Posted on 08 Oct 2012 by Neilson
Personal lines insurers expect to see an increase in fraud costs this year and the outlook for decline in those costs is bleak, according to the results of a survey conducted by FICO.
Slightly more than half of the 143 insurance companies surveyed expect fraud costs to rise this year, while virtually none thought costs would go down. About 61% of companies attributed increases in fraud to sustained economic hardship.
The survey also shows a growing industry consensus that fraud is costing companies more than is traditionally thought. About 32% of the companies surveyed thought fraud costs are about 20% of their claims volume. Still, nearly half thought that ratio was in the more traditional range of 5% to 10%, the survey said.
Companies listed inaccurate disclosures as the largest exposure area to fraud in property and automobile for commercial and personal lines and workers' compensation, according to the survey. Companies believe they are most protected against claims fraud, but only about a third feel this way across commercial and personal lines.
Insurance companies and organizations in states with personal injury protection no-fault auto insurance system, like New York and Florida, frequently finger fraud as cost driver. The survey found that 76% of insurers that responded thought there is an increased risk in no-fault states, compared with states with tort systems.
Organized crime also plays a role in fraud costs, with about 60% of insurers expecting a rise in both workers' compensation fraud rings and auto fraud rings.
Insurance companies are putting their own fraud investigation units to work and trying to recoup some of the money stolen by criminal fraud rings. Allstate Corp. in New York has filed 43 fraud lawsuits since 2003 seeking to recover more than $217 million, according to the company.
Earlier this year, Florida lawmakers passed a no-fault auto reform bill which aimed, in part, at combatting fraud in the state's auto insurance system.