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«Insurance Fraud Bureau: Does Wisconsin Really Need One? Nathan L. Taarud Abstract Wisconsin is one of nine states without an insurance fraud bureau. ...»

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Two of the survey respondents have investigated insurance fraud for 25 years and 21 years, primarily in Wisconsin. Each has investigated approximately 2,000 claims in that time. They estimate 60-75% of those claims contained some element of fraud. However, less than two percent of those cases were prosecuted.

If as few as half of the claims were fraudulent, that would still amount to approximately 2,000 fraudulent claims investigated between the two of them in www.jecm.org Journal of Economic Crime Management Fall 2006, Volume 4, Issue 2 the last 25 years. If 30-40 of the 2,000 cases were prosecuted, there is just over a one percent chance of facing any penalty.

One respondent has been an insurance investigator in Iowa for three years.

About seven of the cases he has worked have been prosecuted. He believes prosecutions are under-reported in Iowa. He knew of a specific case handled by a local law enforcement agency, where the local police handled the case from beginning to end. In this case the Iowa IFB never got involved and therefore most likely never obtained information about the prosecution.

An investigator for the Iowa IFB echoes those thoughts. The prosecution numbers they keep are for known cases only. He said there is no requirement for local and county DAs to report prosecutions to the IFB. He said the IFB may become involved in the investigation, but if the DA prosecutes the case months or years later, the IFB often is not informed of the outcome.

One respondent has been an insurance investigator in Wisconsin for over eight years and was formerly a police officer for 23 years in Wisconsin. He investigated no cases of insurance fraud as a police officer. As an insurance investigator he has seen no prosecutions of insurance fraud. He investigates approximately 120 cases each year. Half involve fire investigations, while the other half are for thefts and injury accident claims. He added that there should be a stepped-up effort to combat insurance fraud. He believes it would be advantageous for insurance companies to follow-up with claims after they have been closed out. He believes there is no push for prosecuting insurance fraud in Wisconsin and that there is lack of communication among agencies and insurance companies.

Another respondent recalled investigating about five cases of insurance fraud during his 13 years in law enforcement in Wisconsin. For the last 22 years as an insurance investigator in Wisconsin, he estimates only eight cases were charged in court. Because he works the border between Minnesota and Wisconsin, he has investigated many cases in both states. He estimates approximately 20-40 of the cases he has investigated in Minnesota were charged in court. Like many other respondents he believes insurance fraud is not a priority in Wisconsin and that Wisconsin lacks the resources to combat it.

Some of those surveyed believe that negative perceptions of insurance companies extend beyond just the general public and into law enforcement officers as well. One respondent stated that some officers care little about insurance fraud, perhaps because they have had a bad experience with an insurer. On the other end, there are those in law enforcement who see insurance fraud as another civil matter they are not to be involved with. Also contributing to the problem is that some insurance companies are unwilling to be listed as a complainant in a criminal suit, even when prosecutors are willing to prosecute.

www.jecm.org Journal of Economic Crime Management Fall 2006, Volume 4, Issue 2 A retired FBI agent who is involved in fraud training for the insurance industry stated that there “is a lack of aggressive prosecution, low priority, and poor quality referrals from investigating agencies. Most insurance cases lack prosecutorial appeal because they are not headline material.” He added, “Most people believe it is O.K. to commit insurance fraud because of the high premiums and they believe they will get away with it…People commit fraud because they think it is easy money and is owed to them, they believe they will not get caught, and they practice situational ethics. They believe it is O.K. to send in a fraudulent claim, but would not think of committing murder.” Another former FBI agent stated that she believes cases other than insurance fraud, such as public corruption and violent crimes, grab the attention of voters.

She adds that perhaps better training is needed in presenting cases to prosecutors. Regarding the benefits of and funding of a fraud bureau, she believes the greatest advantage to prosecutions is deterrence.

In order to procure funding for an IFB, the benefit of having one must be shown.

The two former FBI agents referenced above agree that it is difficult to show the true extent of the value a fraud bureau could provide, without first showing the level of fraud in Wisconsin. Both believe mandatory reporting laws in Wisconsin could best address the need for a fraud bureau.

A detective with 20 years of law enforcement experience recalls investigating zero cases of insurance fraud, in the metropolitan area where he works. He believes insurance fraud is still seen as a victimless crime in Wisconsin. It is his belief that law enforcement officers are “not trained to identify and investigate insurance fraud.” He adds that the single greatest challenge for states with fraud bureaus is, “getting past the idea that financial crimes are not important enough to address at a high level.” A former detective and current anti-fraud manager believes that insurance fraud is not thought to be a problem. In her 16 years in law enforcement she recalls investigating just one case of insurance fraud. She believes that proactive measures are the best way to curb fraud activities and that there are enough frauds and swindles in Wisconsin to justify an IFB.

In summary, those surveyed believe that there is enough insurance fraud in Wisconsin to justify an IFB. They believe insurance fraud is either not taken seriously in Wisconsin or not seen as a big enough problem to warrant action.

They believe the public must be educated on insurance fraud. They also believe an IFB devoted to insurance fraud education and prosecution would benefit the citizens of Wisconsin.

–  –  –

Discussion It appears there is a strong correlation between greater insurance fraud prosecution numbers and the existence of an insurance fraud bureau. Virtually every state with an IFB successfully convicts more people per capita then Wisconsin does. It is quite likely this is because Wisconsin lacks a central fraud fighting unit to coordinate efforts among insurance companies and law enforcement. It is entirely possible, though, that the differences in prosecution numbers are the result of something less tangible than having or not having an IFB.

Perhaps IFB states possess a keener interest in fighting this crime and therefore create IFBs to better combat it. The creation of an IFB by a state is the state’s response to recognizing the seriousness and costs of insurance fraud. The states that create IFBs are proactive in this fight. They have concluded that an IFB is the best answer to fighting insurance fraud.

Insurance Fraud Statutes vs. Other Statutes

Some have suggested that IFBs ensure insurance fraud statutes are used in prosecutions, instead of other statutes, thereby better justifying their existence.

In other words, following this logic, states without an IRB punish just as many insurance fraudsters as other states, they just convict using different statutes.

While this is a good presumption, no evidence of this surfaced in this research. If Wisconsin did not have an insurance fraud statute or a poorly written one, then they would prosecute no “insurance fraud” or prosecute under other statutes with elements easier to prove in court. However, this is not the case in Wisconsin.

The state not only has a well-written and comprehensive insurance fraud statute, it has a comprehensive immunity statute. The immunity statute protects reporters of fraud from being held liable for the sharing of private information, such as between insurance companies and law enforcement. Furthermore, if insurance fraud were prosecuted via other statutes, one would expect that law enforcement would see it more. The reality is that very few law enforcement officers are even aware of insurance fraud, let alone involved in investigating it as insurance fraud. In cases of burglary for instance, police will investigate the validity of the theft, look for suspects etc., but will rarely investigate the matter as insurance fraud. Even in cases where they suspect insurance fraud, they do not pursue it. It is likely that many are unaware Wisconsin has an insurance fraud statute.

There are other reasons this researcher believes insurance fraud is not being charged as other crimes in Wisconsin. Perhaps a few cases are prosecuted as something other than insurance fraud, but not enough cases to put Wisconsin on par with other IFB states. Jay of the CAIF concurs, stating, “There may be other cases in Wisconsin charged under other statutes, but our clipping service likely would have picked them up” (personal communication, June 21, 2006).

www.jecm.org Journal of Economic Crime Management Fall 2006, Volume 4, Issue 2 The NICB also keeps track of insurance fraud cases in each state. They were able to follow-up on eight cases that involved insurance fraud in Wisconsin in

2005. It is doubtful the NICB cares how insurance fraud is charged, as long as the fraudsters are being convicted.

If insurance fraud was being readily charged, but under a different statute, it seems that Dane County District Attorney Blanchard in Wisconsin would have communicated that. To the contrary, he advised that district attorney offices across the state were “dangerously understaffed” and that insurance fraud was not at the top of a list of priorities, but “important.” He recommended that if a fraud bureau were created in Wisconsin that it should be a “wholly public function,” supported by the public and not the insurance companies (personal communication, December 15, 2005).

The Role of Insurance Companies in Fraud Prosecution

The DAs in Wisconsin who have prosecuted insurance fraudsters, when the opportunities have come, should be complimented. But how can any DA prosecute a case unless they are first made aware of it? Perhaps insurance companies could effectively investigate, compile, and present easy to read cases to the appropriate DAs for prosecution. If insurance companies worked more closely with the DAs in a state, then insurance fraud would be prosecuted at a level comparable to states with IFBs.

The only foreseeable drawback to this issue is related to liability and costs. First of all, one must remember it is not the job of the insurance company to fulfill law enforcement functions. It is not the recommendation of this researcher that insurance companies be an extension of law enforcement. However, insurance company investigators should be adequately trained to fairly investigate and adequately present fraudulent cases to law enforcement in a legal and ethical manner. Immunity statutes must protect insurance companies who share claim information about suspected fraudulent claims with law enforcement and other agencies.

Who can better investigate insurance fraud in Wisconsin: those whose sole job is to investigate insurance claims or law enforcement officials who are very busy protecting the public from other issues? Because insurance companies cannot subpoena documents or act as agents of the government, someone must take the leading role in Wisconsin to fight insurance fraud. An IFB with dedicated investigators and prosecutors seems the most likely agency to handle this issue in Wisconsin.

www.jecm.org Journal of Economic Crime Management Fall 2006, Volume 4, Issue 2 The Relevance of Conviction Rate Per Capita The mean conviction rate per capita of the comparison states is 1.13. Wisconsin would have to prosecute 59 people each year to match the average prosecutions of IFB states in this study. The median convictions in IFB states equal.7 convictions per 100,000 inhabitants. For Wisconsin to reach this mark it would need to prosecute 38 fraudsters each year or just 24 more than it did in 2005.

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