Fraud among friends: some unscrupulous insurance agents break the bonds of trust and steal from policyholders and carriers.Key Points
* Based on industry, occupational fraud in the insurance business ranks sixth in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. the Association of Certified Fraud Examiners Established in 1988 the Association of Certified Fraud Examiners is the professional organization that governs professional fraud examiners. Its activities include producing fraud information, tools and training. .
* The insurance industry figured in 46, or 9.1% of the cases reported to the association, and the median loss in insurance cases was $172,500. Insurance losses in the association's 2004 report totaled more than $761 million.
* Leaders of agent groups condemn agent fraud, but also say this behavior is unusual.
Most cautionary tales A cautionary tale is a traditional story told in folklore, to warn its hearer of a danger.
There are three essential parts to a cautionary tale, though they can be introduced in a large variety of ways. about fraud and insurance focus on scams perpetrated by people out to bilk bilk
tr.v. bilked, bilk·ing, bilks
a. To defraud, cheat, or swindle: made millions bilking wealthy clients on art sales.
b. money from insurance companies. But there's another angle to the fraud story, this one centering on agents and brokers who use their positions to steal from policyholders and carriers alike.
On an industry basis, occupational fraud in the insurance business ranks sixth in the United States, said the Association of Certified Fraud Examiners in its 2004 Report to the Nation on Occupational Fraud and Abuse. Through an online survey, the association compiled information on 508 fraud cases in which its members had been involved. The losses totaled more than $761 million. The insurance industry figured in 46, or 9.1% of the cases reported, and the median loss in. insurance cases was $172,500, the association said.
Leaders of agent groups condemn this conduct, but also say these cases are unusual. "I don't think fraud has been a major issue in the brokerage business or the distribution business ever," said Ken A. Crerar, president of the Council of Insurance Agents and Brokers. "At the core of it, this is an industry that has not been riddled rid·dle 1
tr.v. rid·dled, rid·dling, rid·dles
1. To pierce with numerous holes; perforate: riddle a target with bullets.
2. with fraud."
"In any industry, there are always some bad apples." said Dick Poppa pop·pa
Variant of papa. , chief executive officer of the Independent Insurance Agents & Brokers of New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . "'But this is minuscule minuscule
Lowercase letters in calligraphy, in contrast to majuscule, or uppercase letters. Unlike majuscules, minuscules are not fully contained between two real or hypothetical lines; their stems can go above or below the line. in relation to all of the business that agents and brokers transact An earlier e-commerce system for the Web from Open Market that included order capture and secure order fulfillment using credit cards, ecash and other payment systems. It included customer service and subscription administration capabilities as well as an integrated database for reporting ."
Madelyn Flannagan, vice president of education and research for the Independent Insurance Agents & Brokers of America, said she has seen very little larceny larceny, in law, the unlawful taking and carrying away of the property of another, with intent to deprive the owner of its use or to appropriate it to the use of the perpetrator or of someone else. among the independent, Main Street America agencies that largely make up her organizations membership of 39.000 independent insurance agencies. "When we do hear about it, it tends to be employees of agencies, not agency owners," she said. In her 25 years in the insurance business, Flannagan said she has never heard of an agency owner committing fraud.
Crerar maintains that when agent fraud occurs, the system often outs the larcenous lar·ce·nous
1. Of, relating to, or involving larceny: a larcenous scheme; with larcenous intent.
2. Guilty of or given to larceny. agent. State insurance regulators have been "incredibly vigilant" in rooting out these guilty parties, he noted. "We can criticize regulators for lots of things, but the one area that they have focused their attention on has been the issue of fraud and fraudulent behavior," he said.
Pocketing the Premium
Statistics on the type of fraudulent practices that an agent or broker may engage in are difficult to come by. But Poppa suspects that one of the easiest crimes that an agent can commit is to accept a premium from a customer, then fail to turn it over to a carrier. New York state has strict laws applying to agent trust accounts, he noted. "Agents are required to keep any premiums that they receive on the behalf of an insured in their trust account," he said. "So there are certainly safeguards there that would keep an agent trying to do the right thing from getting into trouble. But if somebody has the intention to defraud To make a Misrepresentation of an existing material fact, knowing it to be false or making it recklessly without regard to whether it is true or false, intending for someone to rely on the misrepresentation and under circumstances in which such person does rely on it to his or a client, there still are ways of their doing that" through, for example, doctored and falsified documents, Poppa said.
In some ways, it's tougher for an agent to commit fraud these days, Poppa said. There are more levels of scrutiny than before, particularly in the life business, with significant changes recently applied to disclosures and replacement policies, for example. In the wake of corporate scandals A corporate scandal is a scandal involving allegations of unethical behavior by people acting within or on behalf of a corporation. A corporate scandal sometimes involves accounting fraud of some sort. , "there is probably a higher awareness of accountability by all professionals," he said. But he added one caveat: imaging technology gives an unscrupulous person, no matter what the industry, more tools to work with.
News that an agent has defrauded a policyholder and/or a carrier can mean that the vast majority of honest agents and brokers are painted with the same broad brush, Poppa said. That does happen, even in small town America, Flannagan acknowledged. "When you see it hit the local newspapers that some independent agent has been involved in a theft of premium dollars, which is typically what it is, all consumers are going to look at agents a little bit differently for a while," she said. "But the one good thing is that a lot of these people have long-term relationships with their agents in these towns. They go to church with these people; they sit on bank boards with them. It's that kind of relationship."
One bad actor makes all the players in the industry lose credibility, Crerar said. When that happens, his members go out, client by client, to assure each one that they are professionals, are trustworthy and are providing the client with what they promised, he said. These are people who have worked hard to achieve a level of professionalism, only to find that they can be tainted taint
v. taint·ed, taint·ing, taints
1. To affect with or as if with a disease.
2. To affect with decay or putrefaction; spoil. See Synonyms at contaminate.
3. when a peer commits fraudulent acts, Crerar said. "It's a challenge. It's an emotional challenge," he said.
Uniform Standards Needed
Crerar thinks regulators should set the bar as high as possible to ensure the professionalism of brokers and agents. The CIAB CIAB Council of Insurance Agents & Brokers
CIAB Coal Industry Advisory Board (International Energy Agency
CIAB Community In A Box (online communications platform)
CIAB Consorzio Italiano Arredobagno dislikes having disparate standards, meaning one state's standards are different from another's, and it has always called for the highest uniform standard of conduct for agents and brokers, "because this is a profession, this is an industry, where it takes a lot of knowledge in order to sell the products properly and to give the client the kind of advice you need to give him," Crerar said.
Since the 1960s, the IIABA IIABA Independent Insurance Agents & Brokers of America has had a membership ethics code that stresses professionalism, honesty and integrity, Flannagan said. The CIAB doesn't have an ethics code per se, but its member firms have mission statements that emphasize their commitment to clients, Crerar said. "To be honest, the real reason a code of ethics Code of Ethics can refer to:
In processing applicants, the Council is very mindful mind·ful
Attentive; heedful: always mindful of family responsibilities. See Synonyms at careful.
mind that its new member firms must have good reputations, Crerar said. "One reason is our members do business with each other. They get advice and counsel from each other," he said.
Poppa thinks that insurance professionals have a solemn sol·emn
1. Deeply earnest, serious, and sober.
2. Somberly or gravely impressive. See Synonyms at serious.
3. Performed with full ceremony: a solemn High Mass.
4. duty to make sure that they are doing what is best for their clients and are always promoting the highest ethical and business standards. "That's why we have a responsibility as an association and as individual agents to do everything we can" to not let agent fraud occur, he said.
Fraud by Industry The insurance industry ranked sixth in the number of occupational fraud cases that certified fraud examiners handled in late 2003 and early 2004. Number Percent Industry of Cases of Cases * Median Loss Manufacturing 65 12.9% $125,000 Banking 56 11.1% $101,000 Service 56 11.1% $139,000 Government 53 10.5% $45,000 Other 47 9.3% $145,000 Insurance 46 9.1% $172,500 Retail 40 7.9% $35,500 Health Care 37 7.3% $105,000 Education 31 6.1% $31,000 Construction 17 3.4% $145,000 Transportation 17 3.4% $225,000 Oil & Gas 16 3.2% $101,500 Communication 13 2.6% $150,000 Utility 13 2.6% $30,000 Real Estate 11 2.2% $385,000 Agriculture 6 1.2% $1,080,000 * The sum of percentages in this column exceeds 100% because some victim organizations were characterized as belonging to more than one industry category. Source: The Association of Certified Fraud Examiners