Farm Insurance Fraud Cheats Taxpayers

The Federal Crop Insurance Corporation (FCIC) is meant to provide security for the nation’s farmers. For some farmers and insurance agency employees, however, it’s provided an easy way to steal millions from taxpayers.

The FCIC is a government corporation managed by the U.S. Department of Agriculture that encourages farmers to purchase insurance policies. These policies protect them in case their crop is damaged, ruined, or compromised. While it was once a voluntary program, the FCIC is now obligatory for farmers wishing to receive government subsidies. The majority of the nation's farmers are participants. Ideally, insurance protects farmers whose existence depends on elements beyond their control. But this area is also ripe for fraud that can involve not just farmers, but also insurance agents and claims adjusters. Because there are so many factors that can wreak havoc on crops, there is no shortage of possible false claims to file involving drought, pests, freak weather, and overworked soil.

The most flagrant example of farm insurance fraud in recent years occurred in North Carolina, where a group of twenty-two people (among them farmers, insurance agents and adjusters) pleaded guilty to defrauding the government to the tune of $22 million. They claimed bad weather had ruined the farmers’ tobacco fields. The federal money wasn’t enough—they are also accused of secretly selling the tobacco to further increase their profits. This group was caught, but many are not and farm insurance fraud, while not common on such a large scale, is costing taxpayers millions each year. According to a recent article in the Los Angeles Times, farmers have been caught staging photographs of "damaged" crops (one farmer placed ice cubes in his fields to make it look like a hailstorm), making false or exaggerated claims, and fabricating whole fields of crops that were never even planted.

Forget cheating taxpayers out of their money; if perpetuated further, farm insurance fraud could have much more disastrous effects on the country. Were the federal government to become less generous in insuring farmers because of fraud, 99 percent of the farmers who take part in the program—the estimated percentage of farmers not filing false insurance claims—could, and in the long run probably would, suffer immensely.

Farming is an extremely volatile and risky business. Weather, pests, or simply bad luck often ruins entire harvests, and there is absolutely no guarantee that a farmer’s labor (which is more often grueling than not) will be rewarded with healthy, abundant crops. That’s the whole reason behind government backed insurance: farmers would be crazy to invest their lives in food production for an entire nation of people if they didn’t have a fallback in case their yield was compromised. Unlike most professions, farming is not a job you take on lightly or casually. It is the dedication and work of a lifetime, very often not for just a farmer but his or her family as well. And of course, because our current economy supports mostly large-scale crop production instead of small-scale, local agriculture, if we don’t have people who are willing to produce our food, well—good luck surviving as a nation. 

Keeping farmers and insurance agencies honest isn’t only a way to avoid wasting millions of federal dollars. It’s crucial if we want to have food on our plates.

Watchdogs at the General Accounting Office have been sounding the alarm about farm insurance fraud for years (see below). Let's hope that recent revelations of ongoing fraud will prompt the Obama Administration to pay attention.

GAO Report on Crop Insurance Fraud

Predators Target the Uninsured

Last summer, the FTC and Tennessee Attorney General Robert E. Cooper Jr. filed suit against United States Benefits, LLC for alleged insurance fraud. While the allegations originally focused on the company's owner and chief executive, Timothy Thomas, the FTC has now expanded the case and named Thomas' wife, Kennan Dozier, as a primary defendent who helped peddle deceptive medical discount plans as insurance. 

Medical discount plans are a tool to save on certain types of care but are not themselves insurance. Insurance pays for care usually minus a deductible or copay. A discount is simply a certain amount or percentage off the cost of treatment. Discount plans are not inherently fraudulent, but they are not insurance. Discount plans do not guarantee coverage the way insurance does, they do not pay to large limits the way insurance does, and they are not necessarily as widely accepted as insurance plans are.

The FTC and Tennessee Attorney General claim that this fraud targets people who cannot afford health insurance. The scam appears to be a bait and switch, offering the poor affordable insurance and selling them something far less valuable instead. It is the kind of fraud that victimizes those who are trying to improve their lives and makes them poorer, essentially punishing them for trying to do the right thing. In this case, United States Benefits allegedly used hard sell tactics to get people to sign up for the plans over the phones. See the details below.

FTC Complaint Against United States Benefits

Authorities Go After Insurance "Rate Evasion"

Lying about where you live to get a better auto insurance rate is pretty common. Plenty of otherwise upstanding citizens -- the kind of people who would never dream of, say, stealing a candy bar -- engage in this kind of corner cutting and think of it as no big deal. But, in fact, so-called "rate evasion" ends up costing the rest of us money and state authorities do engage in episodic crackdowns. One such crackdown by Pennsylvania's Attorney General just ensnared a number of nearly two dozen people in New York and Philadelphia, as reported today:

Attorney General Tom Corbett has announced the filing of criminal charges against a Philadelphia insurance agent and the arrest of a vehicle tag agent from Philadelphia, along with charges against 22 New York residents, all allegedly linked to a cross-state “rate evasion” insurance fraud scheme.

Corbett explained that rate evasion involves out-of-state residents – typically from the New York City area – who falsely claim to be Pennsylvania residents in order to save money on their vehicle insurance.  Often, the individuals involved in these schemes provide bogus information to the Pennsylvania Department of Transportation (PennDOT) in order to obtain PA drivers’ licenses or vehicle registrations so they can purchase lower cost insurance. . . .

“Some New York or New Jersey drivers can save up to four-thousand dollars per year by falsely claiming to live in Pennsylvania because of differences in insurance premiums and coverage requirements,” Corbett said. “Honest consumers end up paying for these schemes because accident claims generated by drivers who lie drive up premiums for everyone else.”

According to the criminal complaint, Baptiste issued numerous automobile insurance policies listing Pennsylvania addresses which turned out to be false – including eleven policies for individuals all claiming to live on a street in Clarion, Pennsylvania that does not exist, along with twelve policies for individuals all claiming to live at the same single family home on North 7th Street in Philadelphia, which tax records show is owned by Baptiste.



Florida Continues to See High Levels of Auto-Insurance Fraud

Insurance companies and the police have increasingly been working together to crack down on staged accidents through which individuals can make false claims and collect millions in undeserved funds. Recent arrests in Florida highlight how pervasive the problem is within the industry and within Florida specifically (the state with the highest level of staged accidents):

Late last week, three employees of the Fort Myers Chiropractic Center were charged with insurance fraud. The investigation alleges the three employees forged over $10,000 worth of patient treatment at the center.  The dates of the alleged patient treatments conflicted with the six-week period where the patient was actually in jail for unrelated charges.

When the economic outlook is sour, many individuals without jobs or hope may turn to defrauding their insurers in order to make a few extra dollars. Florida, with an unemployment rate of over 12% (some economists have placed it as high as 20%), is especially vulnerable to these type of schemes. The reported number of staged accidents has increased over 50% from the last year alone. Beyond "staged accidents," there are various other ways in which individuals are stealing from insurers: vehicle ditching, whereby individuals abandoned, reported stolen or burned their vehicles in order to get out of payments; solicitation of unnecessary auto windshield repairs; reported damaged due to natural disasters.

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