Insurance Fraud on the March

Link: https://www.insurancejournal.com/blogs/right-street/2024/02/12/760360.htm

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Some of the most chilling examples of insurance fraud are grisly affairs revealing the darkest of humanity’s dark side:

  • John Gilbert Graham placed a time-release bomb on a plane in which his mother was traveling, for the life insurance payment. The bomb exploded. In addition to Graham’s mother all 43 other passengers and crew perished.
  • Utah physician Farid Fata administered chemotherapy to hundreds of women who did not have cancer. Fata submitted $34 million in fraudulent claims to Medicare and private insurance companies.
  • Ali Elmezayen staged a freak car accident which took the lives of his two autistic children and nearly drowned his wife. He collected a $260,000 insurance payout, but his crime was discovered. He was sentenced to 212 years in prison.
  • A Chicago federal grand jury charged 23 defendants with participating in a fraud scheme swindling $26 million from ten life insurers. The scheme featured submission of fraudulent applications to obtain policies, and misrepresenting the identity of the deceased.

There are thousands of other equally horrific insurance fraud stories. The annual Dirty Dozen Hall of Shame report describes some of the most egregious, and contributes to an understanding of how far fraudsters will go to cheat insurance companies.

….

Improvements in predictive modeling and the introduction of artificial intelligence (AI) have strengthened insurers abilities to identify, and ultimately investigate, submitted claims that may be fraudulent. At the same time, however, AI is also being used as a weapon to penetrate insurers’ fraud detection systems. Techniques being used include AI-created fake photographs of cars of a particular make and model showing damage that is not real, but used to extract a claims payment. Some insurers are no longer accepting photos because they may be doctored, and are returning to adjustors physically visiting the allegedly damaged car. A nefarious life insurance scam includes AI-enabled manipulation of ones voice so that a criminal third party gets past insurers’ voice recognition technology, and initiates a policy being surrendered to a non-policyholder, non-beneficiary. It seems that for every additional layer of protection insurers introduce, the criminals are keeping up, if not forging ahead.

Author(s): Jerry Theodorou, R Street

Publication Date: 12 Feb 2024

Publication Site: Insurance Journal

2022 Insurance Regulation Report Card

Link: https://www.rstreet.org/2022/12/12/2022-insurance-regulation-report-card/

PDF link of report: https://www.rstreet.org/wp-content/uploads/2022/12/r-street-policy-study-no-272.pdf

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KEY POINTS

  1. The RSI Insurance Regulation Report Card analyzes and evaluates the effectiveness of state government regulation of property and casualty insurance and assigns a letter grade to all 50 states. The grade for each state was calculated by adding the weighted results from seven categories.
  2. The highest grades were for Kentucky and Arizona, both of which received an A+. At the other end of the spectrum, California and Alaska both scored an F.
  3. 20 states had a higher grade than they did in R Street’s 2020 edition of the Report Card, 23 maintained the same grade and seven had lower grades. This result is positive and means that insurance regulatory regimes have become more effective and efficient in the past two years.

Executive Summary
We are pleased to present the 10th edition of R Street’s Insurance Regulation Report Card, which analyzes and evaluates the effectiveness of U.S. insurance regulation of property and casualty insurance. The first iteration of this report was published in June 2012, and this 2022 edition largely follows the format of prior reports. It begins with a brief introduction on the current landscape of U.S. insurance regulation; reviews recent, relevant federal and state-based regulatory changes; presents a detailed evaluation of the effectiveness of each state’s regulation of insurance in seven key categories; and synthesizes those category evaluations by offering a “report card” grade for each state for analysis and comparison purposes.

This report draws on 2021 year-end statutory insurance financial statistics and the most recent datasets available for non-financial information. Sources include data and reports from the National Association of Insurance Commissioners (NAIC), S&P Global Market Intelligence, National Conference of State Legislatures, R Street analyses and others, all of which were accessed through Sept. 30, 2022.

In this report, we seek to shed light on the same three foundational issues we have focused on in past iterations of this report card:
• How free are consumers to choose the insurance products they want?
• How free are insurers to provide the insurance products consumers want?
• How effectively are states discharging their duties to monitor insurer solvency and foster competitive, private insurance markets?

Author(s): Jerry Theodorou

Publication Date: 12 Dec 2022

Publication Site: R Street

Federal Insurance Office: A Study in Evasiveness

Link: https://www.insurancejournal.com/blogs/2022/09/12/684696.htm

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A September 8 U.S. Senate Banking, Housing and Urban Affairs Committee hearing on current issues in insurance included useful discussion on some of the industry’s most pressing concerns. Comments from the committee’s members and from one witness, Maryland Insurance Commissioner Kathleen Birrane, shed light on insurance for cyber and pandemic events; the impact of private equity firms acquiring pension obligations from life insurers (pension risk transfer); and pressures on the United States to conform to global regulatory regimes, which impact U.S. insurer capital standards. The hearing also featured profound evasiveness from the other witness, Federal Insurance Office (FIO) Director Steven Seitz.

….. sparks began to fly when Sen. Toomey asked Seitz questions which went unanswered, or drew bureaucratic doublespeak responses. A heated exchange between Sen. Toomey and Seitz, in which Sen. Toomey grew visibly irritated, demonstrated Seitz’ frustrating equivocation in explaining FIO’s relationship to the International Association of Insurance Supervisors (IAIS). An excerpt from the exchange below gives a flavor of the tone:

Sen. Toomey: Are you involved in an effort to make recommendations to the IAIS regarding private equity’s involvement in insurance?

Seitz: Umm. As part of our work at the IAIS, we’re closely coordinating the NAIC with the Federal Reserve and the states on a variety of issues, including work relating to the capital standards and the holistic framework which the NAIC is adopting.

Sen. Toomey: You didn’t answer my question. Are you personally involved in research or development of a memo, or an analysis that will include policy recommendations to the IAIS regarding private equity in insurance?

Seitz: You know, our teams are working closely with the NAIC and the states. You know, I am a member of the executive committee, and there are a variety of topics that the IAIS is discussing. And one of those topics at upcoming meetings that we will be discussing is private equity.

Sen. Toomey: You’re obviously trying to evade my question. I don’t know why it’s such a difficult question to answer…

Author(s): Jerry Theodorou

Publication Date: 12 Sept 2022

Publication Site: Insurance Journal

Event: The Private Market for Flood Insurance

Link: https://www.rstreet.org/2022/07/20/event-the-private-market-for-flood-insurance/

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The private market for flood insurance in the United States measures approximately $300 million in annual premium. This is less than 10 percent of the $3.7 billion in flood insurance premium written by the federal government’s National Flood Insurance Program (NFIP). Private insurers offering flood insurance are not operating on the same playing field because many NFIP policies are subsidized and underpriced. The creativity of private insurers, guided by the dynamics of a free and competitive market, will eventually drive out inefficiency and false price signals, and make available to homeowners and businesses the flood insurance they need at the right cost.

We invite you to an online discussion examining the obstacles and opportunities for private insurers featuring flood insurance entrepreneur Trevor Burgess, and R Street’s Jerry Theodorou and Caroline Melear.

Author(s): Jerry Theodorou, Trevor Burgess, Caroline Melear

Publication Date: 20 Jul 2022

Publication Site: R Street

Flood-Prone Homes Could Lose Federal Insurance Under FEMA Plan

Link: https://www.wsj.com/articles/fema-urges-congress-to-drop-flood-insurance-for-highest-risk-areas-11655384400

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Mr. Toomey asked Jerry Theodorou of the R Street Institute, a conservative-leaning Washington-based think tank, how seriously Congress should look at paying repetitive loss claims. “Indeed, this is a very serious problem,” Mr. Theodorou said. “The numbers speak for themselves, to have such a small percentage of policyholders accounting for close to 40% of the claims dollars paid.”

The flood insurance program — which is the main provider of flood coverage in the U.S. and has issued more than five million policies — has paid out more money to property owners and other expenses than it has collected in premiums from policyholders since Congress created it in 1968. It collects about $4.6 billion in annual revenue from policyholders in premiums, fees and other charges, according to the Congressional Research Service.

Flooding ranks as the country’s most common natural disaster. Scientists predict floods will happen more frequently in neighborhoods that face new risk from rising sea levels and extreme rainstorms due to climate change.

Author(s): Katy Stech Ferek

Publication Date: 16 June 2022

Publication Site: Wall Street Journal

R Street Institute Testifies Before Senate Banking Committee on National Flood Insurance Program

Link: https://www.rstreet.org/2022/06/16/r-street-institute-testifies-before-senate-banking-committee-on-national-flood-insurance-program/

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Additional link: https://www.rstreet.org/2022/06/16/five-solutions-to-help-fix-the-national-flood-insurance-program-from-r-street-testimony-to-the-u-s-senate-banking-housing-and-urban-affairs-committee/

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Regarding the second objective, there is no equitable sharing of costs between the public and private sectors. The private sector is only peripherally involved in bearing flood risk. The involvement of the private insurance sector is restricted to administration of the program, for which insurers are remunerated by the NFIP. The participation of private insurers in flood insurance as a risk-bearer is de minimis, writing less than a tenth the premium collected by the NFIP.

Instead of attaining the overarching goal of reducing economic losses caused by flooding, flood-
related economic losses have increased. In the past decade, U.S. economic losses caused by flooding were $943 billion, close to five times more than the $211 billion cumulative flood-related losses in the prior decade. In this testimony, we highlight five issues standing in the way of the NFIP falling short of achieving its mission, and propose solutions to remedy those problem areas.

Author(s): Jerry Theodorou

Publication Date: 16 June 2022

Publication Site: R Street Institute

WHAT’S THE PRICE OF FORGETTING FAT LEONARD?

Link: https://inkstickmedia.com/whats-the-price-of-forgetting-fat-leonard/

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“How is this not a movie?”

This is the common response when people learn about the US Navy’s Fat Leonard scandal. The high stakes drama and salacious details do seem made for the silver screen, but what’s more surprising is how many people — among them Hill staff, Pentagon budget experts, and other defense policy participants — are unaware of the crimes that proliferated up and down the ranks of the 7th Fleet less than a decade ago. That military leaders, Congress, and the public seem to have forgotten this affair that took down rising leaders, defrauded the US government, and undermined our national security is at least as troubling as the events themselves. 

Here’s the short version of events: 

The US Navy contracted with Glenn Marine Group (GMG), a ship husbanding company that assisted the Navy with port security, repairs, fueling, restocking and other dockside needs. The president of GMG, Francis Leonard (aka Fat Leonard), overbilled the Navy for things like fresh water and redirected carrier movements to ports where he could charge the most. He bribed officers with $18,000 meals and extravagant hotel stays, prostitutes, parties, cash, and luxury goods. He gained access to sensitive information and paid off people in roles who could help avoid investigations into his activities. Only after the US Department of Justice stepped in — to investigate a suspected mole within the Naval Criminal Investigative Service (NCIS) who was tipping off Leonard — did the enterprise start to unravel. 

In 2013, federal agents arrested Leonard in San Diego and charged another 33 people with various crimes, though Leonard’s activities cast a much wider net. In 2018, the Washington Post reported that: “According to the Navy, an additional 550 active-duty and retired military personnel — including about 60 admirals — have come under scrutiny for possible violations of military law or ethics rules.” 

Author(s): Nan Swift

Publication Date: 18 March 2022

Publication Site: Inkstick Media

Event: Risk-Based Rating in Personal Lines Insurance

Link: https://www.rstreet.org/2022/04/05/event-risk-based-rating-in-personal-lines-insurance/

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The insurance industry is unique in that the cost of its products—insurance policies—is unknown at the time of sale. Insurers calculate the price of their policies with “risk-based rating,” wherein risk factors known to be correlated with the probability of future loss are incorporated into premium calculations. One of these risk factors employed in the rating process for personal automobile and homeowner’s insurance is a credit-based insurance score.

Credit-based insurance scores draw on some elements of the insurance buyer’s credit history. Actuaries have found this score to be strongly correlated with the potential for an insurance claim. The use of credit-based insurance scores by insurers has generated controversy, as some consumer organizations claim incorporating such scores into rating models is inherently discriminatory. R Street’s webinar explores the facts and the history of this issue with two of the most knowledgeable experts on the topic.

Author(s): Jerry Theodorou, Roosevelt Mosley, Mory Katz

Publication Date: 5 April 2022

Publication Site: R Street Institute

Risk-Based Rating in Personal Lines Insurance

Link: https://www.youtube.com/watch?v=IPYSSZkP-Oo&ab_channel=RStreetInstitute

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Description:

The insurance industry is unique in that the cost of its products—insurance policies—is unknown at the time of sale. Insurers calculate the price of their policies with “risk-based rating,” wherein risk factors known to be correlated with the probability of future loss are incorporated into premium calculations. One of these risk factors employed in the rating process for personal automobile and homeowner’s insurance is a credit-based insurance score.

Credit-based insurance scores draw on some elements of the insurance buyer’s credit history. Actuaries have found this score to be strongly correlated with the potential for an insurance claim. The use of credit-based insurance scores by insurers has generated controversy, as some consumer organizations claim incorporating such scores into rating models is inherently discriminatory. R Street’s webinar explores the facts and the history of this issue with two of the most knowledgeable experts on the topic.

Featuring:

[Moderator] Jerry Theodorou, Director, Finance, Insurance & Trade Program, R Street Institute
Roosevelt Mosley, Principal and Consulting Actuary, Pinnacle Actuarial Services
Mory Katz, Legacy Practice Leader, BMS Group

R Street Institute is a nonprofit, nonpartisan, public policy research organization. Our mission is to engage in policy research and outreach to promote free markets and limited, effective government.

We believe free markets work better than the alternatives. We also recognize that the legislative process calls for practical responses to current problems. To that end, our motto is “Free markets. Real solutions.”

We offer research and analysis that advance the goals of a more market-oriented society and an effective, efficient government, with the full realization that progress on the ground tends to be made one inch at a time. In other words, we look for free-market victories on the margin.

Learn more at https://www.rstreet.org/
Follow us on Twitter at @RSI

Author(s): Jerry Theodorou, Roosevelt Mosley, Mory Katz

Publication Date: 4 April 2022

Publication Site: R Street at YouTube

Why SWIFT Sanctions on Russia Might Not be Enough

Link: https://www.rstreet.org/2022/03/01/why-swift-sanctions-on-russia-might-not-be-enough/

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The news immediately following the removal of some Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network has been a moment of victory for the international community in condemning Russia’s invasion of Ukraine. Soon after the sanctions took effect, the ruble sunk 21 percent compared to the U.S. Dollar (USD). Russia’s central bank is in damage control mode, raising interest rates to 20 percent. At a glance it might seem like these punishing sanctions could force Russia to change course, but any optimistic takes should be tempered by a review of the effect of sanctions after Russia’s annexation of Crimea in 2014.

….

Unlike the United States and other western nations where oil and gas production are controlled by private companies, Russia’s oil and gas production is managed by state-owned enterprises. Oil and gas production in Russia directly finances Russia’s budget, including its military budget, and in 2019 oil and gas exports accounted for 39 percent of Russia’s federal budget revenue. Part of the reason oil and gas is such a lifeline to the Russian budget can be attributed to the effect of the sanctions. In January of 2014, the ruble was $0.03 USD, and by December 2014 it fell to $0.019 USD. In that same year, Russia was the largest producer of crude oil and exported 4.7 million barrels per day. The price of oil in January 2014 was $108/barrel, and by December had fallen to $62/barrel—thanks to high U.S. production. The value of Russian oil exports went from 16.9 billion rubles per day in January to 15.4 billion rubles per day in December, as the sharp decline of oil prices was counteracted by the rising ruble value of oil from the sanctions. If oil prices had remained constant, then the effect of the sanctions would have been to increase Russian export value in the local currency to 26.7 billion rubles per day. In plain English, the harder the sanctions hit, the more valuable Russian energy exports become and the better they are able to sustain the Russian budget.

Author(s): Philip Rossetti

Publication Date: 1 Mar 2022

Publication Site: R Street

Jerry Theodorou Presents on Social Inflation to the Business Insurance World Captive Forum

Link: https://www.youtube.com/watch?v=HahkUnXje1A

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R Street Institute Director of Finance, Insurance and Trade Jerry Theodorou presents on social inflation and his latest policy study to the Business Insurance World Captive Forum in Miami in February.

Author(s): Jerry Theodorou

Publication Date: 23 Feb 2022

Publication Site: YouTube and R Street Institute

Insurance Companies – Heels or Heroes?

Link:https://www.rstreet.org/2022/01/24/insurance-companies-heels-or-heroes/

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The insurance industry is far from the economy’s most-admired sector. A Forbes survey found insurance ranking low in popularity in the public eye. Three main reasons are responsible for insurers’ relatively poor rating. First is the intangible nature of the insurance product. Unlike a car one can drive home from the dealership, or a chocolate bar whose taste can be savored, purchase of an insurance policy does not lead to immediate physical gratification. To be sure, if there is no loss, one may never get a flavor of its value. Second, insurance is associated with life’s tragedies, its most physically, emotionally and financially distressing experiences—a home damaged by a storm, a car totaled, being sued, a death or dread disease, or a crippling workplace accident. Insurance payments can take away the sting with financial recovery, but loss remains painful, especially if one discovers the loss is not 100 percent covered. And third, the insurance industry has become an easy target for critics who regularly vilify it.

…..

Why do we maintain that insurance, R Street’s inaugural research program, is fundamentally exciting? Three reasons.

First, insurance is the economy’s financial first responder. When the wind blows, the earth shakes and large-class action lawsuits are decided in plaintiffs’ favor, the insurance industry pays. 

….

Second, insurers are significant investors in the capital markets. They provide much of the financial muscle to power the economy. Property-casualty insurers hold $1.1 trillion in bonds, and life and health insurers hold another $3.6 trillion. Collectively, insurers hold $4.7 trillion in bonds, 10 percent of the U.S. bond market of $47 trillion.

….

Third, insurance is the grease in the engine of the economy. Without clinical trials insurance, pharmaceutical companies would not take the risk of developing vaccines. Without ocean marine or inland marine insurance, ships would not sail and trucks would not take the risk to carry loads. Airplanes would not fly, people would be afraid to drive, and inventors would not create new products for fear of lawsuits. 

Author(s): Jerry Theodorou

Publication Date: 22 Jan 2022

Publication Site: R Street