Dinesh Project

8/12/2019 Dinesh Project

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Chapter 1

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.

or e!ample, "is status as a professional investor gives him credibility,

which can lead to a #ustified 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 e!isted and still

received payments for worthless bonds, then victims may sue him for

fraud.


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raud is not easily proven in a court of law. %aws concerning fraud may

vary from state to state, but in general several different conditions must

be met.

&ne of the most important things to prove is a deliberate

misrepresentation of the facts. id the seller know beforehand that the

product was defective or the investment was worthless( )ome

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 onbehalf 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 #ustifiable or actual

reliance on the e!pertise 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. *ut if a well$dressed man

held an investment seminar and mentioned his success in the vending

machine world, you might rely on his e!pertise 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 e!pertise

and e!perience.

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 e!changes hands.


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ailure 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.

&nce 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. "ard fraud occurs whensomeone deliberately fabricates claims or fakes an accident. -riminals

are using increasingly sophisticated electronic schemes to defraud

insurance companies.

)oft 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 ofservices 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.

)ome lines of insurance are more vulnerable to fraud than others. "ealth

care, workers compensation and auto insurance are believed to be the

sectors most affected.


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Chapter 2

Insurance Fraud and Abuse

A Very Serious Problem

raud and abuse are widespread and very costly to any countrys health$

care system. raud involves intentional deception or misrepresentation

intended to result in an unauthorized benefit. An e!ample 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 e!ample would be performing a laboratory test on large

numbers of patients when only a few should have it. Abuse may be

similar to fraud e!cept 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

alse 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. )uch schemes include any of the following

when done deliberately for financial gain/

*illing for services, procedures, and0or supplies that were not

provided.

Misrepresentation of what was provided1 when it was provided1 the

condition or diagnosis1 the charges involved1 and0or the identity of

the provider recipient.

2roviding unnecessary services or ordering unnecessary tests.


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Many insurance policies cover a percentage of the physician's 3usual3

fee. )ome physicians charge insured patients more than uninsured ones

but represent to the insurance companies that the higher fee is the usual

one. This practice is illegal. It is also illegal to routinely e!cuse patientsfrom co$payments and deductibles. 4A co$payment is a fi!ed 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. 5 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.

)tudies have shown that if patients are re6uired 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. 7outine waivers thus raise overall health costs. They are

considered fraudulent because averaging them with the doctor's full fees

would make the 3usual3 fees lower than the amounts actually billed for.

&ther illegal procedures include/

-harging for a service that was not performed.

8nbundling of claims/ *illing separately for procedures thatnormally are covered by a single fee. An e!ample would be a

podiatrist who operates on three toes and submits claims for three

separate operations.

ouble billing/ -harging more than once for the same service.

8p coding/ -harging for a more comple! service than was

performed. This usually involves billing for longer or more comple!

office visits 4for e!ample, charging for a comprehensive visit when


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t

he patient was seen only briefly5, but it also can involve charging for

a more comple! procedure than was performed or for more

e!pensive e6uipment than was delivered. Medicare documentationguidelines describe what the various levels of service should

involve.

Miscoding/ 8sing a code number that does not apply to the

procedure.

9ickbacks/ 7eceiving payment or other benefit for making a

referral. Indirect kickbacks can involve overpayment for somethingof value.

or e!ample, a supplier whose business depends on physician

referrals may pay e!cessive rent to physicians who own the premises

and refer patients. Another e!ample would be a mobile testing servicethat performs diagnostic tests in a doctor's office. 9ickbacks 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.

-riminals sometimes obtain Medicare numbers for fraudulent billing by

conducting a health survey, offering a free 3health screening3 test, paying

beneficiaries for their number, obtaining beneficiary lists from nursing

homes or boarding facilities, or offering 3free3 services, food, or supplies

to beneficiaries.


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!cessi"e or Inappropriate Testin#

Many standard tests can be useful in some situations but not in others.

The key 6uestion in #udging whether a diagnostic test is necessary is

whether the results will influence the management of the patient. *illing

for inappropriate tests:both standard and nonstandard:appears to be

much more common among chiropractors and #oint chiropractic0medical

practices than among other health$care providers. The commonly abused

tests include/

-omputerized inclinometers / Inclinometers is a procedure that

measures #oint fle!ibility. Inclinometer testing may be useful if

precise range$of$motion measurements are needed for a disability

evaluation, but routine or repeated measurements 3to gauge a

patient's progress3 are not appropriate.

;erve conduction studies / These tests can provide valuable

information about the status of nerve function in various

degenerative diseases and in some cases of in#ury. "owever,

3personal in#ury mills3 often use them inappropriately 3to 3follow the

progress3 of their patients.

Thermographs / Thermo$graphic devices portray small temperature

differences between sides of the body as images. -hiropractors

who use thermographs typically claim that it can detect nerve

impingements or 3nerve irritation3 and is useful for monitoring the
http://www.quackwatch.org/02ConsumerProtection/mill.htmlhttp://www.quackwatch.org/02ConsumerProtection/mill.html


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effect of chiropractic ad#ustments on sublu!ations. These uses are

not appropriate.

8nnecessary !$rays /


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many unrelated individuals who receive similar treatment from a small

number of providers.

&uac'ery()elated %iscodin#

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 e!clude nonstandard or e!perimental methods. To help boost

their income, many nonstandard practitioners misrepresent what they do.

They may also misrepresent their diagnosis. or e!ample/

*rief or intermediate$length visits may be coded as lengthy or

comprehensive visits.

2atients receiving chelating therapymay be falsely diagnosed as

suffering from lead poisoning1 and the chelating may be billed as

3infusion therapy3 or simply an office visit.

The administration of 6uack cancer remedies may be billed as

3chemotherapy.3

;onstandard 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 e!change

for a percentage of the policy's face value. The company, in turn, maysell the policy to a third$party investor. The company or the investor then
http://www.quackwatch.org/01QuackeryRelatedTopics/chelation.htmlhttp://www.quackwatch.org/01QuackeryRelatedTopics/chelation.htmlhttp://www.quackwatch.org/01QuackeryRelatedTopics/Tests/allergytests.htmlhttp://www.quackwatch.org/01QuackeryRelatedTopics/chelation.htmlhttp://www.quackwatch.org/01QuackeryRelatedTopics/Tests/allergytests.html


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becomes the beneficiary to the policy, pays the premiums, and collects

the face value of the policy after the original policyholder dies.

raud occurs when agents recruit terminally ill people to apply for

multiple policies. They misrepresent the truth and answer 3no3 to all of the

medical 6uestions. "ealthy 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.

?iatical settlement companies then purchase the policies and sell them tounsuspecting third$party investors. The insurance industry is the biggest

victim of this fraud and could incur huge losses within the ne!t few years.

)ome investors receive nothing in return for their 3guaranteed3

investment.

*o#us +ealth 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. &ne report focuses

on consumer vulnerability. The other notes that from >@@@ to >@@>, =

unauthorized entities enrolled at least =B,@@@ employers and more than

>@@,@@@ policyholders who got stuck for over C>@@ 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

"ealth Insurance Institute of America is again urging the ;ationalAssociation of Insurance -ommissioners to create an online database of


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licensed health insurance companies so that anyone can easily check the

legitimacy of companies offering health insurance products. Meanwhile,

the -oalition against Insurance raud 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 re#ect.

The insurance has few or no underwriting guidelines:the agent or

rep appears almost too eager to sign you up.

Dou're approached by an insurance agent, phone or direct mail.

"onest 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 4falsely5 assures

you the federal E7I)A law e!empts the plan from state licensing.

The plan seems like insurance, but the agent or rep avoids calling

3insurance,3 and instead uses evasive terms such as 3benefits.3

The agent or rep doesn't have clear answers to your 6uestions,

seems ill$informed, or avoids sharing information.

Dou've never heard of that health insurance company:and nobody

else has, either.

Dour hospital keeps calling you to complain that your health plan

isn't paying your medical bills. &ften the plan's reps keep making

flimsy e!cuses, or stop returning phone calls altogether.
http://insurancefraud.org/bogus_health.htmhttp://insurancefraud.org/bogus_health.htmhttp://insurancefraud.org/bogus_health.htmhttp://insurancefraud.org/bogus_health.htm


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Chapter ,

Schemes- scams- scammed

2roperty0casualty insurance fraud cost insurers about CF@ billion in >@@.raud 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.

-ommon frauds include 3padding,3 or inflating actual claims1

misrepresenting facts on an insurance application1 submitting claims forin#uries or damage that never occurred1 and 3staging3 accidents.

2rompted by the incidence of insurance fraud, about @ 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.

)C.T /V0P%.TS

The hurricanes of >@@B, especially "urricane 9atrina, 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 e!pensive items they never purchased, and

inflate claims for items actually destroyed, home arsons are on therise. )ince 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. ozens of fires have broken out in many

affected communities, some of which may be the result of arson.


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The ;ational Insurance -rime *ureau 4;I-*5 says that by

;ovember >@@B, there were =H@,@@@ 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

;I-* 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 e!cept 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 4?I;s5 and boat hull identification numbers 4"I;s5 from

flooded vehicles and boats could be stored and made available to

law enforcers, state fraud bureaus, insurers and state departments

of motor vehicles.

&ne in =@ paid bodily in#ury liability 4*I5 auto claims in -alifornia

had the appearance of fraud or misrepresented the facts of the

claim, according to the Insurance 7esearch -ouncils raud. More

common is the appearance of buildup, or the padding of claims,

which was found in one in five claims. The study, released in

anuary >@@H, e!amined about JF,@@@ claims closed with payment

in >@@>. It found that between CF=K and CF> million in *I

payments were attributable to fraud and buildup.


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Chapter

)eal eyes333)eali4e333)eal lies5

Short +istory of Antifraud fforts

raud in insurance has undoubtedly e!isted since the industry's

beginnings in the seventeenth century, but it received little attention until

the =KL@s 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

re6uirements for paying claims imposed by fair claim practice regulations in many states made it

difficult to ade6uately investigate suspicious claims.

*ut by the mid$=KL@s the rising price of insurance, particularly auto and health insurance, together

with the growth in fraud committed by organized criminals, prompted many insurers to ree!amine

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 premiums1 the people used by

organized fraud groups to file false claims, often the poor, who sometimes found themselves on

the wrong side of the law1 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. &ngoing studies by the Insurance 7esearch -ouncil 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.


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Antifraud activity on the part of state fraud bureaus and )I8s 4special

investigative units within insurance companies5 increased in the =KK@s.

"eightened antifraud activity along with growth in funding for fraud$

fighting personnel resulted in increased prosecutions. )uccessfulprosecution 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.

hile 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 impact premiums. 2ayroll is important because workers

compensation insurance provides for lost wages and insurers need to

know the ma!imum they would have to pay if all employees were in#ured

in the same accident1 the type of work carried out by the firm affects the

likelihood of in#uries. orkers that use cutting tools, for e!ample, are

more likely to get in#ured on the #ob than office workers. )ome 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.

raud and abuse take place at many points in the health care system.

octors, hospitals, nursing homes, diagnostic facilities and attorneys

have been cited in scams to defraud the system. &ne huge area of fraud

is the Medicare and Medicaid systems. "ealth care is especially

susceptible to electronic data interchange 4EI5 fraud. EI is direct filing

of claims : computer to computer : and is widely used for Medicare

claims.


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In =KKK, the Government Accounting &ffice 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 =H@ 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 Pro#rams

)everal large insurance companies have #oined forces through the

;ational "ealth -are Anti$raud Association to develop sophisticated

computer systems to detect suspicious billing patterns. The ederal*ureau of Investigation 4*I5 and the &ffice of the Inspector General

4&IG5each have assigned hundreds of special agents to health$fraud

pro#ects. The -oalition Against Insurance raud,a public advocacy and

educational organization founded in =KKF, includes consumers as well as

government agencies and insurers.

The &mnibus -onsolidated Appropriation Act of =KKJ authorized a

"ealth -are Anti$raud, aste, and Abuse -ommunity ?olunteer

emonstration 2rogram 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 help Medicare beneficiaries and others to

detect and report fraud, waste, and abuse.
http://www.nhcaa.org/http://www.fbi.gov/http://www.fbi.gov/http://www.oig.gov/http://www.oig.gov/http://www.insurancefraud.org/http://www.insurancefraud.org/home.htmlhttp://www.nhcaa.org/http://www.fbi.gov/http://www.fbi.gov/http://www.oig.gov/http://www.oig.gov/http://www.insurancefraud.org/http://www.insurancefraud.org/home.html


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The Inspector General's office has recovered over a billion dollars

through fines and settlements. Its &peration 7estore Trust, which began

in =KKB, was a #oint federal$state program aimed at fraud, waste, and

abuse in three high$growth areas of Medicare and Medicaid/ home healthagencies, nursing homes, and durable medical e6uipment suppliers. The

6uestionable activities included/

*illing for advanced life support services when basic life support

was provided. ocumentation may be falsified to indicate a patient

needed o!ygen:which is a key indicator in establishing medical

necessity for advanced life support.

*illing for larger amounts of drugs than are dispensed1 or billing for

brand$name drugs when less e!pensive generic versions are

dispensed.

*illing for more miles than traveled for transportation.

alsification 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.

Insurers6 Antifraud %easures

Insurance companies are not law enforcement agencies. They can only

identify suspicious claims, withhold payment where fraud is suspectedand to #ustify 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.


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Many insurance companies have established special investigation units

4)I8s5 to help identify and investigate suspicious claims1 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 e!perts to thoroughly investigate

fraudulent activities. More comple! cases, involving large scale criminal

operations or individuals that repeatedly stage accidents, may be turnedover to the ;ational Insurance -rime *ureau 4;I-*5. This insurance

industry$sponsored organization has special e!pertise 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 )I8s

dramatically impact the bottom line of many insurance companies.

In the mid$=KK@s insurers said that for every dollar they invested in

antifraud efforts, including )I8s, they got up to C>J 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 >@@@ study by -onning 7esearch

N -onsulting suggests that results vary widely. 8sing the ratio of +claims

e!posure reduction to the e!pense of running )I8s, the study found

ratios ranging from a low of F to = to a high of >J to =, 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


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sift though the millions of claims that large health insurers process

annually, are proving effective in fighting fraud. These +data mining

programs can 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 )ervices

&ffice Inc.'s system, known as -laim)earch, utilizes a data$mining program. -laim

)earch is the worlds largest comprehensive database of claims information. The ;I-* has

developed a program called 2redictive 9nowledge 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 ;I-*, in partnership with iMapata Inc., introduced -AT fraud, to

identify potentially fraudulent catastrophe0weather$related insurance claims.

A national fraud academy : a #oint initiative of the 2roperty -asualty

Association of America, the *I, ;I-* and the International Association

of )pecial Investigating 8nits : was designed to fight insurance claims

fraud by educating and training fraud investigators. It offers online

classes under the leadership of the ;I-*.

An emerging issue for insurers using data sharing services is their impact

on privacy. inancial 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 7acketeering

Influenced and -orrupt &rganizations Act 47I-&5, which re6uires proving

a preponderance of evidence rather than the stricter rules of evidence

re6uired in criminal actions and allows for triple damages. )ince =KKJ,

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.


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Chapter 7

Itchin# To 8no9 Who Can +elp?

Insurance A#ent Fraud on the )ise

Two years ago, at the age of K@, Thomas 2ickering was doing the

twist.At the behest of his trusted insurance agent, 2ickering was buying

and selling one annuity after another in a deceitful industry practice called

3twisting.3 That's when dishonest agents persuade clients to cash in one

investment for another:against their clients' best interests and for theagents' own financial gain.

In 2ickering's case, he followed his agent's advice, sold investments

before they matured and lost ==,@@@0$ in forfeited interest and penalties.

"e was about to lose another FB,@@@0$ cashing in one annuity to buy

another,netting his agent >@,@@@0$ in commissions. hen the company

holding the annuity intervened. It suspected 2ickering was getting ripped

off and called the authorities.An investigation led lorida's epartment of

inancial )ervices 4)5 to revoke agent 2eter aldon's license for

fraud.

*arry %anier of lorida's ) says he's fielding more complaints about

greedy agents earning whopping commissions upfront by pitchingunsuitable investments like annuities to older people. *ut %anier and

other e!perts say some annuities are not considered to be wise

investments for most olders because they're based on life

e!pectancy.Growing concern over the sale of annuities to older people

prompted the ;ational Association of Insurance -ommissioners 4;AI-5

to adopt regulations that assure that the annuities are suitable to the

buyer's needs.


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Chapter :

/i"ision of Insurance Fraud

The ivision of Insurance raud was originally formed in =KJH 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/

OInsolvency $ raud committed by insurance companies that fail

financially due to internal fraud by owners and corporate officers.

O8nauthorized Entities $ fraud, both criminal and civil, committed

by insurance companies operating illegally in the state.

O"ealth -are raud $ focuses on organized medical and health

care scams.

Oorkers -ompensation $ investigates employers for workers

compensation premium fraud.

O2ublic Employee raud $ investigates state and local government

employees for workers compensation claimant fraud.


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Chapter ;

/ecepti"e 0ife 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, Met%ife and 2rudential, have each been hit

with billion$dollar$plus verdict.

Most ma#or 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.

ith billion dollar #udgments 4and that is 3billion3 with a 3b35, 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

)tandards Association 4IM)A5. &f course, there are now ads announcing

that the life insurance industry is committed to the fair treatment of

policyholders. *ut early returns on the industry's efforts suggest it is #ust a

sham and a shell game designed to prevent real reform by legislation and

regulation.

;ow a study by 2rofessor oseph *elth, publisher of the Insurance

7eform, a respected newsletter on the life insurance industry, finds the


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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.

The Insurance orum study correctly notes that much of the lifeinsurance 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. *y failing to disclose needed information,

consumers are easily duped by deceptive methods.

The Insurance orum put the industry to a test by asking the chiefe!ecutive officers of @ companies 4F= of which are members of IM)A5

for the kind of information that should be freely and automatically

available to prospective policyholders.

&f the = companies surveyed, >J did not participate. &nly =F companies

4=@ of which are members of IM)A5 participated in the study.

And some of the =F participants provided deceptive information. )ome

provided incomplete information. )ome provided the kind of information

that would not be helpful to the typical consumer.

The Insurance orum study concludes that IM)A will not bring about the

needed changes in the life insurance industry, but will simply delay their

enactment. Most industries prefer 3voluntary3 action, so the fo!es can

continue to guard 4and eat5 the chickens, also known as policyholders.

hat's more, after the great life insurance scandals of the =KL@s and

=KK@s, the industry is determined to perpetuate a system in which life


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24

insurance rip$offs by ma#or and minor companies alike will continue to be

standard operating procedures.

The bottom line is that the life insurance industry has practices that areprecisely the opposite of its proclaimed ethical principles.

"ere are some e!amples/

IM)A has an ethical principle that says its company members will

3provide competent and customer$focused sales and services.3 The

Insurance orum survey suggests that most companies will engage inbusiness as usual, giving the consumer no information, inade6uate

information or deceptive information.

IM)A has another ethical principle that says it will 3engage in active and

fair competition.3 *ut by not providing information or by providing

deceptive information, it is clear that ma#or segments of the industry will

continue to engage in competition by confusion.

As *ob "unter of the -onsumer ederation put it, 3The 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.3

8nfortunately, 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.


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Chapter @P is then paid to the insured's estate.

&n 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.

Si4e of the Industry

raud in the unregulated viatical settlement industry has become

rampant1 as much as @$B@P of the life insurance policies viaticated may

have been procured by fraud.

Clean Sheetin#

8nscrupulous individuals in the viatical industry procure policies by a

practice referred to as 3clean sheeting3 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

e!ams and blood tests by relying on an honor system below a certain

policy face value.


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26

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 B@P$J@P of the

face value of the policy. "owever, a 3clean sheeted3 policy viaticated

during the contestable period may offer as little as =@P of the face value

because it carries the high risk of rescission, or cancellation by the

insurance company, due to fraud.

Wet In' 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 3wet ink

policy3 because the ink on the contract is still 3wet3 when the policy is

sold.

The odds against an individual finding out that he is terminally ill within

weeks of buying a policy are e!ceedingly high. To see that happenrepeatedly 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 3clean sheeted3.

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


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27

3collateral assignment3 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

inally, some settlement providers merely delay reporting that the policy

has been viaticated until the contestability period is over1 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 paythe death benefit, regardless of any fraud in the application. *ecause

policies viaticated during the contestability period may be rescinded, they

bring, as mentioned, a much lower price in the market.


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Chapter =

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 4i.e., viatical

settlement5.

Dou are told/

that your investment will produce a =@@P rate of return because you are

assigned a policy with a face value of twice your investment which you can

claim upon their death1

that you will have the option of reselling your policy once it becomes

incontestable 4two years after the date the policy is issued5 for J@P of the

face value1

and that if the policy is contested or canceled by the insurer, the

promoters will provide a replacement policy through a 3replacement policy

trust3 managed by them.

They say these are better investments than stocks, mutual funds,

annuities, and -'s because viatical investments have the following

attributes/

>Full li@uidity at maturity from roc' solid A rated insurance

companiesB


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29

>Ta! ad"anta#ed hassle freeB 1DDE fi!ed rate of return 9hich is

fully secured3

>ero ris' to principal- a totally safe in"estment 9ith no load no

feesB

>Short holdin# periods 9ith early buyout options a"ailable as

9ellB

>.o speculation- no interest rate ris'- no mar'et ris'- no

economic ris'B

In addition they say you will be making a 3humanitarian investment3

because the terminally ill person will be able to use the funds to receive

improved health care1 pay off debts1 take a vacation, reduce family

stress, and enhance their 6uality of life. In e!change for your money you

receive a Membership -ertificate certifying that you are a member of

?iatical unding %%-.

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 CB,@@, which is only =>P of your

investment of CB,@@@, or HP of the policy's face value of CK@,@@@.

They fail to disclose to you that the insured was terminally ill prior tobeing insured, that they concealed this fact on the application, and thus

sub#ected 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

3assurance3 that they will 3make an effort3 to facilitate a resale.


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30

In any event, you will not likely receive a promised J@P of the face value

but only the amount another investor would be willing to pay, less

commissions, which could be much less.

They also fail to mention/

the risk of the insured living much longer than the estimated life

e!pectancy, thereby greatly reducing the annual yield1

the risk of their becoming insolvent and unable to replace a contested

or canceled policy1

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 life1

the =BP commission the sales agent receives from your investment1

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.

0ife !pectancy of the Insured

To determine their rate of return investors rely on a report which pro#ects

the life e!pectancy of the insured, but there are no minimum

re6uirements as to who may generate these reports or pro#ections. &ne

company used a nurse and a plastic surgeon but could have used the

#anitor.


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31

?iatical investing is highly speculative and risky. Even when the

policyholder e!ists and is terminally ill, there is a high degree of

uncertainty in predicting when they will die. ;ew AI) drugs and cancer

treatments have compounded the risk for investors because they helppolicyholders live longer.

?iatical settlements are illegal under -anadian insurance legislation so

-anadian investors should not be involved in these schemes at all.

.ot nou#h Sic' People

inancial ederated Title N Trust, and Asset )ecurity -orporation pled

guilty after being charged with conspiring to recruit insurance agents to

defraud more than F,@@@ 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 medicaloverviews were being performed on the insured persons whose policies

were being bought.

Although at least C==B million in investor monies was taken in, the

promoters used only CH million of these funds to buy insurance policies

whose total face value was #ust over CJ million. They used the balance of

the money for purposes totally unrelated to the purchase of viaticated

insurance policies.


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32

Industry Terminolo#y

Cleansheetin#G 7efers 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$e!isting medical condition in response to a 6uestion on a

life insurance application which would affect issuance of the policy

ViatorGA person who has a life threatening or terminal illness who sells

or assigns their life insurance policy.

Viatical SettlementGThe life insurance policy of a terminally ill person

sold or offered for sale, generally at less than face value, through a

viatical settlement company.

ContestabilityG2olicies are generally contestable for two years from the

date of issue and are sub#ect to being rescinded by the insurer for cause,

such as application fraud and suicide.

Viatical Settlement Pro"iderGA person who enters into a viatical

settlement contract with a viator. &ften referred to as a settlement

company or funder.

Viatical Settlement *ro'erGA 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 A#entGA 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.


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%ortality Profile )eportG A report based on a review of a viator's

medical history, which gives a prognosis of a viators life e!pectancy.

8sually 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 In"estment *ro'erGefines a person or entity other than a

licensed viatical settlement provider who solicits investors to purchase a

viatical settlement interest from a viatical settlement provider.

We Chose to 8eep Hour %oney

Personal Choice pportunities mislead investors when they sold

viatical securities in the form of loan transactions. Investors lent money to

2-& 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 >=$>BP per annum.

The funds, however, were not used to purchase life insurance policies

but kept instead. &ver ==@@ investors nationwide are believed to haveinvested CL@$=@@ million in these transactions in #ust ten months. ;o

evidence of any valid life insurance policies being purchased has been

discovered.


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)epercussions for the Industry

%ife 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 e!ist as an industry either by being legislated

out of e!istence or by being pushed out of the market after destroying

investor confidence in its product. If this fraud is to be stopped, it will

re6uire the total commitment of the insurance industry. The first step is

for the industry to wake up to the e!istence and scope of the problem.

Penalties

-urrently a person charged with viaticating a fraudulently procured

insurance policy worth C=@@,@@@ 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 si!ty days in #ail is an encouragement, not adeterrent which may be why the industry watchdog has never received a

single referral from the industry itself reporting such fraud.

0ife Settlements


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35

&nce 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.

%ife settlements, or the sale of a life insurance policy to a third party, are

sometimes referred to as 3senior settlements3 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

and0or beneficiary of the life insurance policy, pays all future premiumsand collects the entire death benefit when the insured dies.

2eople decide to sell their life insurance policies for many reasons. )ome

common ones are the changed needs of dependents, a desire to reduce

or eliminate premiums, and a need for additional cash to meet e!penses.

)tate regulation of insurance generally does not e!tend to lifesettlements. -ertain aspects of these transactions may fall under the

various )ecurities Acts so there can be financial risks involved when

entering into such arrangements.

Dou should consider contacting a professional ta! advisor to find out the

ta! implications as life settlement proceeds are generally not ta! free.

Also know, if you are the seller that you will be re6uired 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, ata discount from the death benefit. The discount is for the entire life of the


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36

policy, not an annual rate of return. An annual rate of return cannot be

guaranteed. Dour rate of return depends on when the insured dies, and

no one can predict a person's life e!pectancy. 9eep in mind that a life

settlement is not a li6uid investment because the return on such aninvestment does not occur until the insured dies.

Spreadin# the )is'

The Alabama )ecurities -ommission issued a -ease and esist &rder

against Viatical lderly Settlement Pro"iders- 00C VSP)SJ

ashington, .-., 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.

?E)2E7), 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 >L$J@

percent on two to five year investments for a =@P commission.


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Chapter 1D

*e A9are- /on6t *e a Victim

The -oalition Against Insurance raud 4-AI5 is a national advocacy

organization of consumer groups, public interest organizations,

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. )till, we have enough evidence to know that

fraud is widespread : and e!pensive.=

;ational studies conducted by the Insurance 7esearch -ouncil 4I7-5

show that auto insurance, workers compensation and health insurance

are the lines that are most vulnerable to fraud. The I7- estimates that

one$third of all bodily in#ury claims from auto accidents contain some

amount of fraud, usually in terms of padding or e!aggerating a claim, but

only FP are totally fraudulent such as staged accidents. Another form of

fraud, lying on applications in order to reduce premium, costs auto

insurers C=F.J billion annually 4Insurance Information Institute, or III5.

As to workers compensation fraud, one of the most common forms of

workers compensation fraud in Maine is a faked or e!aggerated in#ury,

an area within the #urisdiction of the Maine orkers -ompensation*oards raud and Abuse 8nit 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.


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In late =KKK the Governmental Accounting &ffice 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. ith theenactment of "I2AA 4"ealth Insurance 2ortability and Accountability Act

of =KKH5 detection and prosecution of health insurance fraud received a

boost. The epartment of ustice calls health care fraud and abuse its

number two law enforcement priority, after violent crimes. In =KKH,

according to the *I, -ongress provided an added CB million over

seven years for health care fraud enforcement.

2roperty insurance, based upon the *ureaus >@@ data, had the third

highest fraud and abuse count by line of business at =HB reported cases.

According to the ;ational ire 2rotection Association, arson or suspected

arson account for nearly B@@,@@@ fires each year, or one in four fires in

the 8nited )tates. Arson and suspected arson are the largest causes of

property damage in the 8.).

espite what may appear to be a bleak picture, a number of tools e!ist

for combating fraud. In addition to those Maine Insurance and -riminal

-ode provisions, previously discussed, several federal laws are used to

address fraud. These include/ The ederal Mail raud )tatute, the

7acketeer Influenced and -orrupt &rganizations 47I-&5 and the "ealth

Insurance 2ortability and Accountability Act 4"I2AA5. Also, the ?iolent

-rime -ontrol and %aw Enforcement Act of =KK makes insurance fraud

a federal crime when it affects interstate commerce.

-ertain state agencies work with insurers to address fraud, as well. The

orkers -ompensation *oards raud and Abuse 8nit tackles issues

such as fakes or e!aggerated in#uries, the ire Marshals &ffice

investigates possible arson, and the epartment of "uman )ervices


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39

takes on Medicare and Medicaid fraud. 7ecently, one ") employee

received the &ffice of the Inspector General Integrity Award for her

investigative and logistical support in a Medicare and Medicaid fraud

case in *angor ederal -ourt.

raud has also gotten the attention of the ;ational Association of

Insurance -ommissioners 4;AI-5, which encourages the insurance

industry to take a proactive role in controlling fraud. The ;AI- offers

states support through their Antifraud Task orce.

The mission of the Antifraud Task orce is to serve the public interest by

assisting state insurance supervisory officials, individually and

collectively, in the following fundamental antifraud activities/

2romotion of the public interest through the detection, monitoring

and appropriate referral for investigation of insurance crime, both

by and against consumers.

2rovision of assistance to the insurance regulatory communitythrough the maintenance and improvement of electronic databases

regarding fraudulent insurance activities.

isseminate 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.

2rovision of the liaison function between insurance regulators, law

enforcement and other specific antifraud organizations.

"ighlights of the >@@ charges of the Antifraud Task orce include/

compile and maintain detailed information on antifraud databases

maintained by antifraud organizations, financial regulators, and law

enforcement1 consider developing further guidelines for use by the

industry in determining when suspicious claims should be reported1

review industry compliance with antifraud initiatives1 develop methods to


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40

enhance the investigation and prosecution of financial services fraud1 and

establish guidelines on the investigation and prosecution of insider

insurance industry fraud.=H

Additionally, in >@@B the ;AI- created a +raud eb line, an online

insurance fraud reporting system located on the eb site of the ;ational

Association of Insurance -ommissioners 4;AI-5. 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 misconductinvolving 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 con#unction with the ;AI-.

The online fraud reporting system lets consumers anonymously supply

detailed information regarding suspected fraudulent activities to the ;AI-

where the information is then forwarded to the appropriate state.

Although consumers may identify themselves, no personal identifying

information is re6uired to report an allegation of suspected fraud.

-onsumers are re6uired to designate the state where the suspected

fraud occurred and the name and address of the business or individual. A

te!t bo! is included for the consumer to provide the details of the

suspected fraud. &ther optional fields on the form include phone number,

date of birth, date of suspected fraud, and amount of loss.

espite the anti$fraud activities of state and federal agencies discussed

above, the *ureau notes that an enforcement and prosecutorial gap

e!ists in current Maine government operations insofar as no entity e!ists


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41

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 2roperty -asualty Insurers

Association and several of the individual fraud investigators whocommented as interested persons all noted the frustration when hard

work has been e!pended to develop a case and local prosecutors have

refused to prosecute or believe that it is not a serious crime meriting their

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.

orty other states currently have insurance fraud units. The irector of

the raud ivision of the ;ew "ampshire Insurance epartment shared

his concern with the oint )tanding -ommittee on Insurance and

inancial )ervices during his testimony on %.. =BH= that organized

insurance fraud rings are gravitating toward those #urisdictions with the

least regulation, for the conduct of affairs. That concern has been echoed

by other interested persons as well.

K) %ISSI.G

The mission of the ;AI- 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;


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Promote the reliability, solvency and financial solidity of

insurance institutions;

andSupport and improve state regulation of insurance.

Chapter 11

International association of insurance fraud

a#enciesIAIFAJ

+W do they operate?

The IAIA and its members are continually working to improve the 6uality

of data available to members and break down the #urisdictional barriers

by working with regulators, companies and other law enforcement

agencies.Those who break the law are adept at using these #urisdictional

boundaries as a protective shield. IAIA is trying to cut red tape involved

in the various 4often necessary5 #urisdictions' 3privacy3 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.

W+AT are their Loals?

IAIA's goal is 3to 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.3

IAIA 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.


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W+. do they meet?

IAIA meets annually. The annual conferencehosts eminent speakers

whose presentations update the members on critical developments. It

also enhances personal contacts and e!change of information between

members throughout the year.

IAIA 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

-aribbean, Africa, and ;orth America.

*etween meetings, our ne9sletter keeps members informed of the

various pro#ects 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.

W+) are they found?

International is the first word in IAIA's name. That means what it says.

hile IAIA began in ;orth America, the founders were not so insular to

believe that they had a uni6ue 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 #ob effectively.
http://www.iaifa.org/meeting.htmhttp://www.iaifa.org/meeting.htm


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This is why the IAIA wants even more countries to #oin 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

W+ are the members?

It could be you and your organization. IAIA'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.

Dou may obtain the application by logging on the site or by contacting us

for a mailing of the application. 8pon receipt, your application will be

considered by IAIA's e!ecutive committee. If you are accepted, you andyour organization will have made a ma#or step forward in beating

insurance crime. This will be true not only for you in your own #urisdiction,

but for your colleagues elsewhere, who will welcome hearing how you

cope with escalating problems of insurance fraud.

W+H 9ere they formed?

Insurance fraud is recognized internationally as a multi$billion dollar

problem. IAIA was created after a group consisting of the irectors of

Insurance raud Agencies from the 8.).A. and -anada met to confront

this burgeoning problem which is not restricted by #urisdictional

boundaries.


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It soon became apparent that if the agencies could share information

they would increase their degree of effectiveness. 7apid communication

is of the essence in catching fraud artists who know how to move money

literally at the speed of light. rom those early beginnings in =KLH, withonly a handful of members in ;orth America, IAIA now encompasses

the Globe.


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Chapter 12

/ealin# 9ith fraud on the .et

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 wouldnt be re6uired. 8nfortunately

this isnt a perfect world, and even if there are many who will throw up a

firewall and other such security measures as solutions, this doesnt stop

the problem. ;o firewall is impenetrable and theres no such thing as a

perfect security measure. Theres always a way to get around them, and

the number of people trying to do that keeps increasing.

According to the 8) General Accounting &ffice, appro!imately >B@,@@@

break$ins were attempted into ederal computer systems alone in =KKBand this number gets bigger every year. &nly one to four per cent of

these attacks ever get detected.

;etwork 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 asystem, and searches for evidence after an attack has occurred.

There are three parts to network forensics/ intrusion detection1 logging

4the best way to track down a hacker is to keep vast records of activity on

a network with the help of an intrusion detection system51 correlating

intrusion detection and logging.


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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, insurancecompanies, data theft:industrial espionage, defamation, narcotics

trafficking, credit card cloning, software piracy, electoral law, obscene

publication, per#ury, murder, se!ual harassment, and discrimination.

Technical Challen#es

IT managers, network consultants, auditors, software developers, and

analysts would all like to understand the data that is sent over their

corporate networks. ;etwork monitoring is an essential tool for network

optimization and security. "ow much data was sent( hen( hat was

sent( -urrent tools only answer the first two 6uestions, and have trouble

with the third. The tools base their analysis primarily on I2 and T-2

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 isnt very useful or complete

to someone trying to get a big picture view of an employees suspected

network abuse, or a deep$level view of an intrusion attempt.

And yet the internet is critical, and we havent 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


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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. 8nless companies can successfullynavigate around them, they will not be able to unlock the full business

potential of the internet.

Even enterprises with e!ceptional 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 releasingconfidential information( 8nfortunately, the variety of data formats and

sheer volume of traffic make detailed network monitoring a ma#or

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, theyre mostly useful for capacity planning and simple web

marketing. 2ort scans allow network security specialists to find some

vulnerability.

Intrusion detection systems scan traffic for known attack signatures.

"owever, because these tools base their analysis primarily on the I2 and

T-2 headers, which can be intentionally falsified or misleading, they are

sub#ect to incorrect analysis and spoofing. -urrent tools cant provide the

information that IT managers, network consultants, auditors, software

developers, and analysts need to know/

+ho is running an unauthorized web server on a non$standard port(

+"ow long is it taking our e$commerce system to process a customer

order from start to finish(


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+hat generated that huge spike of traffic between B/FBam and B/@am

this morning(

+E!actly what happened during Q and before Q last nights attemptedbreak$in(

The fleeting nature of any kind of electronic data is such that its

preservation, is re6uired especially for legal proceedings : the

methodology can be broken down into two key elements/ ac6uiring

evidence and analyzing evidence.

This information is re6uired for dealing with a law enforcement

investigation. It involves capturing and storing every packet passing

through wires and then regenerating the se6uence flow for analysis. If we

are able to regenerate the attack it can now be treated as evidence.

ull$content network monitoring is no longer the province of spooks and

spies : its 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 I)0 anomaly

detection 0forensic analysis1 capture data at high speeds1 run invisibly

and capture packets from the monitored network1 assemble the collected

packets into connection streams1 read the actual data in packets and

categorizes it by type, rather than make assumptions based on packet

headers and port numbers1 automatically determine key connection

attributes1 operates at the level of complete, assembled data streams,


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rather than arbitrarily mi!ed$together packets1 search capability through

network traffic by keyword1 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 e!ternal.


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Chapter 1,

Precaution is better than cure

Insurance fraud is not typically a violent crime, #ust a lucrative one. As

consumers, there are several common$sense steps you can take to help

reduce fraud and minimize its impact.

*e an Informed Consumer3

Insurance premiums are a significant e!pense 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. or e!ample, the theft premium for a "onda Accord

will be far higher than that of a Dugo 6uite simply because more "onda

Accords are stolen. )imilarly, a tightrope walker will pay more for lifeinsurance than a librarian, all else being e6ual.

Comparison Shop3

2remiums can vary significantly frominsurer to insurer so it pays to shop

around. To make comparison shopping a little easier, the Insurance

epartment publishes consumer guides for auto, homeowners, long$term

care and "M&0health insurance that provide sample premiums for

insurers that offer these coverage. In addition, the Insurance

epartment's eb site is also the home of an Interactive Guide to "M&s,

which allows consumers to find information about "M&s operating within

their home county.


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8no9 Hour A#ent or *ro'er3

-onsumers 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 sub#ect to forfeiture if that driver is sued

for damages. eal only with licensed agents and brokers. Agents and

brokers must carry proof of licensure.

Wheres the Proof?

;ever pay for a premium in cash. 2ay 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 re6uest a receipt.

Wheres the Policy?

Dou 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, 6uestion your agent or broker. If there is no satisfactory

e!planation for the delay, contact the ;ew Dork Insurance epartment

immediately. Dou may not have the insurance coverage you paid for.


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Are Hou *ein# *illed for Ser"ices Hou +a"e .ot )ecei"ed?

If you have received medical or dental treatment that is covered by an

"M& or an insurance company, you will receive an 3E!planation of

*enefits3 statement listing the services for which benefits have been paid.

7eview it carefully to ensure that your health care provider has not

3bumped up3 your claim 4i.e., overstated services provided in order to

receive a higher payment5, or charged for services you did not receive.

-ontact your insurer immediately if you feel there are discrepancies.

raudulent claims payments translate into higher insurance premiums for

all of us.

What If Hou6re In"ol"ed in an Automobile Accident?

-all 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. *e suspicious if the driver of the other vehicle insists

there is no need to call the police. That drivers insurance card may be

fraudulent and his car uninsured.

Auto Insurance Fraudis a multi$billion$dollar problem nationwide. atch

out for these common scams/

The sta#ed accident MA vehicle filled with people will stop suddenly in

front of you, setting you up as the cause of a rear$end collision. The

3victims3 will then file costly multiple medical and damage claims using

doctors and lawyers who are part of the scam.


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SteerersQ These individuals will solicit the in#ured or allegedly in#ured

parties and direct them, for a 3referral fee,3 to lawyers, doctors and0or

medical facilities that are part of the scheme. *e on the lookout for

steerers at accident scenes and dont become their victim.

Inflated claimsQ If you are in an automobile accident, be sure you know

the e!tent of the damages to your own car and the other vehicle and

carefully review claims. ?ehicle owners and body shops fre6uently inflate

estimates for damages and then either perform other repairs not related

to the accident or simply keep the e!tra money.

* A0)T B IT6S HK) %.H3

Think twice before replacing an e!isting life insurance policy with a new

one. The new policy may have e!clusions or waiting periods for pre$

e!isting conditions that are covered by your current policy. And premiums

are likely to be higher because you are older. The Insurance epartmentprotects consumers by re6uiring agents to provide prospective

purchasers with pertinent facts when that purchase will cause the buyer

to surrender, lapse, or in any way change the status of an e!isting life

insurance policy. epartment 7egulation H@ re6uires this full disclosure

so that prospective life insurance purchasers can make decisions in their

own best interest.

ont 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 whats right for you.

7ead your policy carefully before you sign. If you have 6uestions, ask

your agent or broker, or your insurer. An additional source of information

and help is the Insurance epartments -onsumer )ervices *ureau.


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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. 2eople have changed their attitude towards insurance

and accepted its new look from being an entry of lu!ury 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.

&ne knows that every coin has two sides. )imilarly, insurance also has

two faces. &ne 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 advantageand 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 anddemands the same, it is very difficult to scam them. &ne 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. %ack of knowledge and not

knowing ones basic rights on behalf of the prey could land them in

scrambled scam bis6ue.


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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 ivision of Insurance raud, International Association

&f Insurance raud Agencies 4Iaifa5, etc. through the enduring andconscious endeavor of these institutions insurance fraud tempo has

declined by an enormous amount. )everal have studied preceding and

enduring market conditions to identify with the diverse frauds that take

place and the reasons behind committing these frauds.

&ne 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.

&ne must be sensitive and offer their helping as much as they can.

&ne can either grumble about how things are all going wide of the mark

and swallow the conse6uences. &r put their foot down and make an

attempt to change the immoral to the right. The wrong will change andeveryone will see the bright light of truth and right with the revolution of

knowledge, awareness, an attitude for change amongst the humanity.


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*iblio#raphy

*lue-ross N *lue)hield 8nited of isconsin/ hat

is health care fraud(

*arrett )./ -helation therapy and insurance fraud

2rivate health insurance/ Employers and individuals

are vulnerable to unauthorized or bogus entities

selling coverage

)cam alert./ -oalition Against Insurance raud eb site.

Weblio#raphy

www.naic.org

www.irda.gov.in

www.yahoo.com

www.google.com

www.wikipedia.org

www.investopedia.com

www .Moneycontrol.com

www .insurancefraud bureau.org
http://www.healthnetconnect.net/fraud/whatf.htmlhttp://www.healthnetconnect.net/fraud/whatf.htmlhttp://www.quackwatch.org/01QuackeryRelatedTopics/chelationfraud.htmlhttp://www.gao.gov/new.items/d04312.pdfhttp://www.gao.gov/new.items/d04312.pdfhttp://www.gao.gov/new.items/d04312.pdfhttp://www.insurancefraud.org/bogus_health.htmhttp://www.naic.org/http://www.irda.gov.in/http://www.yahoo.com/http://www.goog

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