Insurance Companies Are Paying Cops to Investigate Their Own Customers

Good faith reporting of suspected fraud sounds fine, but a couple concerns about this:

> In one case, investigators at State Farm withheld several crucial reports contradicting their fraud allegations from the bundle of evidence they handed over the law enforcement. In another, a Farmers manager admitted under oath that there was an "unwritten policy" within the company to withhold evidence from customers that could help prove their innocence.

Besides the appearance of possible bad faith, that might also -- in the context of government relying on the insurance company to do some of the investigative work -- thwart government obligations to share evidence with a defendant.

This has been going on for a long time. At least decades, if not centuries (remember that insurance is a very old business).

In the 1940's there were very popular radio dramas that aired every week following the adventures of insurance investigators, and their cozy alliances with law enforcement.

This article sounds like FBI and/or Internal Affairs should be involved into investigating State Farm and their paid prosecutors/policemen. Anybody knows anything or is too early? Or maybe nothing will happen due to too much money poured into right pockets?

My god, the US judiciary system is so broken in many ways that it is beyond repair.

It is crazy how a company making false claims can ruin you so easily, and you cannot fight back or be compensated.

> Erie Insurance, one of the nation’s largest auto insurers, had not only provided the cops with evidence against its own loyal customer — it had actively worked with them to try to convict him of insurance fraud.

OK, but there is no "loyal customer". There is only the prospect of a payout. And the incentive to avoid it.

What a way to destroy your own industry.

If getting insurance increases the cost of a bad thing happening, instead of decreasing it (because your claim will be refused, and you'll also be charged with fraud for even trying to make a claim) then what is the point of taking out insurance on anything?

Remind me never to do business with State Farm, they seem to over the top at least in this story, I would hate to have Hail Damage to my home then be put in prison if I expect to have that damage fixed....

Wow

Does anyone have any carriers that they would recommend? I’m currently with State Farm, but this is really concerning. Anyone know of any more ethical insurance providers? Thanks.

While everyone involved surely deserves either life in jail or the death penalty, there's something we can do without going through the corrupt 'justice' system:

Inform all the clients of these companies of what they're doing. Let them know they bribed the police to put clients in jail after filing a claim.

And don't forget to name names - don't let them hide behind the corporate facade.

So, I've seen the flip side of this. I have a friend who does building inspections for insurance companies. He sees what's basically outright fraud all the time, but companies rarely press it. Think about it: their main incentive is to avoid paying out claims where they shouldn't have to. They're more than happy to deny a claim, stop offering your services to that person and let the next insurance company get defrauded by the person. The companies have minimal incentive to rat out their own clients (especially when they're merely 95% sure it's fraud), and so lawlessness can easily continue.

So, I can see both sides of this. The government might WANT to prosecute insurance fraud, but they're rarely aware of it, because how would they find out?

Just today, Dutch newspapers reported that courts in the Netherlands are running trial processes against suspected insurance fraudsters without any involvement from the police or the DA's office [0].

The idea is that the police force is too understaffed to do research against smalltime insurance fraud, but the insurance companies are more than happy to build the case independently. And the judge is still impartial, so everything is fine, right?

This worries me because the insurance isn't exactly impartial, right? I assume that once they suspect fraud, they really really want you to have indeed committed fraud, because there's hardly any downside for them if they wrongly accused you. They'll build up a very one-sided case.

Apparently in the US, the same problem is solved with an undereducated instead of an understaffed police force, plus semilegal bribes. To be honest I don't really see the fundamental difference between that and the new Dutch idea.

I wonder what HN thinks should be the solution. Staff more cops? What if recruiting good ones is prohibitively hard? What if the good ones would really prefer to be put on other cases than "we think Joe Smith stole $2000 from an enormous cash-loaded faceless financial corporation"? It's a hard problem.

[0] https://www.ad.nl/binnenland/proefproces-verzekeringsfraudeu...

The investigative wing for life insurance is really interesting. They can sniff out fraud from a mile away. They still have to do a lot of insurance apps manually because people lie so often. How can people say they don't smoke but it shows up all over their medical records?

After a very long time, this is a fine piece of investigative journalism to make the top 30 on HN. I wish the main BuzzFeed site did more of this than the clicbait.

Insurance companies obviously end up being the front line of insurance fraud and should definitely turn over those cases to the proper authorities. But this shit? "Erie had even paid part of the salary of the lead detective who knocked on Schmidt’s door that day, as well as that of the prosecutor who went on to charge him with felony insurance fraud. And it would also secretly cover the costs of an expert witness to testify against Schmidt in court." Why on gods green earth is it legal for any person or company to directly pay police departments like this? How is this not a bribe?

I'm drawing connections to the Black Mirror episode Crocodile https://en.wikipedia.org/wiki/Crocodile_(Black_Mirror)

The author gets this topic utterly backward. Large insurance companies each have essentially no business incentive to do anything except pay claims. Maybe they try to get insureds back to baseline on the cheap, but deny an insured loss entirely? No. Not even investigate them.

And so fraudulent claims and the shadow industry that surrounds them grow in size until something bad happens, like a grandma dies in a commercially-staged motor vehicle accident.[1] And then everyone gets all introspective and tries to figure out how we got to that regrettable point and what we can do to walk things back to a sane place where fraudulent activity is not acceptable.

Unfortunately, the basic incentives in the insurance industry still are, and always will remain, for companies to do as little as possible about fraudulent claims. What I see in the facts reported by the article are companies that have used fraud investigators who are poorly trained or under-resourced and are generating erroneous or weakly-supported evidence of fraud, which the companies then hand off to public authorities who apparently have no better resources. That leads to two observations:

1. If the problem is irrational, counterproductive prosecutions due to poor training and resources, writing a hit-piece about supposed conflicts of interests over supplemental funding being used to patch the resource problems isn't really part of the solution.

2. The insurance companies are paying for the consequences of poor-quality investigations communicated to authorities by their investigators. The article talks about some of the claimants suing the insurers for bad faith practices (and defamation?), which I'd call a "cottage" industry in the U.S., except that the industry is quite large and active. The insurers named in the article most definitely have been incentivized to learn the lesson not to refer marginal fraud prosecutions-- maybe not to refer prosecutions at all-- and so we'll repeat the cycle mentioned above until at a future time a grandmother, aunt or child is killed again in a staged fraudulent insurance claim, and then everyone will get introspective again and muse that at one point we had laws that incentivized insurers to identify and prosecute scam artists but bad press like this article led to changes that made them stop.

[1] https://www.ifb.org/(X(1)S(dzqyttjltzr0pry1l1wmvlxj))/Conten...

The biggest and (maybe) the only problem are the incentives for LEO to manipulate proof to jail /convict innocent people. Even an arrest can ruin your life, let alone trial, regardless of outcome.

Other than that, insurance companies have a right to cut down on fraud and jail fraudsters.

It's a necessary part of the business, and it keeps rates down for every insurance holder.

I just wish they were more public about punishing the bad ones they catch. It would help people understand the necessity of investigations, and probably discourage some would-be fraudsters.