State may expand fight
against insurance fraudThe Hawaii agency is discussing
proposals for the next Legislative session
to include other types of fraud
More than $60 million is lost each year by Hawaii's car insurers to auto fraud.
But that number would be far higher if auto insurers could not refer suspected fraud cases to the state Insurance Division's fraud investigation branch, which actively began prosecuting such cases in 2000.
Currently, the branch's jurisdiction is limited to motor vehicle insurance fraud. A law passed as part of overall auto insurance reform during the 1997 Legislature attached criminal penalties to auto insurance fraud and created the fraud investigation branch.
But the Insurance Division may propose changes to expand the scope of the law during the upcoming legislative session that potentially could include other types of insurance fraud such as casualty and property, and workers' compensation, said Lei Fukumura, administrator for the branch.
"It's a proposal the Insurance Division has been discussing," Fukumura said.
Hawaii auto insurers are pleased with the investigation branch's work so far on auto fraud prosecution, noting the impact it has had on one area of insurance fraud that costs consumers a lot of money.
"We send them a ton of cases," GEICO General Manager Tim Dayton said. "In my opinion, it's a pretty aggressive start."
The cost to the driving public of auto insurance fraud is about $165 annually, according to Insurance Division figures.
Dayton notes that the cost of all auto insurance premiums in Hawaii amounted to just more than $509 million in 2002.
Most auto fraud cases typically involve nonexistent or exaggerated claims, Dayton said.
Either the vehicle already was damaged, or the owner submits a claim for an item that wasn't in the car. Sometimes the loss occurred at a time when the car wasn't insured, but the owner later purchased insurance and filed a claim for the loss, he said.
Mike Onofrietti, vice president for AIG Hawaii, said street racing has influenced the number of fraudulent claims.
A car owner may remove major parts of his car and report the vehicle stolen. When the car is found, it will then be declared a total loss by the auto insurer. When the owner gets the money from the claim, he buys back the salvaged vehicle and uses the money to buy performance parts for the car, Onofrietti said.
"That's something we see," he said. "They take the money, buy back the shell of the car and put performance parts back in. We've been able to identify some of them and turn them over to the fraud unit."
As long as an auto insurer suspects fraud, the law requires the company to refer the case to the state Insurance Division's investigation branch, GEICO's Dayton said.
Seventeen individuals were successfully prosecuted for insurance fraud last year, the division said. Of those cases, about six involved GEICO claims, Dayton said.
Despite successful prosecutions, fraud is still a big factor in auto insurance rates, Dayton said.
"I would say, including all levels of fraud, probably 15 percent of what you spend on your auto insurance is related to fraud," he said.
Those found guilty of fraud are generally ordered to make restitution.
"The courts have been very good at awarding restitution," Dayton said. "If we pay out $5,000 on a fraud claim, they generally will award that amount as restitution."
But those convicted of fraud also can receive stiffer penalties.
Fraudulent claims under $300 are considered a misdemeanor. But those above $300 but less than $20,000 are considered Class C felonies. False claims above $20,000 are Class B felonies.
"When someone is prosecuting these things criminally -- when someone is guilty -- that person is much more willing to pay (restitution when they find out how) long a sentence they could receive," Dayton said.