Professor Jay Feinman, Co-Director of the Center for Risk and Responsibility, has prepared an analysis of the $308.6 billion figure that concludes it is pure misinformation. 1 The methodology used to arrive at fraud figures given to the media and cited publicly to government authorities by these propagandists is unsound. For example, the Coalition Against Insurance Fraud researchers used an estimate of the percentage of fraud in property/casualty insurance claims that is more than a quarter-century old, a percentage that a leading scholar has characterized as “more folk wisdom than fact.” The researchers did not perform any independent research and ignored evidence from state anti-fraud agencies that indicates the amount of fraud likely is far lower than the stated figure. They did not consider the best academic research—or any academic research—on the amount of insurance fraud.

Why should anybody believe the Coalition Against Insurance Fraud when they fraudulently fabricate numbers to support their cause? The Coalition seems to be using the same playbook that the rest of the insurance lobby uses to promote whatever their new agenda is—fabricating statistics and lying to support insurance industry objectives rather than debating the truth.

The Coalition’s estimate relies heavily on outdated data from the late 1980s when insurance adjusters opined that fraud accounted for approximately 10% of property/casualty insurance losses. This figure has been perpetuated without substantial evidence or consideration of how technological advances have impacted both fraud prevention and detection. I understand that when I first called out the Coalition in 2008 for fabricating these statistics in A Response To The Executive Director Of The Coalition Against Insurance Fraud, this blog was a fly in their ointment.

However, when academics also claim that the statistics of fraud are fraudulent, these allegations deserve a response. Otherwise, you lose all credibility with the media and the government officials you are trying to influence. Maybe Matthew, “all claims by policyholders are fraudulent” Monson will come to the Coalition’s rescue with an argument about why made-up numbers are acceptable by the insurance industry and its lobbyists.

The bottom line is that while insurance fraud is a serious concern that deserves attention and resources, inflated statistics do not serve anyone’s interests. The insurance industry’s commitment to fighting fraud is commendable, but the methodology used to quantify the problem needs significant improvement. This was one message raised by William Rabb of the Insurance Journal, as I noted in Insurance Journal Picks Up on Academic Article Exposing Fraudulent Statistics by Insurance Industry. Rabb’s article, Study Stirs Debate on Real Impact of Litigation, Fraud on Property Insurance, stated:

An academic paper published in the Journal of Insurance Regulation seems to have rekindled the debate over how much of an impact litigation and fraud has had on property insurance losses and premiums, particularly in Florida.

The paper, ‘The Case for Pausing Any Immediate Embrace of the Social Inflation Argument for Legal System Reforms,’ was penned by Kenneth Klein, a professor at California Western School of Law, who spent much of his career as a business defense lawyer. It was published a year ago but was reposted recently by Florida plaintiffs’ lawyer Chip Merlin. Merlin argued the study shows that claims of excessive litigation, fraud, and social inflation have been blown out of proportion by the insurance industry.

Has the Coalition leadership removed these fraudulent statistics from their website? Nope. A check last night indicated that they still post these made-up numbers even after being warned about them for more than a decade.

Professor Feinman’s research reveals several critical problems with the Coalition’s estimate. First, the Coalition figure relies on outdated methodology from the 1980s, when adjusters estimated fraud at 10% of property/casualty losses. This decades-old percentage is still being used without accounting for technological advances in fraud detection or societal changes. Those estimates were provided without any support and then simply copied into later Coalition-backed research.

Second, Feinman found that state insurance agency data directly contradicts these high estimates. In Massachusetts, for example, only 43% of insurer-reported fraud cases were accepted for investigation, and just 13% of investigated cases were referred to prosecutors. Dr. Richard Derrig, formerly the nation’s leading expert on insurance fraud, found that the ratio of suspected fraud to provable fraud is approximately 25 to 1. This suggests the true level of criminal fraud would be less than 0.5%, not the claimed 10%, which has been regurgitated for the last 40 years by the Coalition without any foundation.

The Coalition’s report also makes questionable methodological choices, such as counting non-fraudulent auto theft as insurance fraud and including legitimate Social Security overpayments in their calculations. How is social security fraud related to anything involving property insurance fraud statistics?

Perhaps most notably, the report completely ignores fraud committed by insurance companies against policyholders, despite well-documented cases of systematic claims denials and other fraudulent practices by insurers. The Coalition has zero for this number, suggesting that it is in bed with the insurance lobby or under a make-believe scenario that insurers do not participate in any schemes to fraudulently underpay policyholders.

While insurance fraud is a serious concern requiring attention, Feinman argues that using inflated, unsupported statistics undermines the insurance industry’s credibility and distracts from developing effective solutions based on accurate data. Does anybody disagree with that?

Thought For The Day

Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital.
—Aaron Levenstein

1 Jay M. Feinman. Misinformation About Insurance Fraud. Rutgers Center for Risk and Responsibility (Nov. 2024).