Why Does the Insurance Industry Consider its Customers Crooks?

Several years ago, I noted in a post, Are Insurance Fraud Statistics Fraudulent?, that some insurance companies seemed to have declared war on their own customers by calling them cheats and frauds:
A more skeptical person may assume these statistics are made up by the insurance industry and broadcast by their paid spokespeople to assuage anger over their exorbitantly high premiums. A highly respected claims expert…suggested to me that the insurance industry propagandists are engaged in a wrongful attempt to create a culture where society suspects all claims are fraudulently created or inflated. It does not take a genius to figure out why insurance companies would love to encourage this myth among the general populace.

Still, there is great danger in an insurance culture where the investigators and public view all claims as possibly fraudulent. It is sort of like saying otherwise patriotic citizens are no longer patriotic because they question a war or government decision. Yet, from what many of us see in the claims environment, some Special Investigative Units (the fraud department) treat their insurance customers as guilty crooks before analyzing any evidence. They have a ‘guilty until proven innocent’ mentality in their treatment of their own customers….
In Insurance Fraud Expert Admits Insurance Industry Makes Up Statistics, I cited that an insurance fraud expert, Barry Zalma, admitted that the insurance industry makes up statistics regarding the amount of fraud that goes on:
[T]he insurance industry…claims a significant number of all its customers are crooks. Zalma’s logic and that of the insurance industry is similar to the logic of McCarthyism prevalent in the 1940′s and 1950′s. Then, thousands of Americans were accused of being Communists or communist sympathizers. They became the subject of aggressive investigations and questioning before government or private-industry panels, committees and agencies. The suspicions were often given credence despite inconclusive or questionable evidence. Here, the insurance industry cites some specific examples of wrongdoing and then somehow extrapolates those very few examples to justify ridiculous statistics….Thus, the industry then makes up “suspicious” claims which others…cite to be actual fraud.
I am not saying that insurance fraud is right. It is wrong. I am not saying it is rare because it is not.  To be fair, the statistics the insurance industry cites include “medical buildup” claims and other types of insurance fraud not related to first party claims by its own customers. But, is there an epidemic of policyholders engaged in insurance fraud against their insurance carriers?

For example, State Farm advertises about its arson dog program and claims it does it to “help combat arson fraud and increase community awareness of the problem.” How many State Farm customers commit arson for the purpose of insurance fraud? Very, very few. While all arson is a problem, arson fraud is the least common of the six types of arson with the FBI statistics noting arson for profit (arson fraud) as 5%. So, why does State Farm advertise “arson fraud” as the problem when 95% of arson is caused for other reasons? Do you really think that State Farm’s book of business is loaded with stereotypical arson for fraud perpetrators? Why doesn’t State Farm advertise about trying to help stop the common causes of accidental and intentionally set fires, but instead focus publicity on one of the least likely causes of fire loss?

My late friend and colleague Eugene Anderson said that ‘if the insurance industry is right about its statistics of fraud, insurance is the most defective product ever invented by man because it makes otherwise innocent customers into crooks.’ Amen.