IRC Study: Fraud, Buildup Add Nearly $5 Billion to Auto Injury Claims

The Insurance Research Council (IRC) estimates in a new report that fraud and buildup added between $4.3 and $5.8 billion to auto injury settlements in 2002, which represents between 11 and 15 percent of all dollars paid for private passenger auto injury insurance claims in that year. This estimate is somewhat lower than in an IRC study of claims paid in 1992. In the previous study, the IRC found that fraud and buildup added between 17 and 20 percent of total claim dollars paid in 1992.

In 2002, the appearance of fraud (the misrepresentation of key facts of a claim) was found in almost one in 10 paid bodily injury liability (BI) claims and one in 20 paid personal injury protection (PIP) claims. Buildup (the intentional inflation of an otherwise legitimate claim) was more common; nearly one in five paid BI claims and one in eight paid PIP claims involved the appearance of buildup.

In 2002, buildup alone was responsible for 47 percent of the excess payments attributable to fraud and buildup among BI claims and for 57 percent among PIP claims. Although insurance fraud headlines often focus on organized fraud rings, planned fraud (that is, staged or caused accidents) accounted for just 3 percent of the excess payments from fraud and buildup. Opportunistic fraud (such as the report of fictitious injuries from legitimate accidents) and other types of fraud accounted for half of excess BI payments and 40 percent of excess PIP payments.

“This study demonstrates that a few extra dollars padded onto individual insurance claims can collectively add up to a significant amount of money,” said Elizabeth Sprinkel, senior vice president of the IRC. “The improvement in dollars lost to fraud and buildup since 1992 suggests that insurer fraud-fighting efforts are having an influence. However, the costs of claim abuse remain high and ultimately result in more expensive auto insurance for consumers.”

The recently released IRC study Fraud and Buildup in Auto Injury Insurance Claims: 2004 Edition examines detailed claim information from 72,354 claims that closed with payment in 2002. Thirty-two insurers, representing 58 percent of the 2002 private passenger auto insurance market in the United States, participated in the study.

The study collected information about many aspects of the claims, including injuries, treatment, payments, and attorney involvement. In addition, the surveys asked the insurers to indicate whether any elements of fraud or buildup appeared to be present in the claims.

Because the study did not include claims closed without payment, the results do not reflect claims that were denied payment because of clear evidence of claim abuse.