Fraud in Insurance

July 10, 2017 | Author: 9220501752 | Category: Fraud, Insurance, Life Insurance, Chiropractic, Medicare (United States)
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Acknowledgement Introduction To Frauds Insurance Fraud And Abuse Schemes, Scams, Scammed Real Eyes...Realize...Real Lies… Itching To Know Who Can Help? Division Of Insurance Fraud Deceptive Life Insurance Sales Practices Continue Viatical Settlements Investment Fraud Case Study Be Aware, Don’t Be A Victim International Association Of Insurance Fraud Agencies(Iaifa) Dealing With Fraud On The Net Precaution Is Better Than Cure Summary Bibliography


Introduction to frauds What Are Frauds? In a broad strokes definition, fraud is a deliberate misrepresentation which causes another person to suffer damages, usually monetary losses. Most people consider the act of lying to be fraud, but in a legal sense lying is only one small element of actual fraud. A salesman may lie about his name, eye color, place of birth and family, but as long as he remains truthful about the product he sells, he will not be found guilty of fraud. There must be a deliberate misrepresentation of the product's condition and actual monetary damages must occur. Many fraud cases involve complicated financial transactions conducted by 'white collar criminals', business professionals with specialized knowledge and criminal intent. An unscrupulous investment broker may present clients with an opportunity to purchase shares in precious metal repositories. For example, His status as a professional investor gives him credibility, which can lead to a justified believability among potential clients. Those who believe the opportunity to be legitimate contribute substantial amounts of cash and receive authentic-looking bonds in return. If the investment broker knew that no such repositories existed and still received payments for worthless bonds, then victims may sue him for fraud. Fraud is not easily proven in a court of law. Laws concerning fraud may vary from state to state, but in general several different conditions must be met.













misrepresentation of the facts. Did the seller know beforehand that the product was defective or the investment was worthless? Some employees of a large company may sell a product or offer a service without personal knowledge of a deception. The account representative who sold a fraudulent insurance policy on behalf of an unscrupulous employer may not have known the policy was bogus at the time of the sale. In order to prove fraud, the accuser must demonstrate that the accused had prior knowledge and voluntarily misrepresented the facts. Another important element to prove in a fraud case is justifiable or actual reliance on the expertise of the accused. If a stranger approached you and asked for ten thousand dollars to invest in a vending machine business, you would most likely walk away. But if a well-dressed man held an investment seminar and mentioned his success in the vending machine world, you might rely on his expertise and perceived success to decide to invest in his proposal. After a few months have elapsed without further contact or delivery of the vending machines, you might reasonably assume fraud has occurred. In court, you would have to testify that your investment decision was partially based on a reliance on his expertise and experience. The element of fraud which tends to stymie successful prosecution is the obligation to investigate. It falls on potential investors or customers to fully investigate a proposal before any money exchanges hands. Failure to take appropriate measures at the time of the proposal can seriously weaken a fraud case in court later. The accused can claim that the alleged victim had every opportunity to discover the potential for fraud and failed to investigate the matter thoroughly. 3

Once a party enters into a legally binding contract, remorse over the terms of the deal is not the same as fraud. The dictionary defines fraud as the intentional perversion of truth to induce another to part with something of value or to surrender a legal right. Insurance fraud can be “hard” or “soft.” Hard fraud occurs when someone deliberately fabricates claims or fakes an accident. Criminals are using increasingly sophisticated electronic schemes to defraud insurance companies. Soft insurance fraud, also known as opportunistic fraud, occurs when normally honest people pad legitimate claims or intentionally understate the number of miles they drive each year or, in the case of business owners, list fewer employees or misrepresent the work they do to get a lower premium. Those who commit insurance fraud range from organized criminals who steal large sums through fraudulent business activities and insurance claim mills to professionals and technicians who inflate the cost of services or charge for services not rendered, to ordinary people who want to cover their deductible or view filing a claim as an opportunity to make a little money. Some lines of insurance are more vulnerable to fraud than others. Health care, workers compensation and auto insurance are believed to be the sectors most affected.


Insurance Fraud and Abuse: A Very Serious Problem Fraud and abuse are widespread and very costly to any country’s healthcare system. Fraud involves intentional deception or misrepresentation intended to result in an unauthorized benefit. An example would be billing for services that are not rendered. Abuse involves charging for services that are not medically necessary, do not conform to professionally recognized standards, or are unfairly priced. An example would be performing a laboratory test on large numbers of patients when only a few should have it. Abuse may be similar to fraud except that it is not possible to establish that the abusive acts were done with an intention to deceive the insurer. Type of Fraud and Abuse False claim schemes are the most common type of health insurance fraud. The goal in these schemes is to obtain undeserved payment for a claim or series of claims. Such schemes include any of the following when done deliberately for financial gain: •

Billing for services, procedures, and/or supplies that were not provided.

Misrepresentation of what was provided; when it was provided; the condition or diagnosis; the charges involved; and/or the identity of the provider recipient.

Providing unnecessary services or ordering unnecessary tests.

Many insurance policies cover a percentage of the physician's "usual" fee. Some physicians charge insured patients more than uninsured ones but represent to the insurance companies that the higher fee is the usual one. 5

This practice is illegal. It is also illegal to routinely excuse patients from co-payments and deductibles. (A co-payment is a fixed amount paid whenever an insured person receives specified health-care services. A deductible is the amount that must be paid before the insurance company starts paying. ) It is legal to waive a fee for people with a genuine financial hardship, but it is not legal to provide completely free care or discounts to all patients or to collect only from those who have insurance. Studies have shown that if patients are required to pay for even a small portion of their care they will be better consumers and select items or services because they are medically needed rather than because they are free. Routine waivers thus raise overall health costs. They are considered fraudulent because averaging them with the doctor's full fees would make the "usual" fees lower than the amounts actually billed for. Other illegal procedures include: •

Charging for a service that was not performed.

Unbundling of claims: Billing separately for procedures that normally are covered by a single fee. An example would be a podiatrist who operates on three toes and submits claims for three separate operations.

Double billing: Charging more than once for the same service.

Up coding: Charging for a more complex service than was performed. This usually involves billing for longer or more complex office visits (for example, charging for a comprehensive visit when the patient was seen only briefly), but it also can involve charging for a more complex procedure than was performed or for more expensive equipment than was delivered. Medicare documentation guidelines describe what the various levels of service should involve.


Miscoding: Using a code number that does not apply to the procedure.

Kickbacks: Receiving payment or other benefit for making a referral. Indirect kickbacks can involve overpayment for something of value.

For example, a supplier whose business depends on physician referrals may pay excessive rent to physicians who own the premises and refer patients. Another example would be a mobile testing service that performs diagnostic tests in a doctor's office. Kickbacks can distort medical decision-making, cause over utilization, increase costs, and result in unfair competition by freezing out competitors who are unwilling to pay kickbacks. Criminals sometimes obtain Medicare numbers for fraudulent billing by conducting a health survey, offering a free "health screening" test, paying beneficiaries for their number, obtaining beneficiary lists from nursing homes or boarding facilities, or offering "free" services, food, or supplies to beneficiaries. Excessive or Inappropriate Testing Many standard tests can be useful in some situations but not in others. The key question in judging whether a diagnostic test is necessary is whether the results will influence the management of the patient. Billing for inappropriate tests—both standard and nonstandard—appears to be much more common among chiropractors and joint chiropractic/medical practices than among other health-care providers. The commonly abused tests include: •

Computerized inclinometers: Inclinometers is a procedure that measures joint flexibility. Inclinometer testing may be useful if precise range-of-motion measurements are needed for a disability 7

evaluation, but routine or repeated measurements "to gauge a patient's progress" are not appropriate. •

Nerve conduction studies: These tests can provide valuable information

about the status

of nerve


in various

degenerative diseases and in some cases of injury. However, "personal injury mills" often use them inappropriately "to "follow the progress" of their patients. •

Thermographs: Thermo-graphic devices portray small temperature differences between sides of the body as images. Chiropractors who use thermographs typically claim that it can detect nerve impingements or "nerve irritation" and is useful for monitoring the effect of chiropractic adjustments on subluxations. These uses are not appropriate.

Unnecessary x-rays: X-rays examinations can be important to look for conditions that require medical referral. However, it is not appropriate for chiropractors to routinely x-ray every patient to look for "subluxations" or to "measure the progress" of patients who undergo spinal manipulation.

Many insurance administrators are concerned about chiropractic claims for "maintenance care" (periodic examination and "spinal adjustment" of symptom-free patients), which is not a covered service. To detect such care, many companies automatically review claims for more than 12 visits. Personal Injury Mills Many instances have been discovered in which corrupt attorneys and health-care providers combine to bill insurance companies for nonexistent or minor injuries. The typical scam includes "cappers" or "runners" who are paid to recruit legitimate or fake auto accident victims or worker's compensation claimants. Victims are commonly told they need multiple 8

visits. The providers fabricate diagnoses and reports and commonly provide expensive but unnecessary services. The lawyers then initiate negotiations on settlements based upon these fraudulent or exaggerated medical claims. The claimants may be unwitting victims or knowing participants who receive payment for their involvement. Mill activity can be suspected when claims are submitted for many unrelated individuals who receive similar treatment from a small number of providers. Quackery-Related Miscoding In processing claims, insurance companies rely mainly on diagnostic and procedural codes recorded on the claim forms. Their computers are programmed to detect services that are not covered. Most insurance policies exclude nonstandard or experimental methods. To help boost their income, many nonstandard practitioners misrepresent what they do. They may also misrepresent their diagnosis. For example: •

Brief or intermediate-length visits may be coded as lengthy or comprehensive visits.

Patients receiving chelating therapy may be falsely diagnosed as suffering from lead poisoning; and the chelating may be billed as "infusion therapy" or simply an office visit.

The administration of quack cancer remedies may be billed as "chemotherapy."

Nonstandard allergy tests may be represented as standard ones.

Viatical Fraud In viatical settlement transactions, people with terminal illnesses assign their life insurance policies to viatical settlement companies in exchange for a percentage of the policy's face value. The company, in turn, may sell 9

the policy to a third-party investor. The company or the investor then becomes the beneficiary to the policy, pays the premiums, and collects the face value of the policy after the original policyholder dies. Fraud occurs when agents recruit terminally ill people to apply for multiple policies. They misrepresent the truth and answer "no" to all of the medical questions. Healthy impostors then undergo the medical evaluation. In many cases, the insurance agent who issues the policy is a party to the scheme. The agent or one applicant may even submit the same application to many insurance companies. Viatical settlement companies then purchase the policies and sell them to unsuspecting third-party investors. The insurance industry is the biggest victim of this fraud and could incur huge losses within the next few years. Some investors receive nothing in return for their "guaranteed" investment. Bogus Health Insurance Companies There have been two reports issued concerning the sale of health insurance plans that lack legal authorization. These plans place the buyer at risk for financial disaster if serious illness strikes. One report focuses on consumer vulnerability. The other notes that from 2000 to 2002, 144 unauthorized entities enrolled at least 15,000 employers and more than 200,000 policyholders who got stuck for over $200 million in unpaid claims. The investigators found that many of the entitles bore names similar to those of legitimate companies. In response to the report, the Health Insurance Institute of America is again urging the National Association of Insurance Commissioners to create an online database of licensed health insurance companies so that anyone can easily check the legitimacy of 10

companies offering health insurance products. Meanwhile, the Coalition against Insurance Fraud offers a few warning signs of a possible swindle: •

The plan readily accepts people with serious illnesses and other medical conditions that other plans normally reject.

The insurance has few or no underwriting guidelines—the agent or rep appears almost too eager to sign you up.

You're approached by an insurance agent, phone or direct mail. Honest group plans normally are sponsored by your employer—and aren't sold directly to individuals.

The plan isn't licensed in your state, and the agent (falsely) assures you the federal ERISA law exempts the plan from state licensing.

The plan seems like insurance, but the agent or rep avoids calling "insurance," and instead uses evasive terms such as "benefits."

The agent or rep doesn't have clear answers to your questions, seems ill-informed, or avoids sharing information.

You've never heard of that health insurance company—and nobody else has, either.

Your hospital keeps calling you to complain that your health plan isn't paying your medical bills. Often the plan's reps keep making flimsy excuses, or stop returning phone calls altogether.


Schemes, scams, scammed Property/casualty insurance fraud cost insurers about $30 billion in 2004. Fraud may be committed at different points in the insurance transaction by different parties: applicants for insurance, policyholders, third-party claimants and professionals who provide services to claimants. Common








misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred; and "staging" accidents. Prompted by the incidence of insurance fraud, about 40 states have set up fraud bureaus. These agencies are reporting a record number of new investigations, significant increases in referrals — tip about suspected fraud — and cases brought to prosecution. RECENT DEVELOPMENTS 

The hurricanes of 2005, especially Hurricane Katrina, are likely to result in a surge in insurance fraud. In addition to the usual schemes, where homeowners or renters make claims for stereos, televisions or other expensive items they never purchased, and inflate claims for items actually destroyed, home arsons are on the rise. Since many homeowners in the Gulf areas did not have flood insurance, they may not be covered for some or all of the damage caused by the hurricanes. Dozens of fires have broken out in many affected communities, some of which may be the result of arson.


The National Insurance Crime Bureau (NICB) says that by November 2005, there were 160,000 vehicles in its flooded motor vehicle and boat database, which was set up by catastrophes teams to combat title fraud in the hurricane-affected states. The NICB warns that flooded vehicles may be cleaned up, moved and sold in other areas of the country by unscrupulous operators. Although the vehicles were totaled by insurance companies and identified as “salvage” on their titles, which means they are not fit for any use except for scrap or parts, they could end up on the market in states where it is relatively easy to apply for a regular title. A database was created in which vehicle identification numbers (VINs) and boat hull identification numbers (HINs) from flooded vehicles and boats could be stored and made available to law enforcers, state fraud bureaus, insurers and state departments of motor vehicles.

One in 10 paid bodily injury liability (BI) auto claims in California had the appearance of fraud or misrepresented the facts of the claim, according to the Insurance Research Council’s Fraud. More common is the appearance of buildup, or the padding of claims, which was found in one in five claims. The study, released in January 2006, examined about 73,000 claims closed with payment in 2002. It found that between $319 and $432 million in BI payments were attributable to fraud and buildup.


Real eyes...Realize...Real lies… Short History of Antifraud Efforts Fraud in insurance has undoubtedly existed since the industry's beginnings in the seventeenth century, but it received little attention until the 1980s because law enforcement agencies had other priorities and were reluctant to provide the training needed to investigate and prosecute cases of insurance fraud. And, given the fine line between investigating suspicious claims and harassing legitimate claimants, some insurers were afraid that a concerted effort to eradicate fraud might be perceived as an anti-consumer move. In addition, the need to comply with the time requirements for paying claims imposed by fair claim practice regulations in many states made it difficult to adequately investigate suspicious claims. But by the mid-1980s the rising price of insurance, particularly auto and health insurance, together with the growth in fraud committed by organized criminals, prompted many insurers to reexamine the issue. Gradually, insurers began to see the benefit of strengthening antifraud laws and more stringent enforcement as a means of controlling escalating costs — a pro-consumer move — and they found ready allies among those who been adversely affected by fraud. These included consumers, who were paying for fraud through their insurance premiums; the people used by organized fraud groups to file false claims, often the poor, who sometimes found themselves on the wrong side of the law; and chiropractors and other medical professionals who were concerned that their reputation as a group was being tarnished by organized fraud ringleaders who had recruited their members to make fraudulent claims for treatment.


In their fight against fraud, insurers have also been hampered by public attitudes. Ongoing studies by the Insurance Research Council show that significant numbers of Americans think it is all right to inflate their insurance claims to make up for all the insurance premiums they have paid in previous years when they have had no claims, or to pad a claim to make up for the deductible they would have to pay. Antifraud activity on the part of state fraud bureaus and SIUs (special investigative units within insurance companies) increased in the 1990s. Heightened antifraud activity along with growth in funding for fraudfighting personnel resulted in increased prosecutions. Successful prosecution not only blocks future fraudulent activities by individuals who are repeat offenders, but news of prosecutions also acts as a deterrent to others who may be contemplating committing fraudulent acts. While the focus initially was on auto insurance fraud, antifraud efforts also encompass workers compensation fraud, where investigations are directed toward employers who, to obtain a lower premium, misrepresent their payroll or the type of work carried out by their employees. These two factors




is important



compensation insurance provides for lost wages and insurers need to know the maximum they would have to pay if all employees were injured in the same accident; the type of work carried out by the firm affects the likelihood of injuries. Workers that use cutting tools, for example, are more likely to get injured on the job than office workers. Some employers also apply for coverage under different names to foil attempts to recover monies owed on previous policies or to avoid detection of their poor claim record, which would put them in a higher rating category. Fraud and abuse take place at many points in the health care system. Doctors, hospitals, nursing homes, diagnostic facilities and attorneys have 15

been cited in scams to defraud the system. One huge area of fraud is the Medicare and Medicaid systems. Health care is especially susceptible to electronic data interchange (EDI) fraud. EDI is direct filing of claims — computer to computer — and is widely used for Medicare claims. In 1999, the Government Accounting Office released a study of the Medicare, Medicaid and private health insurance sectors that confirmed that organized crime is heavily involved in health care fraud. The investigation found that in seven cases of health care fraud studied, about 160 health related groups — medical clinics, physician groups, labs or medical suppliers — had submitted fraudulent claims. The criminals identified in the report were not health care workers but criminals already prosecuted for securities fraud, forgery and auto theft. Apparently, these criminals had moved to health care because fraud was relatively easy to accomplish.

Anti-Fraud Programs Several large insurance companies have joined forces through the National Health Care Anti-Fraud Association to develop sophisticated computer systems to detect suspicious billing patterns. The Federal Bureau of Investigation (FBI) and the Office of the Inspector General (OIG) each have assigned hundreds of special agents to health-fraud projects. The Coalition Against Insurance Fraud, a public advocacy and educational organization founded in 1993, includes consumers as well as government agencies and insurers. The Omnibus Consolidated Appropriation Act of 1997 authorized a Health Care Anti-Fraud, Waste, and Abuse Community Volunteer Demonstration Program to further reduce fraud and abuse in the Medicare and Medicaid programs. The program enrolled thousands of retired accountants, health professionals, investigators, teachers, and other community volunteers to 16

help Medicare beneficiaries and others to detect and report fraud, waste, and abuse. The Inspector General's office has recovered over a billion dollars through fines and settlements. Its Operation Restore Trust, which began in 1995, was a joint federal-state program aimed at fraud, waste, and abuse in three high-growth areas of Medicare and Medicaid: home health agencies, nursing homes, and durable medical equipment suppliers. The questionable activities included: •

Billing for advanced life support services when basic life support was provided. Documentation may be falsified to indicate a patient needed oxygen—which is a key indicator in establishing medical necessity for advanced life support.

Billing for larger amounts of drugs than are dispensed; or billing for brand-name drugs when less expensive generic versions are dispensed.

Billing for more miles than traveled for transportation.

Falsification of documentation to substantiate the need for a transport from a hospital back to the patient's home. Medicare will only cover transport from hospital to home if the patient could not go by any other means.

Insurers’ Antifraud Measures Insurance companies are not law enforcement agencies. They can only identify suspicious claims, withhold payment where fraud is suspected and to justify their actions by collecting the necessary evidence to use in a court. The success of the battle against insurance fraud therefore depends on two elements: the resources devoted by the insurance industry itself to detecting fraud and the level of priority assigned by legislators, regulators, law enforcement agencies and society as a whole to eradicating it. 17

Many insurance companies have established special investigation units (SIUs) to help identify and investigate suspicious claims; some insurance companies outsource their units to other insurers. These units range from a small team, whose primary role is to train claim representatives to deal with the more routine kinds of fraud cases, to teams of trained investigators, including former law enforcement officers, attorneys, accountants and claim experts to thoroughly investigate fraudulent activities. More complex cases, involving large scale criminal operations or individuals that repeatedly stage accidents, may be turned over to the National Insurance Crime Bureau (NICB). This insurance industry-sponsored organization has special expertise in preparing fraud cases for trial and serves as a liaison between the insurance industry and law enforcement agencies. In addition, it publicizes the arrest and conviction of the perpetrators of insurance fraud to help deter future criminal activities. Insurance company surveys confirm that SIUs dramatically impact the bottom line of many insurance companies. In the mid-1990s insurers said that for every dollar they invested in antifraud efforts, including SIUs, they got up to $27 back, but these returns have become harder to achieve as the more apparent fraud schemes have been uncovered and more effort is necessary to ferret out the sophisticated fraud that remains. A 2000 study by Conning Research & Consulting suggests that results vary widely. Using the ratio of “claims exposure reduction” to the expense of running SIUs, the study found ratios ranging from a low of 3 to 1 to a high of 27 to 1, depending on the year and line of insurance. Although some insurers are cutting back on fraud investigation by outsourcing investigations and dissolving their fraud units, advances in software technology, especially programs that sift though the millions of claims that large health insurers process annually, are proving effective in fighting fraud. These “data mining” programs can 18

uncover repetitions and anomalies and analyze links to fraudulent activities or entities. The consolidation of insurance industry claims databases has put a valuable new tool in the hands of investigators. The Insurance Services Office Inc.'s system, known as Claim Search, utilizes a data-mining program. Claim Search is the world’s largest comprehensive database of claims information. The NICB has developed a program called Predictive Knowledge that collects and analyzes information which can be disseminated to insurers and law enforcement agencies to detect, investigate and prevent insurance fraud. In addition, the NICB, in partnership with iMapData Inc., introduced CAT fraud, to identify potentially fraudulent catastrophe/weather-related insurance claims. A national fraud academy — a joint initiative of the Property Casualty Association of America, the FBI, NICB and the International Association of Special Investigating Units — was designed to fight insurance claims fraud by educating and training fraud investigators. It offers online classes under the leadership of the NICB. An emerging issue for insurers using data sharing services is their impact on privacy. Financial institutions, including insurers, must respect the privacy of their customers and protect their personal information, a practice that may deter efforts to combat fraud. Insurers may also file civil lawsuits under the federal Racketeering Influenced and Corrupt Organizations Act (RICO), which requires proving a preponderance of evidence rather than the stricter rules of evidence required in criminal actions and allows for triple damages. Since 1997, some of the largest insurers in the country, especially auto insurers, have been filing and winning lawsuits against individuals and organized rings that perpetrate insurance fraud.


Itching To Know Who Can Help? Insurance Agent Fraud on the Rise Two years ago, at the age of 90, Thomas Pickering was doing the twist.At the behest of his trusted insurance agent, Pickering was buying and selling one annuity after another in a deceitful industry practice called "twisting." That's when dishonest agents persuade clients to cash in one investment for another—against their clients' best interests and for the agents' own financial gain. In Pickering's case, he followed his agent's advice, sold investments before they matured and lost 11,000/- in forfeited interest and penalties. He was about to lose another 35,000/- cashing in one annuity to buy another,netting his agent 20,000/- in commissions. When the company holding the annuity intervened. It suspected Pickering was getting ripped off and called the authorities.An investigation led Florida's Department of Financial Services (DFS) to revoke agent Peter Waldon's license for fraud. Barry Lanier of Florida's DFS says he's fielding more complaints about greedy agents earning whopping commissions upfront by pitching unsuitable investments like annuities to older people. But Lanier and other experts say some annuities are not considered to be wise investments for most olders because they're based on life expectancy.Growing concern over the sale of annuities to older people prompted the National Association of Insurance Commissioners (NAIC) to adopt regulations that assure that the annuities are suitable to the buyer's needs.


Division of Insurance Fraud The Division of Insurance Fraud was originally formed in 1976 to investigate only fraudulent automobile tort claims. In the early years, investigators had arrest powers but could not carry firearms. Today, the division investigates all types of insurance fraud crimes. Investigators are assigned to work general fraud cases, workers’ compensation fraud, medical and health-care fraud, and agent and company fraud. Areas of assignment may include: •

→Insolvency - Fraud committed by insurance companies that fail financially due to internal fraud by owners and corporate officers.

→Unauthorized Entities - fraud, both criminal and civil, committed by insurance companies operating illegally in the state.

→Health Care Fraud - focuses on organized medical and health care scams.

→Workers’ Compensation - investigates employers for workers’ compensation premium fraud.

→Public Employee Fraud - investigates state and local government employees for workers’ compensation claimant fraud.


Deceptive Life Insurance Sales Practices Continue The life insurance industry has been hit with billion dollar verdicts and multi-million dollar fines for deceptive sales practices. The two largest companies, MetLife and Prudential, have each been hit with billion-dollar-plus verdict. Most major companies have also been sued for deceptive sales practices. The list goes on and on, as successful lawsuits finally caught up with an industry that has long bilked the public, misrepresented its product, and ignored the urgent need for basic reforms to stop abuses. With billion dollar judgments (and that is "billion" with a "b"), you'd think the industry would learn its lesson. That's what you'd think but you'd be wrong. The life insurance industry did establish the Insurance Marketplace Standards Association (IMSA). Of course, there are now ads announcing that the life insurance industry is committed to the fair treatment of policyholders. But early returns on the industry's efforts suggest it is just a sham and a shell game designed to prevent real reform by legislation and regulation. Now a study by Professor Joseph Belth, publisher of the Insurance Reform, a respected newsletter on the life insurance industry, finds the reforms are a sham. I'd have to say as usual the life insurance industry wants to improve its public relations, not its policy relations. 22

The Insurance Forum study correctly notes that much of the life insurance deception comes about because the industry does not make full disclosure on rates of return and prices necessary to sound decision making by insurance buyers. By failing to disclose needed information, consumers are easily duped by deceptive methods. The Insurance Forum put the industry to a test by asking the chief executive officers of 40 companies (31 of which are members of IMSA) for the kind of information that should be freely and automatically available to prospective policyholders. Of the 41 companies surveyed, 27 did not participate. Only 13 companies (10 of which are members of IMSA) participated in the study. And some of the 13 participants provided deceptive information. Some provided incomplete information. Some provided the kind of information that would not be helpful to the typical consumer. The Insurance Forum study concludes that IMSA will not bring about the needed changes in the life insurance industry, but will simply delay their enactment. Most industries prefer "voluntary" action, so the foxes can continue to guard (and eat) the chickens, also known as policyholders. What's more, after the great life insurance scandals of the 1980s and 1990s, the industry is determined to perpetuate a system in which life insurance rip-offs by major and minor companies alike will continue to be standard operating procedures. The bottom line is that the life insurance industry has practices that are precisely the opposite of its proclaimed ethical principles. 23

Here are some examples: IMSA has an ethical principle that says its company members will "provide competent and customer-focused sales and services." The Insurance Forum survey suggests that most companies will engage in business as usual, giving the consumer no information, inadequate information or deceptive information. IMSA has another ethical principle that says it will "engage in active and fair competition." But by not providing information or by providing deceptive information, it is clear that major segments of the industry will continue to engage in competition by confusion. As Bob Hunter of the Consumer Federation put it, "The proof of the pudding is in the eating. It's hard to trust the life insurance industry, given its recent history. They're going to have to reprove themselves as trustworthy." Unfortunately, the life insurance industry is proving itself untrustworthy. And as for the proof of its good intention being in the pudding, my advice is don't eat its pudding. It's the same old stuff plus a phony sermon on ethical principles.


Viatical Settlements Investment Fraud Historically, some insurance companies have offered an accelerated death benefits option which allows the insured an opportunity to receive up to 80% of the death benefit at any time within the last year of their projected life. The remaining 20% is then paid to the insured's estate. On the other hand, the business of viatical settlements involves the selling of a policy death benefit, at less than face value, by a terminally ill person to a third party. This is accomplished, for a commission, with the assistance of a broker who offers the policies to settlement provider companies for bid, with the highest bidder obtaining the policy for resale to investors. The broker receives a commission based on the sale price. Size of the Industry Fraud in the unregulated viatical settlement industry has become rampant; as much as 40-50% of the life insurance policies viaticated may have been procured by fraud. Clean Sheeting Unscrupulous individuals in the viatical industry procure policies by a practice referred to as "clean sheeting" which is the act of applying for life insurance while intentionally failing to disclose the applicant's status as being terminally ill. They can get away with it initially because most insurance companies avoid the added costs and invasiveness of medical exams and blood tests by relying on an honor system below a certain policy face value.


Many insurance agents and brokers assist and often encourage aviators in committing the fraud because it not only provides more policies than would be available though legitimate means, but it also provides a much higher rate of return due to the fact they can be bought from aviators so cheaply. In a legitimate transaction, the ill person usually receives 50%-70% of the face value of the policy. However, a "clean sheeted" policy viaticated during the contestable period may offer as little as 10% of the face value because it carries the high risk of rescission, or cancellation by the insurance company, due to fraud. Wet Ink Policies After the policy is issued, the insured person will sell his policy or multiple policies from different insurance companies, sometimes within weeks, to a settlement provider using a broker. This is referred to as a "wet ink policy" because the ink on the contract is still "wet" when the policy is sold. The odds against an individual finding out that he is terminally ill within weeks of buying a policy are exceedingly high. To see that happen repeatedly within a short period of time with the same broker or provider is strong evidence that they are both well aware that the policies have been "clean sheeted". To hide the fact that the policy has been viaticated shortly after issuance, con artists will obscure viatication by simply changing the beneficiary to someone at the settlement provider firm. A second way is to employ a "collateral assignment" which is similar to where the insured seeks a loan from a third party and secures the loan by pledging the death benefits of


the policy. In fraudulent transactions they pledge the death benefits but do not receive a loan. Contestability Period Finally, some settlement providers merely delay reporting that the policy has been viaticated until the contestability period is over; falsely believing that it is not a crime then. An indication of culpability is that virtually all parties attempt to hide the viatication of fraudulently obtained policies from the insurance company for as long as possible. The contestability clause for life insurance lasts for two years after issuance, during which time it may be rescinded by the insurer for fraud in the application. After this period ends, the insurer is obligated to pay the death benefit, regardless of any fraud in the application. Because policies viaticated during the contestability period may be rescinded, they bring, as mentioned, a much lower price in the market.


A Case Study As an investor, you are offered the opportunity to purchase an interest in a life insurance policy in which the insured is terminally ill (i.e., viatical settlement). You are told: that your investment will produce a 100% rate of return because you are assigned a policy with a face value of twice your investment which you can claim upon their death; that you will have the option of reselling your policy once it becomes incontestable (two years after the date the policy is issued) for 70% of the face value; and that if the policy is contested or canceled by the insurer, the promoters will provide a replacement policy through a "replacement policy trust" managed by them.

They say these are better investments than stocks, mutual funds, annuities, and CD's because viatical investments have the following attributes: →"Full liquidity at maturity from rock solid 'A' rated insurance companies!" →"Tax advantaged & hassle free! 100% fixed rate of return which is fully secured."


→"Zero risk to principal, a totally safe investment with no load & no fees!" →"Short holding periods with early buyout options available as well!" →"No speculation, no interest rate risk, no market risk, no economic risk!" In addition they say you will be making a "humanitarian investment" because the terminally ill person will be able to use the funds to receive improved health care; pay off debts; take a vacation, reduce family stress, and enhance their quality of life. In exchange for your money you receive a Membership Certificate certifying that you are a member of Viatical Funding LLC. After deducting the fees paid to sales agents, viator agents, and other intermediaries from your funds, you find that the ill person will actually be left with very little. In this case only $5,400, which is only 12% of your investment of $45,000, or 6% of the policy's face value of $90,000. They fail to disclose to you that the insured was terminally ill prior to being insured, that they concealed this fact on the application, and thus subjected the policy to cancellation by the insurer. Instead of being designated as the sole beneficiary you may find you share it with creditors and family members, and that the option to resell the ownership interests is not a guaranteed option, but rather an "assurance" that they will "make an effort" to facilitate a resale. In any event, you will not likely receive a promised 70% of the face value but only the amount another investor would be willing to pay, less commissions, which could be much less. 29

They also fail to mention: the risk of the insured living much longer than the estimated life expectancy, thereby greatly reducing the annual yield; the risk of their becoming insolvent and unable to replace a contested or canceled policy; the risk of the life insurance policy lapsing, or that you will often have to pay the policy premiums for the duration of the policyholder's life; the 15% commission the sales agent receives from your investment; who is responsible for monitoring the health status and location of the insured, obtaining a death certificate, and making a claim to the insurance company.

Life Expectancy of the Insured To determine their rate of return investors rely on a report which projects the life expectancy of the insured, but there are no minimum requirements as to who may generate these reports or projections. One company used a nurse and a plastic surgeon but could have used the janitor. Viatical investing is highly speculative and risky. Even when the policyholder exists and is terminally ill, there is a high degree of uncertainty in predicting when they will die. New AIDS drugs and cancer treatments have compounded the risk for investors because they help policyholders live longer.


Viatical settlements are illegal under Canadian insurance legislation so Canadian investors should not be involved in these schemes at all. Not Enough Sick People Financial Federated Title & Trust, and Asset Security Corporation pled guilty after being charged with conspiring to recruit insurance agents to defraud more than 3,000 investors while purchasing viaticated insurance policy investments over a three year period. Investors were told that their money would be used to purchase a beneficial interest in viaticated insurance policies, and that medical overviews were being performed on the insured persons whose policies were being bought. Although at least $115 million in investor monies was taken in, the promoters used only $6 million of these funds to buy insurance policies whose total face value was just over $7 million. They used the balance of the money for purposes totally unrelated to the purchase of viaticated insurance policies. Industry Terminology Cleansheeting: Refers to a fraudulent criminal act committed by a proposed life insurance applicant, and by life insurance agents who knowingly assist or conspire with the insurance applicants, by failing to disclose a pre-existing medical condition in response to a question on a life insurance application which would affect issuance of the policy. Viator: A person who has a life threatening or terminal illness who sells or assigns their life insurance policy.


Viatical Settlement: The life insurance policy of a terminally ill person sold or offered for sale, generally at less than face value, through a viatical settlement company. Contestability: Policies are generally contestable for two years from the date of issue and are subject to being rescinded by the insurer for cause, such






Viatical Settlement Provider: A person who enters into a viatical settlement contract with a viator. Often referred to as a settlement company or funder. Viatical Settlement Broker: A person who, for profit, offers or attempts to negotiate a settlement contract between a viator and one or more viatical settlement providers. Viatical Settlement Sales Agent: A person other than a licensed viatical settlement provider who arranges for the purchase of a viatical settlement or an interest in a viatical settlement from a viatical settlement provider. Mortality Profile Report: A report based on a review of a viator's medical history, which gives a prognosis of a viators life expectancy. Usually done by a health-care professional and generally at the behest of the viatical settlement provider to calculate the value of a viatical contract. Viatical Investment Broker: Defines a person or entity other than a licensed viatical settlement provider who solicits investors to purchase a viatical


interest from






We Chose to Keep Your Money Personal Choice Opportunities mislead investors when they sold viatical securities in the form of loan transactions. Investors lent money to PCO in order for them to purchase the benefits of life insurance policies from terminally ill individuals on the promise that they would receive a return on their investment of 21-25% per annum. The funds, however, were not used to purchase life insurance policies but kept instead. Over 1100 investors nationwide are believed to have invested $80-100 million in these transactions in just ten months. No evidence of any valid life insurance policies being purchased has been discovered. Repercussions for the Industry Life insurance premiums are based on actuarial tables which are worthless in fraudulent applications. Insurance companies cannot afford to pay out large death benefits after collecting small premiums for only a few years. Even if they don't go bankrupt the added costs are eventually passed on to other policyholders. The viatical industry as a whole must take steps to better police itself. If it does not, it risks ceasing to exist as an industry either by being legislated out of existence or by being pushed out of the market after destroying investor confidence in its product. If this fraud is to be stopped, it will require the total commitment of the insurance industry. The first step is for the industry to wake up to the existence and scope of the problem.


Penalties Currently a person charged with viaticating a fraudulently procured insurance policy worth $100,000 face value, who stands to gain tens of thousands of dollars, faces the same penalty as a shoplifter who takes a pack of cigarettes. A mere sixty days in jail is an encouragement, not a deterrent which may be why the industry watchdog has never received a single referral from the industry itself reporting such fraud. Life Settlements Once thriving on those dying from a terminal illness, medical advances, which are helping patients live longer, has caused the business to start targeting new clients - usually seniors with high payoffs - who may be willing to sell their life insurance policy to investors at a discount. Life settlements, or the sale of a life insurance policy to a third party, are sometimes referred to as "senior settlements" because most of the life insurance policies purchased insure the life of a senior citizen. The owner of the policy gets cash and the buyer becomes the new owner and/or beneficiary of the life insurance policy, pays all future premiums and collects the entire death benefit when the insured dies. People decide to sell their life insurance policies for many reasons. Some common ones are the changed needs of dependents, a desire to reduce or eliminate premiums, and a need for additional cash to meet expenses. State regulation of insurance generally does not extend to life settlements. Certain aspects of these transactions may fall under the various Securities Acts so there can be financial risks involved when entering into such arrangements.


You should consider contacting a professional tax advisor to find out the tax implications as life settlement proceeds are generally not tax free. Also know, if you are the seller that you will be required to provide certain medical and personal information to third parties who will be paid the proceeds from your policy upon your death. These third parties may sell your policy and pass along your medical and personal information to other individuals. Typically, life settlements are offered to buyers, for resale to investors, at a discount from the death benefit. The discount is for the entire life of the policy, not an annual rate of return. An annual rate of return cannot be guaranteed. Your rate of return depends on when the insured dies, and no one can predict a person's life expectancy. Keep in mind that a life settlement is not a liquid investment because the return on such an investment does not occur until the insured dies. Spreading the Risk The Alabama Securities Commission issued a Cease and Desist Order against Viatical & Elderly Settlement Providers, LLC (VESPERS) Washington, D.C., to stop conducting business in a few states after they received information that they were engaged in the illegal offer and sale of investment contracts involving fractionalized viatical settlement contracts there. VESPERS, though not licensed to sell this type of security in the state, have solicited independent insurance agents to sell interests in viaticals issued by them with promises of low risk and high returns of 28-70 percent on two to five year investments for a 10% commission.


Be Aware, Don’t Be a Victim The Coalition Against Insurance Fraud (CAIF) is a national advocacy organization







government agencies and insurers. Its website notes “insurance fraud is hard to measure because so much goes undetected, and complete research has yet to be done. Still, we have enough evidence to know that fraud is widespread — and expensive.”14 National studies conducted by the Insurance Research Council (IRC) show that auto insurance, workers’ compensation and health insurance are the lines that are most vulnerable to fraud. The IRC estimates that one-third of all bodily injury claims from auto accidents contain some amount of fraud, usually in terms of padding or exaggerating a claim, but only 3% are totally fraudulent such as staged accidents. Another form of fraud, lying on applications in order to reduce premium, costs auto insurers $13.7 billion annually (Insurance Information Institute, or III). As to workers’ compensation fraud, one of the most common forms of workers’ compensation fraud in Maine is a faked or exaggerated injury, an area within the jurisdiction of the Maine Workers’ Compensation Board’s Fraud and Abuse Unit to investigate. There are, however, other forms of workers compensation fraud are employers who misrepresent payroll or the type of business in order to reduce their insurance premiums and real or bogus entities that purport to provide real or bogus workers compensation coverage or “alternatives” to coverage to employers. In late 1999 the Governmental Accounting Office found that organized crime is heavily involved in health insurance fraud and that the criminals identified were not health care workers, per say, but individuals already prosecuted for securities fraud, forgery and auto theft. With the enactment 36

of HIPAA (Health Insurance Portability and Accountability Act of 1996) detection and prosecution of health insurance fraud received a boost. The Department of Justice calls health care fraud and abuse its number two law enforcement priority, after violent crimes. In 1996, according to the FBI, Congress provided an added $54 million over seven years for health care fraud enforcement. Property insurance, based upon the Bureau’s 2004 data, had the third highest fraud and abuse count by line of business at 165 reported cases. According to the National Fire Protection Association, arson or suspected arson account for nearly 500,000 fires each year, or one in four fires in the United States. Arson and suspected arson are the largest causes of property damage in the U.S. Despite what may appear to be a bleak picture, a number of tools exist for combating fraud. In addition to those Maine Insurance and Criminal Code provisions, previously discussed, several federal laws are used to address fraud. These include: The Federal Mail Fraud Statute, the Racketeer Influenced and Corrupt Organizations (RICO) and the Health Insurance Portability and Accountability Act (HIPAA). Also, the Violent Crime Control and Law Enforcement Act of 1994 makes insurance fraud a federal crime when it affects interstate commerce. Certain state agencies work with insurers to address fraud, as well. The Workers’ Compensation Board’s Fraud and Abuse Unit tackles issues such as fakes or exaggerated injuries, the Fire Marshal’s Office investigates possible arson, and the Department of Human Services takes on Medicare and Medicaid fraud. Recently, one DHS employee received the Office of the Inspector General Integrity Award for her investigative and logistical support in a Medicare and Medicaid fraud case in Bangor Federal Court.


Fraud has also gotten the attention of the National Association of Insurance Commissioners (NAIC), which encourages the insurance industry to take a proactive role in controlling fraud. The NAIC offers states







The mission of the Antifraud Task Force is to serve the public interest by assisting state insurance supervisory officials, individually and collectively, in the following fundamental antifraud activities: •

Promotion of the public interest through the detection, monitoring and appropriate referral for investigation of insurance crime, both by and against consumers.

Provision of assistance to the insurance regulatory community through the maintenance and improvement of electronic databases regarding fraudulent insurance activities.

Disseminate the results of research and analysis of insurance fraud trends as well as case-specific analysis to the insurance regulatory community and state and federal law enforcement agencies.

Provision of the liaison function between insurance regulators, law enforcement and other specific antifraud organizations.

Highlights of the 2004 charges of the Antifraud Task Force include: compile and maintain detailed information on antifraud databases maintained by antifraud organizations, financial regulators, and law enforcement; consider developing further guidelines for use by the industry in determining when suspicious claims should be reported; review industry compliance with antifraud initiatives; develop methods to enhance the investigation and prosecution of financial services fraud; and establish guidelines on the investigation and prosecution of insider insurance industry fraud.16 Additionally, in 2005 the NAIC created a “Fraud Web line,” an online insurance fraud reporting system located on the Web site of the National 38

Association of Insurance Commissioners (NAIC). The system allows consumers to provide information anonymously. The new fraud reporting system was developed as part of the response by insurance regulators to the national allegations about misconduct involving compensation agreements between some insurance companies and brokers. The allegations of improper activity spurred regulators to improve their abilities to collect information from consumers, producers and insurance company employees. Many places participates in the online fraud reporting system, in conjunction with the NAIC. The online fraud reporting system lets consumers anonymously supply detailed information regarding suspected fraudulent activities to the NAIC where the information is then forwarded to the appropriate state. Although consumers may identify themselves, no personal identifying information is required to report an allegation of suspected fraud. Consumers are required to designate the state where the suspected fraud occurred and the name and address of the business or individual. A text box is included for the consumer to provide the details of the suspected fraud. Other optional fields on the form include phone number, date of birth, date of suspected fraud, and amount of loss. Despite the anti-fraud activities of state and federal agencies discussed above, the Bureau notes that an enforcement and prosecutorial gap exists in current Maine government operations insofar as no entity exists that is focused on investigation and prosecution of fraudulent insurance acts and the crimes of insurance deception and deceptive insurance acts. The American Insurance Association and the Property Casualty Insurers Association and several of the individual fraud investigators who commented as interested persons all noted the frustration when hard work has been expended to develop a case and local prosecutors have refused to prosecute or believe that it is not a serious crime meriting their 39

attention. The interested persons believe that a strong and effective insurance fraud unit would be effective not only in punishing those convicted of insurance fraud, but in deterring others. Forty other states currently have insurance fraud units. The Director of the Fraud Division of the New Hampshire Insurance Department shared his concern with the Joint Standing Committee on Insurance and Financial Services during his testimony on L.D. 1561 that organized insurance fraud rings are gravitating toward those jurisdictions with the least regulation, for the conduct of affairs. That concern has been echoed by other interested persons as well. OUR MISSION: The mission of the NAIC is to assist state insurance regulators, individually and collectively, in serving the public interest and achieving the following fundamental insurance regulatory goals in a responsive, efficient and cost effective manner, consistent with the wishes of its members: →Protect the public interest; →Promote competitive markets; →Facilitate the fair and equitable treatment of insurance consumers; →Promote

the reliability,


and financial



insurance institutions; →and Support and improve state regulation of insurance.


International association of insurance fraud agencies(iaifa)

HOW do they operate? The IAIFA and its members are continually working to improve the quality of data available to members and break down the jurisdictional barriers by working








agencies.Those who break the law are adept at using these jurisdictional boundaries as a protective shield. IAIFA is trying to cut red tape involved in the various (often necessary) jurisdictions' "privacy" laws in an attempt to track down crime and encourage other enforcement agencies to share information to the mutual benefit of all who are involved in assuring a high level of integrity throughout the insurance industry. WHAT are their Goals: IAIFA's goal is "to co-ordinate the efforts, training and education of law enforcement agencies, government bodies, and the insurance industry to move more efficiently prevent and combat insurance fraud worldwide." IAIFA has kept its focus on insurance fraud, which its members view as a crime against all segments of society - not a victimless felony, as some would define it. WHEN do they meet? IAIFA meets annually. The annual conference hosts eminent speakers whose presentations update the members on critical developments. It also enhances personal contacts and exchange of information between members throughout the year.


IAIFA cooperates in regional seminars which focuses on such topics as how to effectively use the laws to prosecute and recover assets gained by fraudulent means. Added to this, these meetings have widened the network of contacts for members from Europe, Asia, Australia, the Caribbean, Africa, and North America. Between meetings, our newsletter keeps members informed of the various projects undertaken by the Association and its members, as well as presenting new trends in the field of insurance fraud, both from a criminal and law enforcement perspective. WHERE are they found? International is the first word in IAIFA's name. That means what it says. While IAIFA began in North America, the founders were not so insular to believe that they had a unique place in insurance fraud. More than ever, sharing intelligence and finding ways to successfully prevent and combat crimes is essential for the members to do their job effectively. This is why the IAIFA wants even more countries to join in this worldwide effort. It is a classic case of the sum of the whole being greater than the sum of its parts. The interchange of information is invaluable, and should be available to everyone in their fight against sophisticated global fraud WHO are the members? It could be you and your organization. IAIFA's members include government insurance departments and fraud bureaus, law enforcement agencies, respected insurance companies, and related firms with a strong interest in combating insurance frauds. You may obtain the application by logging on the site or by contacting us for a mailing of the application. Upon receipt, your application will be considered by IAIFA's executive committee. If you are accepted, you and 42

your organization will have made a major step forward in beating insurance crime. This will be true not only for you in your own jurisdiction, but for your colleagues elsewhere, who will welcome hearing how you cope with escalating problems of insurance fraud. WHY were they formed? Insurance fraud is recognized internationally as a multi-billion dollar problem. IAIFA was created after a group consisting of the Directors of Insurance Fraud Agencies from the U.S.A. and Canada met to confront this burgeoning problem which is not restricted by jurisdictional boundaries. It soon became apparent that if the agencies could share information they would increase their degree of effectiveness. Rapid communication is of the essence in catching fraud artists who know how to move money literally at the speed of light. From those early beginnings in 1986, with only a handful of members in North America, IAIFA now encompasses the Globe.


Dealing with fraud on the Net As time goes on, the number of attacks will only increase and network forensics will become a part of our lives, who could put you on the track by helping record and analyse previous security threats. In a perfect world, network security wouldn’t be required. Unfortunately this isn’t a perfect world, and even if there are many who will throw up a firewall and other such security measures as solutions, this doesn’t stop the problem. No firewall is impenetrable and there’s no such thing as a perfect security measure. There’s always a way to get around them, and the number of people trying to do that keeps increasing. According to the US General Accounting Office, approximately 250,000 break-ins were attempted into Federal computer systems alone in 1995 and this number gets bigger every year. Only one to four per cent of these attacks ever get detected. Network forensics is the capture, recording, and analysis of network events in order to discover the source of security attacks or other problem incidents. It attempts to prevent hackers from attacking a system, and searches








There are three parts to network forensics: intrusion detection; logging (the best way to track down a hacker is to keep vast records of activity on a network with the help of an intrusion detection system); correlating intrusion detection and logging. The ultimate goal of network forensics is to provide sufficient evidence to allow the criminal perpetrator to be successfully prosecuted. The practical applications could be in areas such as hacking, fraud, insurance 44

companies, data theft—industrial espionage, defamation, narcotics trafficking, credit card cloning, software piracy, electoral law, obscene publication, perjury, murder, sexual harassment, and discrimination. Technical Challenges IT managers, network consultants, auditors, software developers, and analysts would all like to understand the data that is sent over their corporate networks. Network monitoring is an essential tool for network optimization and security. How much data was sent? When? What was sent? Current tools only answer the first two questions, and have trouble with the third. The tools base their analysis primarily on IP and TCP headers, which can be misleading or intentionally falsified. This leaves security consultants and network managers to manually sift through raw network packet dumps, piece together data streams and undo transfer encoding, and seek to understand the significance of a single connection. This is tremendously time-consuming and since networks deal with one packet at a time, this isn’t very useful or complete to someone trying to get a big picture view of an employee’s suspected network abuse, or a deep-level view of an intrusion attempt. And yet the internet is critical, and we haven’t a choice but to connect internal networks to the rest of the world — to link with customers, suppliers, partners, and their own employees. Even if that connection brings in threats of malicious hackers, criminals, and industrial spies. These network predators regularly steal corporate assets and intellectual property, cause service breaks and system failures, sully corporate brands, and frighten customers. Unless companies can successfully navigate around them, they will not be able to unlock the full business potential of the internet. 45

Even enterprises with exceptional security have their front doors open to employees sending and receiving data. Is there a user abusing the system for personal reasons, or accidentally or maliciously releasing confidential information? Unfortunately, the variety of data formats and sheer volume of traffic make detailed network monitoring a major technical challenge. Traffic monitors focus on bandwidth. Although some go so far as to keep basic statistics such as web page hits and average visit length, they’re mostly useful for capacity planning and simple web marketing. Port scans allow network security specialists to find some vulnerability. Intrusion detection systems scan traffic for known attack signatures. However, because these tools base their analysis primarily on the IP and TCP headers, which can be intentionally falsified or misleading, they are subject to incorrect analysis and spoofing. Current tools can’t provide the information that IT managers, network consultants, auditors, software developers, and analysts need to know: “Who is running an unauthorized web server on a non-standard port?” “How long is it taking our e-commerce system to process a customer order from start to finish?” “What generated that huge spike of traffic between 5:35am and 5:40am this morning?” “Exactly what happened during – and before – last night’s attempted break-in?” The fleeting nature of any kind of electronic data is such that its preservation, is required especially for legal proceedings — the methodology can be broken down into two key elements: acquiring evidence and analyzing evidence. 46

This information is required for dealing with a law enforcement investigation. It involves capturing and storing every packet passing through wires and then regenerating the sequence flow for analysis. If we are able to regenerate the attack it can now be treated as evidence. Full-content network monitoring is no longer the province of spooks and spies — it’s increasingly a practice that is an integral part of a multilayered defense system that serves a variety of goals for both computer security and overall network policy. The solution is to follow a multi-layered security approach and a system that can perform the following tasks: integrated network IDS/ anomaly detection /forensic analysis; capture data at high speeds; run invisibly and capture packets from the monitored network; assemble the collected packets into connection streams; read the actual data in packets and categorizes it by type, rather than make assumptions based on packet headers and port numbers; automatically determine key connection attributes; operates at the level of complete, assembled data streams, rather than arbitrarily mixed-together packets; search capability through network traffic by keyword; protocol recognition capability and correlation functionality. As time goes on, the number of attacks will only increase and network forensics will become a part of our lives. It has an ability to strengthen our securities, check compliance against policies, and punish those that attempt to disrupt our IT infrastructure. The future of information security lies in an organisation ability to not only prevent malicious activity, but also investigate and prosecute the perpetrators whether internal or external.


Precaution is better than cure Insurance fraud is not typically a violent crime, just a lucrative one. As consumers, there are several common-sense steps you can take to help reduce fraud and minimize its impact.

Be an Informed Consumer. Insurance premiums are a significant expense for most of us. The premiums you pay are based on your individual claims history and the degree of risk involved. Generally speaking, the greater the risk, the higher the premium. For example, the theft premium for a Honda Accord will be far higher than that of a Yugo quite simply because more Honda Accords are stolen. Similarly, a tightrope walker will pay more for life insurance than a librarian, all else being equal.

Comparison Shop. Premiums can vary significantly from insurer to insurer so it pays to shop around. To make comparison shopping a little easier, the Insurance Department publishes consumer guides for auto, homeowners, long-term care and HMO/health insurance that provide sample premiums for insurers









Department's Web site is also the home of an Interactive Guide to HMOs, which allows consumers to find information about HMOs operating within their home county.


Know Your Agent or Broker. Consumers can often be victimized by unscrupulous agents or brokers and discover only after they file a claim that they are without coverage for their home or their car. If an uninsured home is damaged by fire, the owner is solely responsible for restoring it and paying back any mortgage holders. If a driver is involved in an accident while driving an uninsured vehicle, any personal assets are subject to forfeiture if that driver is sued for damages. Deal only with licensed agents and brokers. Agents and brokers must carry proof of licensure.

Where's the Proof? Never pay for a premium in cash. Pay by check or a money order made out to the insurance company directly or to the agency—not to the individual agent or broker. In addition, always request a receipt.

Where's the Policy? You should receive a copy of any type of insurance policy complete with endorsements and declarations specifically outlining your coverage and its limitations within a reasonable period after your purchase. If you do not receive it, question your agent or broker. If there is no satisfactory explanation for the delay, contact the New York Insurance Department immediately. You may not have the insurance coverage you paid for.


Are You Being Billed for Services You Have Not Received? If you have received medical or dental treatment that is covered by an HMO or an insurance company, you will receive an "Explanation of Benefits" statement listing the services for which benefits have been paid. Review it carefully to ensure that your health care provider has not "bumped up" your claim (i.e., overstated services provided in order to receive a higher payment), or charged for services you did not receive. Contact your insurer immediately if you feel there are discrepancies. Fraudulent claims payments translate into higher insurance premiums for all of us.

What If You’re Involved in an Automobile Accident? Call the police to the scene and make sure that the details of the accident are documented and the identities of the occupants of the other vehicle are verified. Be suspicious if the driver of the other vehicle insists there is no need to call the police. That driver’s insurance card may be fraudulent and his car uninsured. Auto Insurance Fraud is a multi-billion-dollar problem nationwide. Watch out for these common scams: The staged accident – A vehicle filled with people will stop suddenly in front of you, setting you up as the cause of a rear-end collision. The "victims" will then file costly multiple medical and damage claims using doctors and lawyers who are part of the scam. Steerers – These individuals will solicit the injured or allegedly injured parties and direct them, for a "referral fee," to lawyers, doctors and/or


medical facilities that are part of the scheme. Be on the lookout for steerers at accident scenes and don’t become their victim. Inflated claims – If you are in an automobile accident, be sure you know the extent of the damages to your own car and the other vehicle and carefully review claims. Vehicle owners and body shops frequently inflate estimates for damages and then either perform other repairs not related to the accident or simply keep the extra money. BE ALERT! IT’S YOUR MONEY. Think twice before replacing an existing life insurance policy with a new one. The new policy may have exclusions or waiting periods for preexisting conditions that are covered by your current policy. And premiums are likely to be higher because you are older. The Insurance Department protects








purchasers with pertinent facts when that purchase will cause the buyer to surrender, lapse, or in any way change the status of an existing life insurance policy. Department Regulation 60 requires this full disclosure so that prospective life insurance purchasers can make decisions in their own best interest.

Don’t allow high-pressure salesmanship to persuade you to sign up for a type of policy or certain coverage that you are not sure you need. Take time to decide what’s right for you. Read your policy carefully before you sign. If you have questions, ask your agent or broker, or your insurer. An additional source of information and help is the Insurance Department’s Consumer Services Bureau.


Summary Insurance, a very well known concept today and many people could relate to in more than one ways. This is the influence of the changing times that have changed the concept of insurance in the minds of the young and the old. People have changed their attitude towards insurance and accepted its new look from being an entry of luxury to an investment and a necessity. The number of people taking insurance has increased considerably in the past few decades due to the entry of private players in the market. One knows that every coin has two sides. Similarly, insurance also has two faces. One of which is investments and getting regular returns from financial institutions for oneself and for loved ones. The other, awfully, is of which people deceive insurance companies for their undue advantage and cause intimidation to many others. Though, there have been many laws and agencies all over the world to impede such criminal activity, it is not a full proof solution to all insurance frauds. In a world today where every person seeks their right to information and demands the same, it is very difficult to scam them. One must know all the loop-holes of their business to scheme some one. This could be the act of some one who is carrying on criminal bustle on the vigor of his acute knowledge about their business. Lack of knowledge and not knowing ones basic rights on behalf of the prey could land them in scrambled scam bisque. There have been many institutions and agencies formed all over the world to detect fraud and penalize the one conscientious for such mishaps. There is Division of Insurance Fraud, International Association Of 52

Insurance Fraud Agencies (Iaifa), etc. through the enduring and conscious endeavor of these institutions insurance fraud tempo has declined by an enormous amount. Several have studied preceding and enduring market conditions to identify with the diverse frauds that take place and the reasons behind committing these frauds. One cannot diminish frauds, schemes, swindles, scams but can positively be alert of them so as not to be a victim of it themselves. Tumbling fraudulent situations is a unremitting and collective effort of countless. One must be sensitive and offer their helping as much as they can. One can either grumble about how things are all going wide of the mark and swallow the consequences. Or put their foot down and make an attempt to change the immoral to the right. The wrong will change and everyone will see the bright light of truth and right with the revolution of knowledge, awareness, an attitude for change amongst the humanity.


Bibliography •

BlueCross & BlueShield United of Wisconsin: What is health care fraud?

• Stern RA, Montana R.: Identify patterns of medical provider fraud through data base graphic pattern. FDN Fraud Report •

Barrett S.: Chelation therapy and insurance fraud

Private health insurance: Employers and individuals are vulnerable to unauthorized or bogus entities selling coverage

Scam alert.: Coalition Against Insurance Fraud Web site


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