Between $5.6 billion and $7.7 billion in excess payments for auto injury claims were paid out in the United States in 2012, according to the Insurance Research Council (IRC). The organization released a new study revealing these excess payments were the result of claim buildup (inflating legitimate claims) and fraud. Under the five main private passenger auto injury coverages, this dollar amount represented between 13 percent and 17 percent of all total payments, the IRC said.
Researchers determined that 21 percent of bodily injury (BI) and 18 percent of personal injury protection (PIP) claims closed with payment “had the appearance of fraud and/or buildup in 2012.” The most common type of abuse they detected was claim buildup—accounting for 15 percent of dollars paid for BI and PIP claims that year.
They also found that fraud and claim buildup seemed to be more pervasive in no-fault insurance states. States with the highest rates of fraud and claim buildup among PIP claims included:
- Florida (31 percent)
- New York (24 percent)
- Massachusetts (22 percent)
- Minnesota (22 percent)
Claims with the appearance of fraud and/or buildup were also more likely than other claims to involve chiropractic treatment, physical therapy, alternative medicine, and the use of pain killer medications.
“The costs associated with auto injury claim abuse make auto insurance more expensive for everyone,” said Elizabeth Sprinkel, senior vice president of the IRC. “Efforts to lower insurance costs must include measures aimed at reducing the amount of fraud and buildup in the system.”
Ongoing IRC research into the causes of growing auto injury claim severity prompted the study, Fraud and Buildup in Auto Injury Insurance Claims. The research is based on more than 35,000 auto injury claims closed with payment under the five principal private passenger coverages. Twelve insurers, representing 52 percent of the private passenger auto insurance market in the United States, participated in the study.
The report also details several claim handling techniques used by insurers to identify and investigate claim abuse, including independent medical exams, peer medical reviews, and special investigative units. However, the additional costs associated with these efforts to fight fraud and claim buildup are not included in the IRC estimates of excess payments, the IRC reported.