Insurance Fraud

(January 2007)

Many Texans know firsthand the harm that insurance fraud can cause. Consumers who buy policies from unauthorized or unlicensed insurance companies can be left without coverage or forced to pay the full cost of their claims. But in a broad sense, anyone with an insurance policy is a fraud victim. Fraud investigations and fraudulent claims drive up the cost of insurance coverage for everyone. Nationally, insurance fraud costs consumers an estimated $150 billion annually - or, on average, nearly $1,800 per family.

This publication explains some important steps you can take to protect yourself and describes how the Texas Department of Insurance (TDI) Fraud Unit can help if you do become an insurance fraud target.

Reporting Suspected Fraud

Insurance fraud is a crime. If you believe you’ve been a target of insurance fraud or you become aware of a fraud operation, report it to the TDI Fraud Unit. You can report suspected insurance fraud online through the TDI website, or call our toll-free Fraud Hot Line

1-888-327-8818
www.tdi.state.tx.us

Texas law requires individuals who become aware of insurance fraud to report it within in 30 days. The law also protects you from any retribution or liability as a consequence of a fraud report.

TDI’s Fraud Unit investigates most, but not all, types of cases. Fraud complaints involving Medicare, Medicaid, or drug or health care discount programs should be directed to the Texas Attorney General’s Consumer Protection Hot Line

1-800-621-0508
475-4413 in Austin

What is Insurance Fraud?

Fraud is a deception or misrepresentation for financial gain. Since companies divide the costs of claims among policyholders, insurance fraud drives premium costs up. The consequences of insurance fraud are wide ranging and often severe. Here are some common fraud schemes:

Unauthorized insurance. The sale of unauthorized health insurance is one of the most financially and emotionally harmful schemes against consumers. It is illegal to sell insurance in Texas without a license. (The only exception is for “surplus lines carriers,” which are out-of-state companies that insure unusual or hard-to-place risks. Surplus lines carriers must still register with TDI in order to do business in Texas, and they must be licensed in their home state or country.)

Unlicensed companies that sell phony insurance usually don’t meet the state’s minimum financial requirements and may not have the financial resources to pay significant claims. The company collects your premiums and often pays a few small claims so that you continue your payments. However, once an expensive claim is filled or several claims are filed at once, the company could vanish, leaving you with no coverage and expensive health care bills to pay.

These companies usually attract customers by offering extensive coverage at a very low rate, or with very lax underwriting requirements. They will often claim to be chartered offshore - often in the Caribbean or Pacific Islands - where it is difficult to research the company. Businesses are often targets of unauthorized insurance schemes. Therefore, it’s possible that you could become the victim of an unlicensed insurance company, even if you have coverage through an employer-sponsored group health plan.

Your defense: Make sure your agent or company is properly licensed or registered to sell insurance in Texas. If you have health coverage through your employer - especially if you work for a small employer - it’s still a good idea to make sure your insurance carrier is licensed. You can learn an agent or company’s license status by calling the TDI Consumer Help Line or by viewing company profiles on our website.

1-800-252-3439
463-6515 in Austin
www.tdi.state.tx.

Important: When you check a company’s license status, be sure you know the company’s exact name. Unauthorized companies often use names that closely resemble the names of legitimate companies. If you find even a small difference between the name a company provides and the name TDI has on record, please notify TDI immediately.

Health care provider fraud. This fraud most often occurs when providers bill insurance companies for services that weren’t actually provided. Providers can also commit fraud by performing unneeded tests and procedures; by billing for long-term, repetitive, or costly treatments for unspecified illnesses; or by “cutting corners” to increase profit from claims settlements.

Your defense: Ask questions about treatment. Be wary if a physician recommends any new, unusual, or experimental procedure. Review your doctor and provider bills and the “explanation of benefits” statement from your insurance company to make sure that all the charges listed were for services that were actually performed. If you find discrepancies in the bills and the services you received, contact your carrier.

Auto accident fraud. Auto accident fraud most often occurs when individuals pad their claims or claim an accident or theft that never occurred. Another scheme is the “caused auto accident.” This occurs when someone involves you in a collision and makes it look as though the accident was your fault. People who intentionally cause auto accidents often pack their cars with passengers to increase the number of injury claims they can file.

One of the most common types of caused accidents is called the “swoop and squat.” This scheme involves two partners. The “squat” car positions itself directly in front of you and begins to slow down. The “swoop” car comes up from behind, begins to pass, and then swerves in front of the squat car. The squat car brakes abruptly, forcing you to rear-end it, as the swoop car drives off.

Your defense: If you are in an accident that you believe was staged, insist on calling the police. To avoid the swoop and squat, don’t follow other vehicles too closely.

Fraud against seniors

Seniors are often fraud targets, particularly in regard to life and health insurance. Seniors are more likely than others to need these coverages, and many worry that they’ll become a burden to family if they don’t have enough insurance.

If you are a senior, it’s a good idea to seek advice from your friends or family, or from an accountant, attorney, or financial adviser before making an insurance purchase. Be especially wary of a salesperson or telephone caller who

• Contacts you unsolicited. The salesperson has probably obtained your information through a mailing list. Not all agents who contact you are dishonest, but it’s a good idea to be cautious.
• Uses high-pressure tactics. Common tactics include offering a “last chance deal” or appealing to your sympathy or emotions. Any decision to buy insurance should be made rationally and be based on a sound assessment of your financial needs.
• Urges you to cash in an existing annuity or life insurance policy to buy a new annuity, life insurance policy, or other investment. Generally, annuities and life insurance are worth more the longer you keep them. Changing to a new annuity or policy can usually cause you to lose money over the first three to five years.
• Claims to be from Medicare, Social Security, or another government agency. The government does not sell insurance. An agent or broker who claims to be associated with the government is breaking the law.

Fraud against businesses

Businesses are often targets of the most ambitious and financially damaging schemes. Businesses with risks that are hard to insure and small businesses that have difficulty affording coverage are particularly vulnerable.

The sale of unauthorized health insurance is one of the most common schemes. A fraudulent insurer may claim to be associated with a trade union, trust, or “Multiple Employer Welfare Agreement” (MEWA), which allow small companies to pool their resources when purchasing health plans. Like insurance companies, MEWAs must be licensed to legally do business in the Texas.

A fraudulent company may also claim its plan is exempt from state regulation because it’s a “self-funded” or “ERISA” plan. ERISA plans are plans authorized by the federal Employee Retirement Income Security Act. While it is true that ERISA plans are exempt from most state laws, they are usually created by businesses and organizations to cover their own employees or members. Your business will almost never be sold a valid ERISA plan from an outside company or agent.

Business insurance fraud also frequently involves workers’ compensation coverage. In most cases, employers with a valid workers’ compensation policy are legally protected from lawsuits by injured employees. Policies sold by unauthorized or fraudulent companies are not considered workers’ compensation under state law and do not provide these protections.

Other lines of insurance that are frequently sold fraudulently to businesses include

• medical malpractice
• commercial general liability
• contractor performance bonds
• auto liability coverage for truckers.

If you’re in the market for any of these types of insurance, be sure to verify with TDI the license or surplus lines registration status of the companies you’re considering.

Drug and health discount programs

Many companies offer prescription drug and health care discount programs, sometimes also called “referral plans.” People often mistakenly believe discount programs are a type of health insurance, but they are not. Because discount programs aren’t insurance, TDI does not regulate them.

Discount plans are required to tell you that they are not actual insurance. With some discount plans, however, you may have to search to find the disclaimer. And many deliberately try to create a false impression by using insurance “buzz words” in their sales pitches, such as “claim” and “pre-existing condition.”

When considering any type of discount program, make sure the program is right for you and offers a genuine cost savings. For instance, find out whether the discount program covers the prescriptions you need. In some cases, you can save as much or more money on your prescriptions by purchasing them at a discount pharmacy than by enrolling in a discount program. Some discount programs falsely claim to be accepted by certain doctors and providers when they are not. Before joining a discount program, contact your doctors and other health care providers to make sure they participate in the program.

If you believe a discount program has been misrepresented to you, or you’ve been misled in some other way, contact the Office of the Texas Attorney General.

Additional Tips to Fight Fraud

• Shop around. Many schemes promise extensive coverage at a very low price. You can usually save money by shopping carefully, but be cautious of any plan or policy that costs significantly less than others you’ve priced.
• Get information from TDI. In addition to providing agent and company licensing information, TDI can provide you with information about consumer complaints filed against companies. You can learn a company’s complaint index by viewing company profiles on our website or by calling the Consumer Help Line. You can also learn a company’s financial strength rating from independent rating organizations. The complaint index and financial rating help indicate whether a company provides good customer service and is financially stable.
• Take your time. When buying any type of insurance, take as much time as you need to make your choices. Don’t let an agent or company representative pressure you into making a hasty decision. Consult with your family, an attorney, or a financial adviser if you’re unsure of any details. If an agent becomes evasive when you ask about prices, coverage, or payment arrangements, be suspicious. Legitimate agents will respond to your questions and concerns and allow you all the time you need to make your decision.
• Always pay by check or credit card. Check and credit card payments can usually be traced and verified. If you pay by credit card, you also may be able to get reimbursed by the credit card company in the event of fraud. If you must pay cash, be sure to get a receipt that shows the name of the company, the date, and the amount paid.
• Be cautious of policies sold door to door or over the phone. Unauthorized companies often use these methods to market their products. Insist on knowing a company’s physical address, and make sure you verify that the company and agent is licensed. Even though policies sold in this manner are sometimes legitimate, their rates are often higher and they provide less coverage than policies sold by traditional agents or brokers.
• If you buy insurance over the Internet, take the same precautions as you would for any insurance purchase. Many legitimate companies have websites that allow you to purchase insurance online. This can make shopping for insurance easy and convenient. However, the Internet provides the anonymity that also can allow illegitimate companies to flourish. Therefore, it’s important that you take the same precautions when buying insurance over the Internet as you would when buying insurance in any other way. Verify that the company is licensed and make sure you understand the exact coverages you’re getting. Be especially cautious of insurance that’s offered through unsolicited e-mails.
• Keep your insurance documents. In addition to the actual policy, keep a copy of any correspondence between you and the insurance company, including advertisements, receipts, and details of any claims submitted. Also keep notes of any telephone or in-person contacts with the company, including the name and title of the person you spoke with, the date, and what was said. Good recordkeeping can protect you in the event of a broken promise.
• Remember, if an offer seems too good to be true, it probably is.

For More Information or Assistance

For answers to general insurance questions or for information on filing an insurance-related complaint, visit our website or call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday

www.tdi.state.tx.us
1-800-252-3439
463-6515 in Austin

For printed copies of consumer publications, call the 24-hour Publications Order Line

1-800-599-SHOP (7467)
305-7211 in Austin

Help us prevent insurance fraud. To report suspected fraud, call our toll-free Fraud Hot Line

1-888-327-8818

To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hot Line

1-877-4FIRE45 (434-7345)

The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.

For more information contact: ConsumerProtection@tdi.state.tx.us