The Insurance Research Council (IRC) estimates that claim fraudand buildup added between $4.8 billion and $6.8 billion in excesspayments to auto injury insurance claims closed with payment in2007. According to IRC, the excess payments amount to between 13percent and 18 percent of total payments under the five mainprivate passenger auto injury coverages. Excess payments haveincreased from the 2002 estimate of between $4.3 billion and $5.8billion, or between 11 and 15 percent of total payments.

The study, titled "Fraud and Buildup in Auto Injury InsuranceClaims: 2008 Edition," indicated that the percentage of claims thatappeared to involve fraud -- defined as specific materialmisrepresentation of the facts of a loss -- increased from 9percent of bodily injury (BI) claims closed with payment in 2002 to11 percent of closed claims in 2007. The percentage of personalinjury protection (PIP) claims with apparent fraud rose slightly,from 5 percent in 2002 to 6 percent in 2007.

"Buildup," which is defined as the inflation of an otherwiselegitimate claim -- such as through unnecessary medical treatmentsor diagnostic procedures -- represented the more common type ofclaim abuse, the IRC reported. Twenty percent of BI claims werebelieved to involve buildup in 2007, an increase from the 18percent noted in 2002. Apparent buildup was found in 14 percent ofPIP claims, up from 12 percent in 2002.

The study also examines differences in claiming behavior betweenclaims with apparent fraud or buildup and claims without apparentfraud or buildup. Claims with apparent fraud or buildup were morelikely than other claims to involve sprain and strain injuries andperiods of disability. In addition, the study found that claimantsin apparent fraud and buildup claims were more likely than otherclaimants to receive treatment from physical therapists,chiropractors, and other alternative medical providers.

"Claim abuse continues to be a significant problem," saidElizabeth Sprinkel, senior vice president of the IRC. "The excesspayments attributable to fraud and buildup help drive up the costsof insurance for everyone. On the positive side, this report showssome of the ways that insurers are working to combat the problemand ensure that every claim is paid according to its merits."

Twenty-two insurers, representing 58 percent of the privatepassenger auto insurance market in the Unites Sates in 2006,participated in the study. The IRC closed-claim study collecteddetailed data about injury; medical treatment; claimed losses andtotal payments; claim handling techniques; and attorneyinvolvement. In addition, it asked claim file reviewers to indicatewhether specific elements of fraud or buildup appeared in claims.Because the study involves only claims that were closed withpayment, it likely understates the incidence of fraud and buildupin all claims filed, the IRC cautions.

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