Category Archives: Insurance Fraud

Auto Insurance, Homeowners Insurance, Hurricanes, Insurance Fraud, Insurers and the Economy, Legal Environment, Market Conditions, Regulation

Louisiana’s Insurance Woes Worsen as Florida Works to Fix Its Problems

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As Florida strives to address the issues that led to its current property/casualty insurance crisis, another hurricane-prone coastal state, Louisiana, is navigating its own insurance troubles.

The Louisiana property insurance market has been deteriorating since the state was hit by a record level of hurricane activity during the 2020/2021 seasons, Triple-I says in a new Issues Brief on the state’s insurance crisis. Twelve insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023.

“While similarities exist between the situations in these two hurricane-prone states, the underlying causes of their insurance woes are different in important ways,” said Mark Friedlander, Triple-I’s director of corporate communications. “Florida’s problems are largely rooted in decades of litigation abuse and fraud, whereas Louisiana’s troubles have had more to do with insurers being undercapitalized and not having enough reinsurance to withstand the claims incurred during the record-setting hurricane seasons of 2020 and 2021.”

Insurers have paid out more than $23 billion in insured losses from over 800,000 claims filed from the two years of heavy hurricane activity. The largest property loss events were Hurricane Laura (2020) and Hurricane Ida (2021). The growing volume of losses also drove a dozen insurers to voluntarily withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.

This is not to say legal system abuse is absent as a factor in the Louisiana’s crisis – quite the opposite, as highlighted by Insurance Commissioner Jim Donelon’s cease-and-desist order, issued in February, against a Houston-based law firm. According to Donelon, the firm filed more than 1,500 hurricane claim lawsuits in Louisiana over the span of three months last year.

“The size and scope of McClenny, Moseley & Associates’ illegal insurance scheme is like nothing I’ve seen before,” Donelon said. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”

McClenny Moseley has since been suspended from practice in Louisiana’s Western District federal court over its work on Hurricane Laura insurance cases.

A regular on the American Tort Reform Foundation’s “Judicial Hellholes” list, Louisiana’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Association of Bermuda Insurers and Reinsurers (ABIR).

“Insurers who fail to pay claims or make a written offer to settle within 30 days of proof of loss may face penalties of up to 50 percent of the amount due, even for purely technical violations,” the paper notes. “To avoid incurring these massive penalties, which are meted out pursuant to highly subjective standards of conduct, insurers sometimes feel compelled to pay more than the actual value of claims as the lesser of two evils.”

As a result of these converging contributors, Louisiana Citizens Property Insurance Corp. – the state-run insurer of last resort – has grown from 35,000 to 128,000 policyholders over the past two years, according to the Louisiana Department of Insurance.

Learn More:

Louisiana Insurance Regulator Issues Cease & Desist Order to Texas Law Firm

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

Auto Insurance, Insurance Fraud, Legal Environment, Market Conditions

IRC Outlines Florida’s
Auto Insurance Affordability Problems

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Florida is one of the least affordable states for personal auto insurance, according to a new study by the Insurance Research Council (IRC). Claims trends are pushing premium rates up nationwide, and Florida is being hit particularly hard.

In 2020, the average expenditure for auto insurance was $1,342 in Florida, more than 30 percent higher than the national average, the IRC report says, citing data from the National Association of Insurance Commissioners (NAIC). In terms of affordability, IRC says, auto insurance expenditures were 2.39 percent of the median household income for the state. Only Louisiana was less affordable.

“Efforts to improve auto insurance affordability must begin with the underlying cost drivers,” the IRC report says. In nearly every of these categories, Florida costs are well above the national average:

Accident frequency: The number of property damage liability claims per 100 insured vehicles in Florida is 10 percent above the national average.

Repair costs: For years, the average cost of a property damage claim in Florida was below the national average. However, evidence suggests repair costs are increasing faster in Florida than elsewhere.

Injury claim relative frequency: Floridians show a greater propensity to file injury claims once an accident occurs, with a relative claim frequency 40 percent higher than the national average. Florida is the only no-fault state with an above-average ratio of bodily injury to property damage claim frequency.

Injury claim severity: The median amount paid per claim for auto injury insurance claims for all injury coverages combined is much higher in Florida.

Medical utilization: Florida auto claimants are more likely than those in other states to receive diagnostic procedures, such as magnetic resonance imaging (MRI).

Attorney involvement: Florida claimants are more likely to hire attorneys. Attorney involvement has been associated with higher claim costs and delays in settlement time.

Fraud and buildup: The percentage of all auto injury claims with the appearance of claim fraud and/or buildup is evidence of Florida’s culture of fraud.

Uninsured motorists: Florida has one of the highest rates of uninsured motorists, both a symptom and a cause of affordability challenges.

Litigation climate: According to a survey of business leaders, Florida’s legal environment ranks near the bottom of state liability systems in terms of fairness and reasonableness.

“Unique features in Florida’s insurance system and a long‐standing culture of claim and legal system abuse have allowed some medical and legal professionals to generate substantial income for themselves at a significant cost to Florida drivers,” said Dale Porfilio, IRC president and Triple-I chief insurance officer. Triple-I and IRC are both affiliated with The Institutes.

Policymakers in the Sunshine State enacted substantial property insurance reform in late 2022 to address the affordability and availability crisis in homeowners’ insurance and pledged to tackle similar issues in other lines of insurance to ease the financial burden that paying for auto insurance represents for Florida drivers.

Bills being addressed by the state’s Senate and House focus on significant tort reform to stop lawsuit abuse, including the elimination of one-way attorney fees for litigated auto claims and abolition of assignment of benefits for auto insurance claims — a generator of fraud and litigation. One-way attorney fees allow drivers who successfully sue their insurer to recoup attorney fees – but not the other way around.

Learn More:

Florida Insurance Crisis Reforms Gain Momentum With Latest Proposal

Florida Auto Legislation, on Heels of 2022 Reforms, Suggests State Is Serious About Insurance Crisis Fix

Florida and Legal System Abuse Highlighted at JIF 2022

Fraud, Litigation Push Florida Insurance Market to Brink of Collapse

Why Personal Auto Insurance Rates Are Likely to Keep Rising

Florida’s AOB Crisis: A Social-Inflation Microcosm

Triple-I Issues Briefs:

Florida’s Homeowners Insurance Crisis

Addressing Florida’s Property/Casualty Insurance Crisis

Personal Auto Insurance Rates

Risk-Based Pricing of Insurance

Insurance Fraud, Insurers and the Economy, Legal Environment, Regulation

Louisiana Insurance Regulator Issues
Cease & Desist Order
to Texas Law Firm

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Louisiana Insurance Commissioner Jim Donelon last week issued a cease-and-desist order against a Houston-based law firm, accusing it of fraud involving potentially hundreds of hurricane-related claims in his state.

“The size and scope of McClenny, Moseley & Associates’ illegal insurance scheme is like nothing I’ve seen before,” Donelon said in a press release. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”

According to Donelon, the law firm filed more than 1,500 hurricane claim lawsuits in Louisiana over the span of three months last year.

The Louisiana property insurance market has been deteriorating since the state was hit by record hurricane activity in 2020 and 2021, to the extent that 11 insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and September 2022. Insurers have paid out more than $23 billion in insured losses from over 800,000 claims filed from the two years of heavy hurricane activity. The largest property-loss events were Hurricane Laura (2020) and Hurricane Ida (2021).

In addition to driving insurer insolvencies, the growing losses have caused a dozen insurers to withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.

Louisiana’s troubles parallel those of another coastal state, Florida, but there are significant differences. Florida’s problems are largely rooted in decades of legal system abuse and fraud, whereas Louisiana’s have had more to do with insurers being undercapitalized and not having enough reinsurance coverage to withstand the claims incurred during the record-setting hurricane seasons of 2020 and 2021. In general, Louisiana insurers have not experienced the level of excessive litigation that Florida insurers have faced.

“It now appears some trial attorneys are trying to take a page out of the Florida playbook by engaging in litigation abuse against Louisiana property insurers,” said Triple-I Director of Corporate Communications Mark Friedlander. “We commend Commissioner Donelon for quickly addressing these fraudulent practices.”

According to reporting by the Times Picayune/New Orleans Advocate, an investigation by the Louisiana Department of Insurance found the Houston-based firm engaged in insurance fraud and unfair trade practices through Alabama-based Apex Roofing and Restoration and has faced accusations of potentially criminal behavior in courts across the state. In one such case, the paper reported, a woman testified that she had never intended to retain the law firm when she hired the roofing company to fix her hurricane-damaged roof.

“The firm told her insurance company that it represented her and even filed a lawsuit on her behalf, though she said she was unaware of it,” the paper said. 

Legal system abuse is a pervasive problem that contributes to higher costs for insurers and policyholders nationwide, as well as to rising costs generally, given the importance of insurance in development and commerce. Triple-I is committed to informing the discussion around this critical issue.

Learn More:

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

Florida Insurance Crisis Reforms Gain Momentum With Latest Proposal

Florida Auto Legislation, on Heels Of 2022 Reforms, Suggests State Is Serious About Insurance Crisis Fix

Florida And Legal System Abuse Highlighted at JIF 2022

IRC Study: Public Perceives Impact of Litigation on Auto Insurance Claims

A Piecemeal Approach Toward Transparency in Litigation Finance

Auto Insurance, Homeowners Insurance, Insurance Fraud, Insurers and the Economy, Legal Environment

Florida Insurance Crisis Reforms Gain Momentum With Latest Proposal

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Florida Gov. Ron DeSantis’s proposed insurance fraud and legal system abuse reforms, announced this week for consideration during the legislative session that begins in March, would build on measures approved in the closing weeks of 2022 and go a long way toward fixing the state’s insurance crisis.

Legislation passed during the 2022 special session eliminated one-way attorney fees and assignment of benefits (AOB) arrangements for property insurance claims. Gov. DeSantis’s proposal would go further, eliminating these mechanisms and “attorney fee multipliers” for all lines of insurance.

“For decades, Florida has been considered a judicial hellhole due to excessive litigation and a legal system that benefitted the lawyers more than people who are injured,” DeSantis said in his announcement. “We are now working on legal reform that is more in line with the rest of the country and that will bring more businesses and jobs to Florida.”

Before the 2022 reforms, state law required insurers to pay the fees of homeowners insurance policyholders who successfully sued over claims, while shielding policyholders from paying insurers’ attorney fees when the policyholders lose. The legislation also eliminated AOBs – agreements in which property owners sign over their claims to contractors, who then work with insurers.

AOBs are a standard practice in insurance, but in Florida this consumer-friendly convenience has long served as a magnet for fraud. The state’s legal environment – including some of the most generous attorney-fee mechanisms in the country – has encouraged vendors and their attorneys to solicit unwarranted AOBs from tens of thousands of Floridians, conduct unnecessary or unnecessarily expensive work, then sue insurers that deny or dispute the claims.

As a result, Florida accounts for nearly 80 percent of the nation’s homeowners’ insurance lawsuits, but only 9 percent of claims, according to the state’s Office of Insurance Regulation.

Eliminating these two mechanisms for property claims addresses much of the insurance fraud in the state. Eliminating them for all lines would be a promising sign that the state is truly committed to addressing the root causes of the crisis.

Florida’s insurance crisis didn’t happen overnight, and it will take years for the impacts of fraud and legal system abuse to be wrung out of the system.  Policyholders won’t see premium benefits any time soon. Job 1 is to “stop the bleeding” as insurers fail, leave the state, or stop writing critical personal lines coverages like auto and homeowners.

Triple-I has published a new Issues Brief about the crisis and the state’s efforts to repair it.

Learn More:

Florida Auto Legislation, on Heels of 2022 Reforms, Suggests State Is Serious About Insurance Crisis Fix

Florida and Legal System Abuse Highlighted at JIF 2022

Fraud, Litigation Push Florida Insurance Market to Brink of Collapse

Florida Dropped From 2020 “Judicial Hellholes” List

Florida’s AOB Crisis: A Social-Inflation Microcosm

Auto Insurance, Insurance Fraud, Legal Environment

Florida Auto Legislation, on Heels of 2022 Reforms, Suggests State is Serious About Insurance Crisis Fix

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Florida legislation proposed last week would prevent the state’s motorists from assigning their legal rights in auto insurance claims to repair shops.  

Assignment of benefits (AOB) is a standard practice in the insurance world. In Florida, however, this efficient, customer-friendly way to settle claims has long served as a magnet for fraud. The state’s legal environment has encouraged vendors and their attorneys to solicit unwarranted AOBs from tens of thousands of Floridians, conduct unnecessary or unnecessarily expensive work, then file tens of thousands of lawsuits against insurers that deny or dispute the claims.

Legislation approved in the closing weeks of 2022 took several crucial steps toward resolving the state’s property/casualty insurance crisis, including elimination of the state’s AOB laws with respect to property claims. But it didn’t affect auto-related AOBs.

Intended to help consumers

Florida’s auto glass law – originally intended to encourage drivers to repair or replace damaged windshields by prohibiting insurers from charging deductibles for windshield damage – is being exploited by glass-repair shops all over Florida. Unscrupulous vendors hire workers to canvas neighborhoods, enticing vehicle owners to sign up for “free” windshield replacements. They get car owners to sign an AOB contract that assigns the owners’ legal rights to the repair shop.

The shop then can sue the consumer’s insurer if it doesn’t pay what the shop demands. The result is a lawsuit by the vendor in the consumer’s name.

Lawyers have a strong incentive to file suits, as the insurer is required to pay their fees if it loses in court.  This has resulted in a “sue-to-settle” system, in which lawyers file suits over very small disputes to force a settlement.

Hope for the future

“What began as a small regional issue a decade ago with a few lawyers and some auto repair shops has blown up to become a major problem throughout the state,” said Mark Friedlander, Triple-I’s director of corporate communications and a Florida resident. Between 2011 and 2021, the number of auto glass lawsuits in Florida rose more than 4,000 percent, from 591 to more than 28,000. A National Insurance Crime Bureau (NICB) analysis found that Florida had the highest number of questionable auto-glass claims among the 50 states in 2020.

WhileFlorida is a “no-fault” state – meaning both parties in an accident submit claims to their own insurer, regardless of fault – it ranks high for attorney involvement in accident claims, the Insurance Research Council (IRC) has found. Attorney involvement is associated with higher costs, and IRC also has found Florida to be among the least affordable auto insurance markets.

The new measure, filed for the 2023 legislative session that starts March 7, offers hope that Florida is finally serious about solving the decades-old mechanisms that have fed the state’s current insurance crisis. Taken together, the two pieces of legislation will help stabilize Florida’s insurance market, but it will take years for the impacts of fraud and legal system abuse to be wrung out of the system.

Learn More:

Fraud, Litigation Push Florida Insurance Market to Brink of Collapse

Florida’s AOB Crisis: A Social-Inflation Microcosm

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance, Hurricanes, Insurance Fraud, Legal Environment

Lawsuits Threaten
to Swell Ian’s Price tag

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Litigation costs could add between $10 billion and $20 billion to insured losses from Hurricane Ian, adding to the woes of Florida’s already struggling homeowners’ insurance market, says Mark Friedlander Triple-I’s corporate communications director.

Early estimates put Ian’s insured losses above $50 billion.

“Based on the past history of lawsuits following Florida hurricanes and the state’s very litigious environment, we expect a large volume of lawsuits to be filed in the wake of Hurricane Ian,” Friedlander said in an interview with Insurance Business America.

Most suits are expected to involve the distinction between flood and windstorm losses. Standard homeowners’ policies exclude flood-related damage from coverage, but differentiating between wind and flood damage in the aftermath of a major hurricane can be challenging.

Flood insurance is available from FEMA’s National Flood Insurance Program, as well as from a growing number of private carriers.

Trial attorneys are “already on the ground” and soliciting business in some of the hardest hit areas, Friedlander said. “This will be a key element in the solvency of struggling regional insurers who are already facing financial challenges.”

Six Florida-based insurers have already failed this year. Florida accounts for 79 percent of all U.S. homeowners’ claims litigation despite representing only 9 percent of insurance claims, according to figures shared by the Florida governor’s office. Litigation has contributed to double-digit premium-rate increases for home insurance in recent years, with Florida’s average annual home-insurance premium of $4,231 being among the nation’s highest.

“Floridians are seeing homeowners’ insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes,” Triple-I CEO Sean Kevelighan said. “These two factors contributed enormously to the net underwriting losses Florida’s homeowners’ insurers cumulatively incurred between 2017 and 2021.”

Trevor Burgess, CEO of Neptune Flood Insurance, a St. Petersburg, Fla.-based private flood insurer, said that in all locations pummeled by Ian, the percentage of homes covered by flood policies is down from five years ago. Friedlander told Fox Weather that, while more than 50 percent of properties along Florida’s western Gulf Coast are insured for flood, “inland…the take-up rates for flood insurance are below five percent.”

While Florida is at particularly severe and persistent risk of hurricane-related flooding, the protection gap is by no means unique to the Sunshine State. Inland flooding due to hurricanes is causing increased damage and losses nationwide – often in areas where homeowners tend not to buy flood insurance.

In the days after Hurricane Ida made landfall in August 2021, massive amounts of rain fell in inland, flooding subway lines and streets in New York and New Jersey. More than 40 people were killed in those states and Pennsylvania as basement apartments suddenly filled with water. In the hardest-hit areas, flood insurance take-up rates were under five percent.

Damaging floods that hit Eastern Kentucky in late July 2022 and led to the deaths of 38 people also were largely uninsured against. A mere 1 percent of properties in the counties most affected by the flooding have federal flood insurance.

“We’ve seen some pretty significant changes in the impact of flooding from hurricanes, very far inland,” Keith Wolfe, Swiss Re’s president for U.S. property and casualty, said in a recent Triple-I Executive Exchange. “Hurricanes have just behaved very differently in the past five years, once they come on shore, from what we’ve seen in the past 20.”

Insurance Fraud, Insurers and the Economy, Technology

Tech Gains Traction
in Fight Against Insurance Fraud

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By Max Dorfman, Research Writer, Triple-I

Insurance fraud costs the U.S. $308.6 billion a year, according to recent research by the Coalition Against Insurance Fraud (CAIF).  And, while staffing within insurers’ Special Investigation Units (SIU) is a pain point, CAIF found that use of anti-fraud technology is on the rise.

CAIF notes that hardest-hit insurance lines are:

  • Life insurance, at $74.7 billion annually;
  • Medicare and Medicaid, at $68.7 billion; and
  • Property and casualty, $45 billion.

“There is a huge and monumental impact that insurance fraud causes to American citizens, American families, and to our economy every single year,” said Matthew Smith, the coalition’s executive director.

Another recent CAIF study looked at SIUs and insurers’ response to fraud. The study found that SIU staff grew at 1.4 percent from 2021 to 2022, slower than the 2.5 percent growth rates from two previous studies addressing this issue. Staffing and talent are among the top concerns of anti-fraud leaders CAIF surveyed.

However, an additional CAIF study found that anti-fraud technology is increasingly being used—a positive sign in the fight against these crimes. Among the key findings of that report is that 80 percent of respondents use predictive modeling to detect fraud, up from 55 percent in 2018.

Insurance fraud is not a victimless crime. According to the FBI, the average American family spends an extra $400 to $700 on premiums every year because of fraud. Most of these costs are derived from common frauds, including inflating actual claims; misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred; and staging accidents.

To further combat insurance fraud, there are ways to file complaints, including contacting your state’s fraud bureau; contacting your insurer to see if a fraud system is in place; using the National Insurance Crime Bureau (NICB) “Report Fraud” button; and reporting it to a local FBI branch.

“Insurance fraud is the crime we all pay for,” CAIF’s Smith added. “Ultimately, it’s American policyholders and consumers that pay the high cost of insurance fraud.”

Learn More:

Fraud, Litigation Push Florida Insurance Market to Brink of Collapse

Study: Insurers Suspect Rise in Fraudulent Claims Since Start of Pandemic

The Battle Against Deepfake Threats

Homeowners Insurance, Hurricanes, Insurance Fraud, Insurers and the Economy, Legal Environment

Fraud, Litigation Push
Florida Insurance Market to Brink of Collapse

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With its abundance of unneeded new roofs on homes – and flashy lawyer billboards at every turn claiming massive settlements on claims – Florida’s insurance market is on the verge of failure. This man-made catastrophe is causing financial strain on consumers, as the annual cost of an average Florida homeowners insurance policy will skyrocket to $4,231 in 2022, nearly three times the U.S. annual average of $1,544.

“Floridians pay the highest homeowners insurance premiums in the nation for reasons having little to do with their exposure to hurricanes,” said Triple-I CEO Sean Kevelighan.  “Floridians are seeing homeowners insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes. These two factors contributed enormously to the net underwriting losses Florida’s homeowners’ insurers cumulatively incurred between 2016 and 2021.” 

Two major hurricanes made landfall in the state since 2016: 2017’s Irma and 2018’s Michael.

No direct hits occurred in Florida over the past three hurricane seasons. 

Florida, however, is the site of 79 percent of all homeowners insurance lawsuits over claims filed nationwide, even though Florida’s insurers receive only 9 percent of all U.S. homeowners insurance claims, according to the Florida governor’s office. To illustrate how lawsuits have weighed on insurer operating costs, JD Supra, citing the Florida Office of Insurance Regulation (OIR), reported $51 billion was paid out by Florida insurers over a 10-year period, and 71 percent of the $51 billion went to attorneys’ fees and public adjusters. The 2020 and 2021 cumulative net underwriting losses for Florida homeowners’ insurers totaled more than $1 billion each year.

“The state’s homeowners’ insurers have been forced to respond to these unfortunate market trends this year by restricting new business, non-renewing existing policies, and even canceling policies mid-term,” Kevelighan said. “What’s more, four homeowners insurance companies have been declared insolvent since February — all while more Americans are moving to Florida than any other state.”

Citizens Property Insurance Corp., the state-backed property insurer of last resort in Florida, has seen its policy count rise to nearly 900,000 this month statewide.  Its policy count figure stood at about 420,000 in October 2019.  Citizens provides insurance coverage to homeowners unable to find a private-sector insurer willing to sell them a homeowners insurance policy.

Placing further pressure on the affordability and availability of homeowners’ insurance in the state, third-party rating bureaus have downgraded the financial ratings of some insurers operating in Florida.

The typical Florida homeowners’ insurance policyholder paid $2,505 for coverage in 2020, Triple-I found, and that figure rose to $3,181 in 2021.  Triple-I’s analysis was based on data and analyses from Florida’s OIR, the National Association of Insurance Commissioners (NAIC), and Triple-I’s estimates of what insurers are paying today for home replacement costs.

During a special legislative session in May 2022, Florida lawmakers passed Senate Bill 2B, which Gov. Ron DeSantis signed into law. The measure is aimed at easing homeowners’ premium increases and reducing excessive litigation.

To help Floridians and others residing in natural disaster-prone states better manage risk and become more resilient, Triple-I launched a few years ago its Resilience Accelerator initiative, Kevelighan said.

The Resilience Accelerator’s goal is to demonstrate the power of insurance as a force for resilience by telling the story of how insurance coverage helps governments, businesses and individuals recover faster and more completely after natural disasters. “The insurance industry’s focus on resilience is starting to pay dividends as more Americans recognize the very real risks their residences face from floods, hurricanes, and other natural disasters,” Kevelighan added.

Cyber Risk, Emerging Risks, Insurance Fraud, Technology

The Battle Against Deepfake Threats

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By Max Dorfman, Research Writer, Triple-I

Some good news on the deepfake front: Computer scientists at the University of California have been able to detect manipulated facial expressions in deepfake videos with higher accuracy than current state-of-the-art methods.

Deepfakes are intricate forgeries of an image, video, or audio recording. They’ve existed for several years, and versions exist in social media apps, like Snapchat, which has face-changing filters. However, cybercriminals have begun to use them to impersonate celebrities and executives that create the potential for more damage from fraudulent claims and other forms of manipulation.

Deepfakes also have the dangerous potential to be used to in phishing attempts to manipulate employees to allow access to sensitive documents or passwords. As we previously reported, deepfakes present a real challenge for businesses, including insurers.

Are we prepared?

A recent study by Attestiv, which uses artificial intelligence and blockchain technology to detect and prevent fraud, surveyed U.S.-based business professionals concerning the risks to their businesses connected to synthetic or manipulated digital media. More than 80 percent of respondents recognized that deepfakes presented a threat to their organization, with the top three concerns being reputational threats, IT threats, and fraud threats.

Another study, conducted by a CyberCube, a cybersecurity and technology which specializes in insurance, found that the melding of domestic and business IT systems created by the pandemic, combined with the increasing use of online platforms, is making social engineering easier for criminals.

“As the availability of personal information increases online, criminals are investing in technology to exploit this trend,” said Darren Thomson, CyberCube’s head of cyber security strategy. “New and emerging social engineering techniques like deepfake video and audio will fundamentally change the cyber threat landscape and are becoming both technically feasible and economically viable for criminal organizations of all sizes.”

What insurers are doing

Deepfakes could facilitate the filing fraudulent claims, creation of counterfeit inspection reports, and possibly faking assets or the condition of assets that are not real. For example, a deepfake could conjure images of damage from a nearby hurricane or tornado or create a non-existent luxury watch that was insured and then lost. For an industry that already suffers from $80 billion in fraudulent claims, the threat looms large.

Insurers could use automated deepfake protection as a potential solution to protect against this novel mechanism for fraud. Yet, questions remain about how it can be applied into existing procedures for filing claims. Self-service driven insurance is particularly vulnerable to manipulated or fake media. Insurers also need to deliberate the possibility of deep fake technology to create large losses if these technologies were used to destabilize political systems or financial markets.

AI and rules-based models to identify deepfakes in all digital media remains a potential solution, as does digital authentication of photos or videos at the time of capture to “tamper-proof” the media at the point of capture, preventing the insured from uploading their own photos. Using a blockchain or unalterable ledger also might help.

As Michael Lewis, CEO at Claim Technology, states, “Running anti-virus on incoming attachments is non-negotiable. Shouldn’t the same apply to running counter-fraud checks on every image and document?”

The research results at UC Riverside may offer the beginnings of a solution, but as one Amit Roy-Chowdhury, one of the co-authors put it: “What makes the deepfake research area more challenging is the competition between the creation and detection and prevention of deepfakes which will become increasingly fierce in the future. With more advances in generative models, deepfakes will be easier to synthesize and harder to distinguish from real.”

Insurance Fraud

Study: Insurers Suspect Rise in Fraudulent Claims Since Start of Pandemic

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By Max Dorfman, Research Writer

Insurance professionals’ suspicions about fraudulent claims have increased during the pandemic as fraudsters have become more creative, according to a recent survey.

The survey by FRISS, a provider of fraud and risk detection solutions for property/casualty insurers, found that its 420 respondents in 2022 believe 20 percent of claims filed might contain fraud. That’s up from 18 percent in 2020.

“Innovation and digitization are disrupting the insurance industry in good ways, setting a new norm that’s enabling the industry to be even more responsive to customers’ needs,” said Triple-I CEO Sean Kevelighan in an introduction to the report. “Unfortunately, the acceleration of digital processes that began well before the pandemic also provides opportunities for fraud.”

In 2022, the top challenge reported by respondents was “Keeping up with fraudsters’ modus operandi” – a change from both the 2020 and 2018 surveys, in which “Internal data quality” was deemed the biggest challenge.

Insurance fraud costs U.S. consumers at least $80 billion every year, according to the Coalition Against Insurance Fraud. The FBI says the cost of non-health insurance fraud hovers at about $40 billion a year.  As a result, the average U.S. family incurs between $400 and $700 per year in losses due to increased premiums.

Respondents to the survey say fraud detection software has proven to be generally effective. This includes improving loss ratio (59 percent), staying ahead of developing fraud schemes (53 percent), and increasing investigator efficiency (52 percent).