Your insured, from state A, while in state B, gets into an accident with a claimant from state C. What fraud warning notice needs to be sent to whom (especially to the claimant from state C) and why? What’s the state’s interest? What are the risks for your company and how can you eliminate them? Scenarios like these can be complex with many issues to consider. Market conduct criticisms year after year show that many companies are not getting claims fraud warnings right.
Most states have regulation dealing specifically with the issue of insurance fraud. A fair percentage of those have specific requirements for some sort of mandatory wording on all claims forms made on the policy written in the state, regardless of where the claimant lives. In other words, using the scenario above, a claim made against a policy in state A would generally need to meet the fraud warning requirements of state A.
The State’s Point of View
Why are states interested? It’s important to remember that any fraud committed is against a contract formed in the insured’s contract state (state A) and, as a result, the state has an interest. In a recent conversation with a New Jersey investigator, he pointed out that the state has an interest in reducing the amount of premiums honest insureds have to pay, fraud prevention plays a key role in that. A study published in 2008 by the Insurance Research Council showed that claims fraud led to excess payments between 13-18 percent higher than total payments under main private passenger auto injury coverages. Those costs may lead to higher premium rates for consumers.
The investigator also pointed out that the state may be under some obligation to either recover civilly or prosecute criminally. Remedies available may in fact be both civil and criminal. Not that the state needs the warning in order to prosecute fraud (usually they don’t), they do feel it’s an important prevention tool. It doesn’t hurt to have the claimant’s signature on a document with a prominently displayed fraud warning should the case ever go to court.
The Compliance Risk for Insurers
Fraud is an important issue for State regulators, and they are looking for insurance company cooperation. That’s one of the reasons for the regulation. It’s also why when the market conduct examiners come calling, they are looking for those warnings and enforcing the requirements. Year in and year out we see insurers criticized and fined for not including the required statements, or the wrong statements, on claims forms. It’s an avoidable risk in your compliance program.
Reducing Your Exposure
How can you avoid criticisms, fines, and protect your company in litigation? Read the citation – carefully. Be sure fraud warnings comply with the requirements of the policy state. Most importantly, get that required wording on the form.
Editor’s Recommendation
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