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After decades and decades of being on the receiving end of customer scams, large and small, the insurance industry is on to you. Well, maybe not you, personally, but insurers are on to your co-worker whose car mysteriously “disappeared.” And that neighbor who was seen putting his new TV into his truck just before his house fire.

And now that the sagging economy is leading to more attempts to score free money with fraudulent insurance claims, insurers have to be more vigilant than ever. A well-established list of red flags — known to insurance insiders as “suspicious loss indicators” – help the industry zero in on potentially bogus claims.

Insurance companies are using everything from software that spots suspicious patterns in claims to – get this! – real people who review your files.

“The industry has many, many, many years of experience in detecting insurance fraud,” warns Tom Welsh, vice president of training for the National Insurance Crime Bureau (NICB), a suburban Chicago not-for-profit organization that works with insurers and law enforcement to detect and prosecute insurance crimes.”Don’t try it because it’s just not worth it.”

Why care if your neighbor is scheming?

Insurance fraud is big business in the United States. Excluding health care fraud, insurance fraud exceeds $40 billion a year, according to FBI statistics. That price is paid by you in higher insurance premiums, costing the average family $400 to $700 annually. Fraud bureaus around the country reported a significant spike in the number of fraud cases in 2009 compared to the previous year, according the Coalition Against Insurance Fraud.

Car insurance companies saw more policyholders attempt to ditch unwanted vehicles last year in order to get insurance checks. At the same time, two-thirds of the country’s fraud bureaus said home insurance companies received more claims due to arson during 2009, according to the Coalition.

That’s suspicious!

Since its creation in 1992, the NICB has developed 23 “suspicious loss indicators.” They’re going to need them all: In 2009, its 1,000 member organizations — which include insurance companies, self-insured organizations and transportation-related firms, including car rental companies — made about 143,000 requests to NICB for help assessing suspicious claims.

According to Welsh and other insurance-related organizations, some tip-offs that a home or car insurance claim could be bogus are:

  • High debt or financial distress on the part of a claimant, detected by insurance company investigators through forensic accounting.
  • Adding or increasing home insurance or business insurance coverage shortly before damage or theft occurs.
  • Lack of police reports.
  • Damage or theft of old, obsolete items or inventory, or of multiple family heirlooms for which it’s difficult or impossible to establish accurate value.
  • A history of losses and prior claims.
  • A claimant who’s unusually calm after a major loss.
  • Suspicious-looking or handwritten receipts for repairs or replacement of covered property.

Arson alert

The National Fire Protection Association estimates that 300,000 intentional fires occur in the United States each year, causing 400 to 500 deaths and $1 billion in property damage — but only 5 to 7 percent of arson offenses result in convictions, according to the FBI. The U.S. Fire Administration says these are signals that a fire should be further investigated:

  • It occurred during a renovation or to a structurally damaged building.
  • Valuable or sentimental property, personal items, important papers or pets were removed from the premises.
  • There are no accidental or natural causes at the point of origin.
  • There’s an unusual presence of combustible materials or multiple separate fires.
  • The fire started immediately following a family argument or shortly after family members leaves the premises.
  • The fire spread unnaturally or caused excessive damage.
  • Firefighters’ access was blocked by vehicles or contents pushed up against entry doors.
  • The homeowner’s movements are unaccounted for.
  • The value of damaged items seems improbable, given the policyholder’s income.

Injured? We’ll see about that

 A 2009 NICB study found a dramatic increase in questionable claims against casualty, commercial and worker’s compensation policies from 2007 to 2008. According to NICB and Travelers Insurance, fraudulent personal liability or worker’s compensation claims often include one or more of the following factors:

  • Claimants who allege they slipped and injured themselves, often in a restaurant’s washroom or kitchen, usually without a witness.
  • Medical documentation that appears to be altered or fraudulent.
  • A disgruntled employee, or someone who was slated for a layoff, termination or disciplinary action.
  • A new hire or someone with a spotty employment record.
  • Accidents or injuries reported to have occurred late Friday or early Monday morning, suggesting it may be the result of a nonwork-related, weekend activity.
  • An injured worker who is reluctant or refuses to accept treatment from a health care provider.
  • A physician’s diagnosis inconsistent with the treatment.
  • A worker who takes off more days than the accident would seem to warrant.
  • A delay in reporting an accident.
  • An injured worker who is seasonal and about to conclude the job.
  • A worker who is observed in work or recreational activities inconsistent with the reported injury.
  • An injured employee on a worker’s compensation disability who can never be easily contacted or who provides a beeper as his main number.

You may have a legit claim but also find that you have one of these “suspicious loss indicators.” Although these red flags can trigger a closer examination by an insurance company, they “don’t prove fraud, they just indicate that something needs to be checked out,” Welsh says. “Policyholders shouldn’t be afraid to submit a legitimate claim.”

In the end, says Welsh, “Insurance companies don’t want to pay anything they don’t legitimately owe because that hurts their customers and their business. Fraud hurts everybody because everyone’s premiums go up when fraud happens.”