state or federal levels. Nor do we know if state medical boards effectively weed

out bad apples. We must research whether penalties are working, then impose stiffer punishment when needed.

Litigation protection. Whistleblowers who report fraud in the Medicare program are granted protection from medical providers filing suit against them. The same protection should be extended to private insurers and other individuals to encourage more cooperation with federal law enforcement.

Change toxic attitudes. Medical fraud can’t be arrested out of existence. We must reverse lax attitudes that allow schemes to thrive. A longterm public-outreach campaign must be funded.

But whether these and other anti-fraud provisions will end up in the final healthcare package, the Obama Administration has signaled it’s getting serious about stanching Medicare fraud, waste and abuse.

President Obama says he plans to pump an added $311 million into muscling up Medicare crime-busting next year—a 50-percent hike over current spending. This will save $2.7 billion over five years, the Administration says.

Medicare suffers from lax oversight and inadequate anti-fraud resources.

The taxpayer-funded program for the elderly thus is a soft—and favorite—target of the criminal underworld.

Among the Administration’s new initiatives:

Launch a high-level task force that will use advanced technology to snoop out schemes. This will give investigators more real-time field intel on rapidly moving schemes;

Create strike forces in hardhit Detroit and Houston, and beef up forces already working Los Angeles, Miami and other cities that see large volumes of theft; and

Increase by 10-fold the number of agents and prosecutors operating in these key cities.

Amid the optimism surrounding the promised new funding, the coalition is sounding a cautionary note.

“Private insurers should…watch carefully in the months ahead to see whether (the Administration) follows through on these initiatives. Because if they are successful and this crackdown is serious, guess where medical providers will turn to next to make up loss profits?”

James Quiggle is director of communications for the Coalition Against Insurance Fraud.

Kennedy health-reform bill contains anti-fraud provisionsProposed health reform legislation being considered by the Senate Committee

on Health, Education, Labor and Pensions includes a section on preventing fraud. Elements of the proposed law includes:• Creating a permanent structure in the federal government to

coordinate anti-fraud activities within the government and with states and private insurers;• Allowing greater information sharing among all fraud

fighters, public and private; and• Giving states more powers to crack down on bogus health

insurers who claim they are exempt from regulation because of the federal Erisa act.The legislation is potentially a breakthrough both for health insurers and

property/casualty carriers in their campaign to deter, detect and investigate fraud by medical providers. This is but a first step, albeit an important one.

“Private insurers should watch carefully in the months ahead to see

whether (the Administration) follows

through on these initiatives.”

Summer 2009 • Fraud Focus 6

C R I M E W A T C H

Agent steals premiums, kills fraud auditorInsurance agent Michael Howell murdered the state fraud investigator who was auditing his books for suspected theft of client premiums. The Charlotte, N.C. agent had stolen more than $150,000 in premiums from hundreds of clients. He didn’t send the money to GMAC Insurance and Discovery

Insurance. Instead, Howell issued fake policies to cover his tracks, leaving the clients dangerously unprotected. State insurance department auditor Sallie Rohrbach received a tip, and drove in from Raleigh to scour the books of the Dilworth Agency in May 2008. She quickly found signs of larceny, but disappeared just two days after opening her audit. Her state-owned car was found in a restaurant parking lot less than half a mile from the agency. Investigators also discovered blood on the carpet and computer cord in Howell’s office. Rohrbach’s body was found two days later in a wooded area in South Carolina. Howell pleaded guilty and will serve up to 35 years when sentenced in July. More complete story details available online.

Dad poisons children’s soup to ladle out extortion plotA Georgia man received 100 years in federal prison for poisoning his two

kids’ soup with lighter fluid and prescription drugs to extort a payday from the Campbell Soup Co. Former truck driver William Cunningham’s kids were 18 months and three years old at the time. He first placed hot peppers in three-year-old Billy’s soup, roasted beef tips with orzo pasta. The child’s face and mouth burned and swelled up badly, and he went to the hospital. About two weeks later, Cunningham laced Billy’s and Miranda’s bowls of SpaghettiOs Sliced Franks with lighter fluid and antidepressants. Later he forced more of the poison soup down their throats, and they went to the hospital. Cunningham threatened to sue Campbell, but the company found no evidence it had prepared tainted soup. The kids may have suffered permanent lung damage from the lighter fluid, which scarred their lungs. They now need breathing treatment, relatives say. No one knows how widespread such insurance extortion cons are, but the initial negative publicity can damage victimized businesses. Ronald and Mary Evano swallowed glass shards they claimed were lodged in restaurant meals and drinks up and down the East Coast. And Carla Patterson lied that she found a dead mouse in her chilli at a Cracker Barrel in Newport News, Va.

State Farm rats out rodent con at California auto repair shopTwo body shop owners plopped dead mice onto car engines to convince

insurers that rodents had chewed up the expensive wiring. Mehran Baranriz and his wife Bita Imani stole more than $1.2 million in bogus repair charges using the rodents as props. The Redwood City, Calif. couple kept a supply of dead mice in their shop, Group Specialists. They even painted the mice black to look like rats. When high-end vehicles such as Mercedes and Beamers came in for repairs, employees placed the dead mice under the hood and even sprinkled rodent droppings around the engines. Then they told insurers that rats had chomped on the engine wiring. Rodent damage to vehicles apparently is a problem in California, but Baranriz and Imani got greedy and overplayed their hand. State Farm investigated after noticing the pair charged about $10,000 per repair—more than 10 times the state average. Many repairs weren’t even done, and damaged parts weren’t replaced. Baranriz and Imani pleaded guilty and face up to six years each when sentenced in August.

In Brief

Arson Two teens blew up a house for renters trying to steal insurance money in Charlotte, N.C. The walls blew off, and a nearby home’s siding melted. The teens had third-degree burns…Staged accidents Solomon Davis received 12 years for running a staged accident ring that cruised Los Angeles-area freeways, jamming on their brakes to cause collisions for making fake injury claims via a crooked clinic and sham law practice he oversaw…Property Thomas Lee Deatherage said thieves stole more than $100,000 in equipment from his Reno music store. But he invented receipts and invoices for fake inventory. Phone numbers on receipts belonged to his former store manager…Insider Prudential customer service rep Melita Bilali fraudulently issued $7,500 in disability checks to a crony, changing the addresses in Prudential’s database, New Jersey officials say…Workers comp Roger Rosenberry said both legs and an arm were paralyzed. He sought $617,000 in comp money. But the Ohio workers comp unit caught him driving, walking and opening doors…Drug diversion Dr. Warren Stack dolled out insurer-paid painkillers to as many as 80 addicts a day, rarely giving medical exams. Five of the Salt Lake City doc’s patients died of overdoses…Life Former NFL player Eric Naposki allegedly shot his ex-girlfriend’s boyfriend six times in the victim’s home for $1 million in life insurance. Naposki played for the Indianapolis Colts and New England Patriots.

Summer 2009 • Fraud Focus 7

L E G I S L A T I V E M O N I T O R

State budgetcrunches crunchanti-fraud efforts

Back in January, fraud fighters knew 2009 would be a rugged year for inking new state fraud laws onto the books. Lawmakers would focus more on balancing rickety state budgets than on torpedoing insurance cons.

With most statehouses now closed for the year, that prediction has come true. Call this legislative session anti-fraud lite, with only a few substantive new fraud laws on the books.

In one of the year’s biggest successes, Texas made it illegal for lawyers, chiros and other health providers to solicit victims of accidents (or other catastrophes) by phone or in person for 30 days after the accident.

Telemarketers, especially, try to badger badger victims into seeking bogus treatment at crooked clinics. The Texas Committee on Insurance Fraud strongly pushed the bill, which the governor has signed.

Hawaii expanded the fraud unit’s authority from auto schemes to all lines of insurance except workers comp. Workers comp was excluded to avoid divisive infighting over comp provisions. The coalition actively supported the bill, advising the sponsor and writing letters to statehouse leaders backing the expansion.

Being an unlicensed public adjuster became an act of insurance fraud in Maryland. Conmen pretending they’re adjusters inflate fees and pad damage estimates. This can be a consumer and insurer ripoff, especially after natural disasters.

Many states also are battling costly abuse of addictive prescription drugs such as insurer-paid painkillers.

Florida has enacted a prescription-monitoring law, which revolves around a database that helps pharmacies, law enforcement and others track patterns of prescription drugs use statewide. But bills in Georgia and Oregon fell short.

Insurers often pay for diverted

prescription drugs via bogus claims by abusers and crooked medical providers.

Budget woes torpedo effortsUrgent budget crises are pressuring

fraud fighters in several states.Perhaps the biggest threat comes

from an ill-advised proposal in California to downgrade most insurance crimes from felonies to misdemeanors. The move would cut state spending, in part by keeping so-called “minor” offenders out of crowded state prisons.

This would embolden fraud rings and threaten public safety. “Taking the power out of the hands of the public prosecutor to charge someone with a felony crime will have a serious impact on public safety,” the coalition, NICB, NHCAA and IASIU said in a joint letter to Gov. Arnold Schwarzenegger. Large fraud rings also would step up their activities without tough deterrent penalties.

Arizona’s fraud bureau was virtually gutted in a cost-cutting effort. Staff was slashed, caseload reduced and staff hours cut back.

An effort to increase the assessment insurers pay to fund Utah’s fraud bureau also was grounded. The unit had dug up so many new crimes that it needed more resources to handle the caseload. But lawmakers refused to expand the agency while cutting back other agencies—even though the unit’s funding didn’t involve new taxpayer money.

Health reforms pushedIn separate news, the NAIC and anti-

fraud groups are pushing for creation of a group to coordinate the anti-fraud efforts of federal agencies, state regulators, insurers and law enforcement as part of the push for healthcare reform in Washington (see Profile story).

And in Maine, a bill creating a fraud unit was delayed for more debate next year. A fraud bureau would be a big step in curbing crime, the coalition told the Senate in testimony this spring. Anti-fraud groups will meet this fall to plan strategy for Maine.

In Brief

Michigan is debating creating an auto insurance fraud prevention authority…A Texas proposal deleting telephone numbers and other identifiers from police accident reports was stalled for the year…Kansas and Minnesota inked false claims acts (or whistleblower laws) allowing the state AG to sue cons who defraud state programs…A similar effort failed in Maryland…In Washington State, a measure allowing insurers to sue swindlers to recoup investigative costs was quashed…New Jersey passed a law that could threaten fraud investigations, convictions and lawsuits involving illegal referrals by medical providers to outpatient surgical centers in which the provider has a financial interest. One provision retroactively legalizes case referrals…In New Mexico, a measure letting courts increase fraud penalties by combining stolen money from several schemes died quietly…In Maine, a bill making it a crime to steal airbags from vehicles failed…Alabama and Oregon once again failed to pass bills making insurance fraud a specific crime. Only three states lack such a law…An effort in Rhode Island to require fraud warnings on claim forms and applications still was alive at presstime…A California congressman wants to create a federal commission to study the nation’s workers comp system, including anti-fraud efforts…NCOIL worked on two model fraud bills at its recent summer meeting: One imposes penalties for businesses that misclassify workers to avoid comp premiums. The other model creates a range of penalties for airbag fraud…The NAIC will hold its fall meeting Sept. 21-24 in Washington, D.C.

P E R S P E C T I V E

Fraud through a prosecutor’s eyesB y C a ro l y n H e n n e m a n

I joined the Maryland Insurance Administration as head of its Fraud Division in August, 2008 after 25 years prosecuting financial crimes, and bring that mentality to this job. But this job goes far beyond investigating and prosecuting fraud cases. It’s also about educating the public about the costs of fraud, and working with the industry to detect and combat schemes.

In other words, there’s a new sheriff in town.

Maryland will create a new emphasis on building solid, winnable criminal cases. This will happen through better communication with our partners in the insurance industry, prosecutors, courts and public. There also will be more emphasis on consumer education and deterrence.

Especially, the fraud division will better communicate with insurers about what is necessary to make a solid, winnable case. There must be several fraud indicators, which your SIU has confirmed with a thorough investigation…the amount of stolen insurance money must be over $500…and the case must be referred to us.

A suspect’s failure to cooperate with an insurer’s fraud investigation, however, is not the sole reason to refer a case to us. Nor is failure to honor a civil settlement of a fraudulent claim. But if you believe there is fraud, refer the case before trying to settle in civil court. Call us if you have a question about whether to refer.

It is the fraud division’s duty to provide prosecutors and the court with clear and complete casebooks that include a concise narration of the facts…copy of the relevant statutes…explanation of the theory of prosecution…description of the evidence and how it supports the charges…and list of the necessary witnesses and their planned testimony. We also must ensure those witnesses appear in court each date the case is on the calendar.

We also will consider charges in addition to insurance fraud, when merited. If the defendant lied at an Examination Under Oath, for example, we will charge perjury. But when you refer us a case, please include a victim impact statement—the Coalition Against Insurance Fraud has templates to assist you in drafting one. I can say from personal experience in prosecuting cases with corporate victims that outlining the crime’s

impact on the company goes a long way toward persuading the judge that fraud is not a victimless crime.

But we also will attack schemes before they are committed. This means stepped-up educational deterrent campaigns. An example is a vehicle-arson flyer we sent to all driving schools in Maryland during National Arson Awareness Week in early May. The flyer educates new drivers that burning their cars to have insurance pay for financing they can’t afford is both dangerous and illegal, and won’t end their loan obligations. We partnered with the coalition in this campaign, and look forward to building that partnership.

We also will rigorously monitor insurer fraud plans and annual fraud data reports every insurer licensed in Maryland is required to file. Our goal is to ensure the mechanisms are in place to detect and report fraud. We look forward to working with the industry to perfect those mechanisms.

We also will work closely with other divisions of the Maryland Insurance Administration to set up an “early warning system” to alert us about complaints or problems involving agents suspected of committing fraud. We will pursue administrative and criminal proceedings whenever merited.

Finally, we plan to introduce legislation creating a civil insurance-fraud penalty next year. We often decline to prosecute criminal cases because the evidence doesn’t prove fraud beyond a reasonable doubt. But with a civil penalty that imposes stiff fines, many schemes that now fly below the criminal radar will be caught and penalized. I look forward to working with the industry in drafting this bill.

Like I said, there’s a new sheriff in town.

The author is Associate Commissioner, Insurance Fraud Division, Maryland Insurance Administration.

1012 14th Street, NW • Suite 200Washington, DC 20005

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corrections to

202-318-9189