Ethics and Insurance Fraud

It has been reported that the federal government’s Pandemic Unemployment Assistance (PUA) program has been victimized by fraud. This program was designed to extend unemployment insurance benefits to self-employed people, independent contractors, those engaged in the gig economy, part-time workers and others who were previously classified ineligible for unemployment insurance benefits.

It is always disturbing to witness instances of fraud. Who doesn’t want to believe we are better than this? It is particularly disheartening during a time when systems supporting our local and national communities are already under severe stress.

All too often, insurance fraud is perceived as a victimless crime. Insurance carriers are pictured as faceless entities. It is assumed these colossal organizations comprised of nameless people can easily afford to have their pockets picked. Although most people know better, it isn’t universally understood.

According to the FBI, the total cost of insurance fraud (non-health insurance) is estimated at more than $40 billion per year. Simple division then suggests the average U.S. family pays between $400 and $700 per year in the form of increased premiums as a result of insurance fraud.

These actions and their consequences heighten the need for clarity regarding ethical behavior.

Theft, like looting, is wrong notwithstanding the size or wealth of the victim. Strong and purposeful clarity in this regard will help to discourage insurance fraud, along with other instances of fraud undermining the public good. There is no middle ground in this matter. There is only right and wrong.

It is no secret we live during a cynical age. Aircraft manufacturers, social media platforms, financial institutions, news outlets and elected officials, to name just a few, are often regarded with skepticism. Of course, our own insurance industry is at times not trusted by the public. This distrust is on display right now as hundreds of insureds have filed lawsuits against carriers because business interruption insurance does not cover claims related to COVID-19 caused losses.

While some of the public’s cynicism has been earned, a portion has been fueled by individuals and entities who abuse social media platforms. Not every person or organization being drenched by a tweet storm deserves to get wet.

While ethical behavior includes a moral component, it also inspires a practical good.

As risk management professionals, we realize ethical behavior will typically result in safe behavior. If I had the time and you had the patience I could list hundreds of examples. Since both time and patience are particularly scarce resources during these challenging times, here are just a few examples:

• Driving a properly serviced motor vehicle while obeying rules of the road will more times than not result in a safe, uneventful trip.
• Providing employees with a properly designed work environment and personal protective equipment (PPE) reduces the number of workplace injuries and deaths.
• Companies taking the time and spending the money required to properly select, train and equip client-facing employees will be targeted by fewer client lawsuits.
• Fully testing new products will also result in fewer lawsuits.

In each of these instances, ethical behavior contributes to safe outcomes.

I believe a great many people would choose to behave in an ethical manner, all else being equal. The reason some may choose to deviate from this path is if they believe it is more likely to lead to short-term success, which is otherwise known as immediate gratification. This deviation is also sometimes called a “short cut” or “path of least resistance.”

Business reversals, turns of fortune and financial setbacks can also bend a person’s ethics.

Of course, long-term failure and, at best, only short-term success, are the more likely results when ethics are either abandoned or bent. Unethical behavior often results in lawsuits, reputational damage, client attrition, employee attrition, key supplier attrition, business failure and even time spent in a penitentiary.

I feel obligated to add that ethical behavior does not guarantee success, although it would certainly be nice if this were the case. A bad service model or poorly designed product line will typically end in failure, ethical choices notwithstanding.

However, you will still be able to look at yourself in the mirror.

Topics Fraud