No Fault: Making Insurance Fraud Friendly

May 7, 2019

Jim Murphy, M.S., CFE

Car crahsh Insurance image
Car crahsh Insurance image
Car crahsh Insurance image

I recently learned that Michigan is changing their no fault or personal injury protection (PIP) coverage effective July 1, 2020. Before the change, an injured party in an automobile accident had unlimited coverage. Now, several additional tiers were added for the consumer to choose from: no coverage, up to $50k, $250K or $500K and unlimited coverage. From my experience, no fault coverage has always been a beacon for organized fraudsters.

So, what is PIP?

PIP is a mandatory coverage in a number of states. This coverage provides for payment of medical bills and in some instances lost wages regardless of who is at fault for an auto accident, up to the limit of coverage. This also includes pedestrians and bicyclists struck by a vehicle. This sounds like a good thing, right? The answer is both yes and no.

Not having to worry about who is going to pay for your medical bills and lost wages from an auto accident is a great thing. The medical provider bills the insurance company directly, and you as the injured party get the treatment you need to get you back to where you were before the accident, generally speaking. Anything beyond the limits of PIP coverage would then go to your health carrier if you have one.

At the same time, organized fraudsters are looking at PIP as a cash cow. The higher the limit, the more opportunity they have to fraudulently bill the auto insurance tens of thousands of dollars. There is a reason why there are large fraud rings in PIP states with high limits, like Massachusetts (up to $8k available), Florida (up to $10k available), New York (up to $50k available) and New Jersey (up to $250k available).

How the schemes work

In many instances, these complex schemes involve runners, attorneys and medical providers who continuously look at new ways to submit fraudulent bills for services not rendered, upcoding and unbundling (sort of like medical provider fraud). By peppering the insurance company with lots of medical bills, their hope is that an overwhelmed claim staff will just go ahead and pay them. Once they are found out, they change their name or location or look to a different target.

So, what can an insurance company do to detect fraud in a state that has no fault coverage? The first thought is to not panic. Here are a few suggestions:

  • Education: Provide information on what fraud is, how to detect fraud, ways to report fraud to the public, your insureds, agents/brokers and to your staff. As they say, “knowledge is power.”

  • Fraud training and fraud plan creation: Besides education, creating an internal fraud plan is very important to the organization. This should come down from the executive level as “tone from the top.” It instills a commitment to transparency, honesty and ethical behavior at all levels. Further, annual, mandatory fraud training should be the cornerstone in order to keep the staff up to speed on new fraud trends and ways to detect them.

  • Installing fraud technology: Organized fraud rings can be very complex and, in some cases, very difficult to detect by human means. The use of anomaly detection, artificial intelligence/machine learning, predictive analytics and text mining help identify these complex and advanced fraud schemes. Learn more about fraud detection solutions.

I joke when I titled the article “Making Insurance Fraud Friendly,” but it is true that no fault coverage really attracts those with bad intentions. My intent is to educate those involved in dealing with no fault insurance coverage on the fact that there are ways to combat and prevent organized fraud. Ultimately, it is up to all of us whether we are consumers, executives at an insurance company, general public, law enforcement etc… to make insurance more honest by doing the right thing. That could be notifying authorities when fraud is discovered or simply paying better attention to potential fraudulent indicators. We are all in this together!