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According to the Book of Common Prayer we often leave undone the things we ought to have done. It’s a fact of life. In many ways, we are our own worst enemies. Yet, for most everyday purposes, there are no penalties. We do the things we left undone when we have the time. We might never actually catch up with the backlog, but we keep moving forward. Except there are times when the failure produces instant consequences and, no matter how hard we try, it’s impossible to go back and put it right. Let’s be clear about this. The majority of traffic accidents could be avoided if everyone followed the rules of the road and kept a proper lookout. But we are easily distracted, multitasking when we should focus on the driving. This leaves the insurance companies with a bill and a problem.

In a no-fault state, it does not matter whether the insured driver or the others involved were negligent. The insurance company pays out regardless. But this only applies in twelve states. The remainder rely on the law of tort which order the party at fault to pay compensation to the other. So, if you were not at fault, your insurance company collects the compensation from the other driver and, in theory, suffers no loss. But if the other driver was not insured or underinsured, or you were at fault, your insurer now faces a loss. If this was just down to the math, the insurer would calculate a “fair” premium rate increase and slowly recover the loss. But if the insurer put up the rate every time one of its drivers was at fault, many of those drivers would move to a competing company. So the math has to bend to match social considerations. Sometimes, the insurers have to accept the loss. (more…)

Everyone knows about the professional criminals who are now working up and down the country to bilk insurers out of their money. They stage accidents, fake injuries and receive several billion dollars a year for their trouble. Why, you ask, do they get away with this. The answer comes in two parts. The first is at state level. As you might have noticed, almost all states are running deficits and are under pressure to find savings – for some reason, no state wants to be seen raising taxes. This means even essential services are being cut. So when it comes to law enforcement, where does a Police Chief spend his reduced budget? What are the priorities? Well, we all want to feel safe so a focus on violent crimes like robbery and burglary wins votes in the election. So-called white collar crime takes a back seat. That means local police forces only investigate fraud when it’s really serious, i.e. there’s a lot of media coverage. The FBI are interested in anything crossing state lines and there is a task force set up to deal with insurance fraud. But this is a drop in the ocean when you consider how many billion dollars are involved every year.

The second reason is that you are not exactly overjoyed by the prospect of better fraud detection. Just imagine the sequence of events. Insurance companies have to recruit and train investigators to work alongside claims adjusters. This immediately boosts the insurer’s costs which get passed on to you in higher premium rates. Now all these eager-beaver investigators finish their training and they are released on to the current files. Suddenly everything slows down as these investigators decide whether there’s anything fishy about your claim. How long are you going to put up with someone poking around your claim to decide whether you really did suffer whiplash in that accident? At what point do you start complaining? It’s possible, of course, that these investigators may detect real fraud. If so, the savings they make could start paying their salaries and the premium rates would come down. Well that’s the theory, anyway, and we can all dream. (more…)