Early in 2009, Frank Scafidi was asked by an AAIS staff member about media reports that the recession was leading to an increase in cases of insurance fraud, particularly arsons deliberately undertaken to collect on homeowners policies.
Scafidi, director of public affairs for the National Insurance Crime Bureau, didn’t mince any words in his response.
The notion that a “mortgage meltdown” was contributing to arsons was “much-hyped but empirically unsupported,” he said.
“There is no empirical data to suggest that there is an increase in arsons due to the economy or that there is any foreclosure-induced arson committed as insurance fraud,” he added.
“Unfortunately, a number of insurance spokespeople and industry trade organizations have been promoting this nonsense with hollow statements or questionable research.”
Tell us what you really think, Frank.
Several months later, after local and national media reported noticeable increases in the number of arsons being reported, Scafidi was asked if he stood by his earlier assertions.
“Yes, my statement holds today,” he said.
Scafidi referred specifically to an NICB report that had been misused, in his opinion, to buttress claims of increased insurance fraud in 2009.
The report noted that the number of “questionable claims” reported by companies to the NICB rose to more than 20,000 in the first quarter of 2009, compared to about 18,000 in the same period a year earlier.
First off, Scafidi says that readers should know that the 20,000 “QCs” are out of approximately 12 million total property/casualty claims for the period. “I make no judgment on that; it’s just an observation,” he says.
More importantly, though, he adds: “There is no conclusion or interpretation of these claims. They are just raw referrals.
“Many of these turn out to be legitimate claims. We have no way to know how many of the QCs in the report turn out to be actual cases of fraud.”
So why the increase from 2008 to 2009?
“It could be that companies have put more focus on their claims handling processes,” Scafidi says. “They may think that, indeed, the economy will cause more incidents of fraud. A claim may be referred as questionable, when that same claim might not have been referred to the NICB a year ago.”
“This could be a function of the belief that the bad economy will result in more insurance fraud,” he adds. “But where is the data to support that theory? That may come to pass, but right now it’s more folklore than fact.”
It helps to understand that Scafidi is not your ordinary “director of public affairs.” He’s an FBI veteran who’s had plenty of experience researching reported surges in crime that never really happened.
For example, he recalls the formation of a task force in the mid-1990s to investigate a reported wave of burnings of African-American churches. The task force determined that there was no appreciable increase in fires at black churches, and that the fires that did occur were primarily due to the typical reasons why older, woodframe structures burn.
His assertions have a practical message for insurers, however.
If insurers are reporting more claims to the NICB as potentially fraudulent, it’s reasonable to assume that they are subjecting claims to more rigorous internal investigation.
So, at a time when operating revenues are tight, are insurers relying too much on conventional wisdom and spending too much on claims investigation?
“I don’t think the NICB can presume to advise companies on how they perform their internal claims handling,” says Scafidi.
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