Louisiana is the first state to sign an agreement with the federal Financial Crimes Enforcement Network, a move that regulators say will help cut down on insurance fraud.
The agreement allows the Financial Crimes Enforcement Network, part of the U.S. Treasury Department, and the Louisiana Insurance Department to share information.
By working more closely together, the agencies can help insurance companies do a better job of identifying and preventing financial crimes and passing that information to the federal agency, the regulators said.
“I don’t think we have a greater incidence of insurance fraud,” Louisiana Insurance Commissioner Jim Donelon said. “I think it is a prevalent problem in all 50 states and beyond.”
Insurance fraud is very expensive, Donelon said. It’s also the second-most common and costly criminal activity, trailing only tax evasion.
Studies indicate 10 percent or more of property/casualty insurance claims are fraudulent, according to the insurance industry.
Insurance fraud costs U.S. consumers billions of dollars each year through higher insurance rates, taxes and prices for consumer goods.
In 2008, the Coalition Against Insurance Fraud estimated that insurance fraud costs Americans at least $80 billion annually, or nearly $950 a year per family.
“It often presents itself in the form of a claimant suggesting that they had a 64-inch plasma screen television when the fire occurred rather than a 32-inch that they actually owned,” Donelon said.
Another common form of fraud involves exaggerating an automobile insurance claim by faking an injury, Donelon said.
The Insurance Department is leasing a billboard to let consumers know how much insurance fraud costs them, Donelon said.
Louisiana became the first state to sign a memorandum of understanding with the Financial Crimes Enforcement Network, Donelon said, partially because he is president-elect of the National Association of Insurance Commissioners.
FinCen made a presentation to the commissioners in Washington, D.C., Donelon said, and he was the first to take the agency up on the agreement.
Steve Hudak, a spokesman for FinCen, said the agency’s duties include tracking trends and patterns of suspicious financial activity.
A basic goal for criminals is to put their ill-gotten cash into a legitimate financial institution or instrument then get back a clean check, Hudak said. In its simplest form, that might involve buying an insurance policy, almost immediately canceling it, then getting a check back from the insurer.
There are far more sophisticated methods of laundering money, Hudak said. Criminals sometimes use insurance products, such as life insurance and annuities, which have a cash value, to launder money or commit fraud.
The memorandum of understanding with the Louisiana Insurance Department makes sure that both agencies, when sharing information provided by insurers, handle that financial data with the proper degree of sensitivity, he said.