The Fraud Squad

Changing public attitudes may be turning the tide against workers’ comp fraud

May, 2004

For fraud investigators at First Insurance Co.’s Special Investigations Unit (SIU), it seemed like one of their easiest cases in memory, but it ultimately proved to be one of their most frustrating. An Oahu man was supposed to be disabled. A punctured eardrum, which affected his equilibrium, made it impossible for him to work. Yet the injury didn’t stop him from playing in a daily soccer match featuring highly skilled players and rough play. Investigators recorded hours of videotape.

“We thought we had a pretty airtight case,” says the First Insurance investigator who was assigned to the case, and whose identity is protected by company officials. “The individual would ride his bike from Waialae to Kapiolani Park, do a heavy warm-up for an hour, play soccer for two to three hours and then ride his bike back home. He did this every afternoon. We knew exactly where and when to find him, which is unusual in our business. It got to be comical after a while.”

As it turns out, the joke was on First Insurance. Even though investigators had collected hours of videotape which documented intense physical activity, the claimant’s physician said that his patient’s condition did not preclude him from playing soccer. He was just unable to work. The claim was paid.

“We have to collect a whole mountain of evidence compared to what law enforcement requires,” says Janice Fukuda, First Insurance assistant vice president who heads the SIU. “Not only do we have to catch them in the act, but we have to show a pattern of behavior. And then sometimes that’s not enough.”

But Fukuda isn’t crying over spilled milk. While her soccer player may have been the one who got away, she and her investigators have been getting their man (or woman) with increasing frequency. The SIU, formed in 1992, is the oldest and still the largest insurance company fraud unit in the state. The three-person team, whose members are required to be out in the field at least 321/2 hours a week, close between 20 to 25 cases every month. Only 5 percent of those cases are closed without a determination being made one way or another.

“We built our business on being fair,” says Stephen Tabussi, vice president for customer solutions at First Insurance. “If we determine that someone is hurt and deserves payment or medical care, that is also considered a successful investigation.”

The bulk of the SIU investigators’ work involves workers’ compensation cases, since 70 percent to 80 percent of the company’s insurance policies involve such coverage. The team also investigates auto fraud and has seen similar results.

Fukuda and her staff attribute much of their success to the public’s changing attitudes toward insurance fraud. Most of their best leads come from unsolicited tips from co-workers or neighbors of the claimant. Fukuda wouldn’t disclose how much money First Insurance spends to combat fraud, but she did say that settling one good case pays for the unit’s entire annual operating costs, and then some.

“It used to be the big, bad insurance company taking people’s money away,” says Tabussi. “Now, eyes are being opened. Many in the general public are realizing that fraud is one of the drivers that push insurance rates up.”

According to a study by the Insurance Research Council (IRC), 31 percent of respondents said they knew someone who had committed insurance fraud, although only 17 percent said they have reported someone for engaging in the act. But the tide may be turning ever so slightly, with fewer Americans tolerant of padding claims-soft fraud-than in recent years. In an October 2002 IRC survey, one in three adults in the United States said that it is all right to exaggerate insurance claims by a small amount to make up for the deductible they have to pay. That figure is down from 40 percent in 1997.

In Hawaii, the number of workers’ compensation claims stood at 43,465 two years ago, a drop of nearly 30 percent since 1995. On the other hand, the average cost for a workers’ comp case has risen steadily and the state remains third in the nation in workers’ compensation premiums.

“In workers’ comp cases, there isn’t so much fraud in the actual injury. They usually are hurt,” says one of SIU’s investigators. “Our investigation normally has to do with malingering and exaggeration. We just want to make sure that we are paying for legitimate claims. It’s our fiduciary responsibility.”

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David K. Choo