Auto Insurance Fraud in Florida Auto Insurance Fraud in Florida Stats & Facts Lynne McChristian Fraud Coalition Meeting October 5, 2010/Tallahassee, FL

Floridas anti-fraud statute Insurers required to investigate suspected fraud. Florida Statute (Section ) requires insurers with $10 million or more in direct premiums annually to have either an in-house unit or contract with an outside entity to investigate possible fraudulent claims. Insurers with less than $10 million in direct premiums must adopt an anti-fraud plan. Insurers anti-fraud plans must detail procedures for: Detecting and investigating possible fraudulent acts. Mandatory reporting of fraud to the Division of Insurance Fraud. 12/02/09 - 6pmeSlide – P6466 – iii template 2

Definition of a Questionable Claim The National Insurance Crime Bureau (NICB) calls a questionable claim (QC) one that is referred to their organization for closer review and investigation based on one or more indicators of possible fraud. A single claim may contain up to seven referral reasons. casualty vehicle Referral reason categories of claims property, casualty, commercial, workers' compensation, vehicle and miscellaneous. The NICB has more than 1,000 members, including property/casualty insurers, self-insured organizations, and transportation-related firms. 12/02/09 - 6pmeSlide – P6466 – iii template 3

Florida Crash Statistics Number of Crashes/Injuries % Change 243,342 / 199,658235,778 / 197, % / -1.2% 12/02/09 - 6pmeSlide – P6466 – iii template 4 Crash Rate* Rate is calculated by multiplying the number of crashes by 100,000 and dividing by vehicle miles of travel. Source: Florida Dept. of Highways Safety & Motor Vehicles

12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 5 Increase in No-Fault Claim Severity: * *2009 figure is for the 4 quarters ending 2009:Q4. **Since 2006 the increase in Florida was 17.3% (average severity that year was $6,344). Sources: Insurance Information Institute research from ISO/PCI Fast Track data. The no-fault systems in MI, NJ, NY and FL are under stress due to rising fraud and abuse which will ultimately lead to higher premiums for drivers % +41.7% +48.5% +18.6%**

12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 6 Average No-Fault Claim Severity, 2009:Q4 Several States Have Severe and Growing Problems With Rampant Fraud and Abuse in their No-Fault Systems. Claim Severities Are Up Sharply. Source: ISO/PCI Fast Track data; Insurance Information Institute. MI, NJ, NY and FL currently are the largest states that have the most severe problems in their no-fault system

12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 7 No-Fault (PIP) Liability in Florida: Frequency and Severity Trends *2010: Q1 figure represents change from 2009 Q1.Source: ISO/PCI Fast Track data; Insurance Information Institute Annual Change, 2005 through 2010* Florida is Experiencing Severe Fraud and Abuse Problems within the No-Fault Auto Insurance System.

Florida Vehicle Referrals for Fraud 12/02/09 - 6pmeSlide – P6466 – iii template 8 Referral Reason 1 st Half st Half st Half 2010 % Change Water/Flood Damage % Phantom Accident % Faked Damage % Inflated Repairs % Fire/Arson % Questionable Theft % Auto Glass % Up 1000% Source: National Insurance Crime Bureau #1 #2 #3

12/02/09 - 6pmeSlide – P6466 – iii template 9 Source: National Insurance Crime Bureau #1. Questionable Theft #2. Faked Damage #3. Paper Accident/Phantom Accident Florida Vehicle Referrals for Fraud

12/02/09 - 6pmeSlide – P6466 – iii template 10 Referral Reason 1 st Half st Half st Half 2010 % Change Staged Accident % Excessive Treatment % Faked or Exaggerated Injury % Prior Injuries % Billed for Services Not Rendered % Solicitation % Florida Casualty Referrals for Fraud Source: National Insurance Crime Bureau #2 #3 #1

Source: National Insurance Crime Bureau #1. Faked/Exaggerated Injury #2. Staged Accident #3. Billing for Services Not Received Florida Casualty Referrals for Fraud

P/C Insurers Experience Inflation More Intensely than 2009 CPI Suggests Source: CPI is Blue Chip Economic Indicator 2009 estimate, 12/09; Legal services, medical care and motor vehicle body work are avg. monthly year-over-year change from BLS; BI and no-fault figures from ISO Fast Track data for 4 quarters ending 09:Q3. Tort costs is 2009 Towers-Perrin estimate. WC figure is I.I.I. estimate based on historical NCCI data. (Percent) Healthcare and Legal/Tort Costs Are a Major P/C Insurance Cost Driver. These Are Expected to Increase Above the Overall Inflation Rate (CPI) Indefinitely 12

Communicating Fraud Trends 12/02/09 - 6pmeSlide – P6466 – iii template 13 Communicating the extent of the problem does not motivate people to join the fight against fraud. Yet, consumer awareness is essential to combat it. Consumer education must concentrate on what they think is important, i.e., lower insurance rates. Keep a positive orientation. What is working right – and how do we do more of that? Are the rewards of reporting fraud important to people? Are the punishments strong deterrents? Tell inside stories of how consumers benefit from insurers actions to prevent and detect fraud.

Thank you! Insurance Information Institute Online: