Slide life insurance fraud cases in the us and some recommendations

FOREIGN TRADE UNIVERSITY ECONOMICS AND INTERNATIONAL BUSINESS DEPARTMENT   INSURANCE AND RISK MANAGEMENT LIFE INSURANCE FRAUD CASES IN US AND SOME RECOMMENDATIONS Class TMAE308 1 Lecturer Hoàng T.Life insurance is a contract between an insurer and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime. Therefore, life insurance acts as a safety net to protect the insured’s loved ones who may financially depend on him after his death. For example, life insurance policy can help pay financial obligations such as rent or mortgage costs, funeral and burial expenses, school tuition, personal debt such as student loans or credit cards, and even, supplement the lost income, to help pay for daytoday expenses. Despite the original purpose of life insurance, many people have taken advantage of it and treated it like an “investment” to gain profit. Life insurance fraud can be in many forms, coming from both the agency and policy owners sides. It has unsurprisingly caused a huge loss to society.

LIFE INSURANCE:

FRAUD CASES IN THE US

& RECOMMENDATIONS

Group 9

Research problems status

THEORETICAL BASIS

Life Insurance

A contract between an insurance policy holder and an insurance company, where the insurer promises to pay money in exchange for a premium, upon the death of an insured person or after a set period

LIFE INSURANCE FRAUD

The insured provides incorrect information onpurpose for cheaper premiums

The insured fakes their own death or the death

of their loved one for a life insurance benefit

4 common types

Other parties (a family member or spouse),access the policy and change its ownership ornamed beneficiaries

Scammers “sell” fake policies to unsuspectingcustomers and pocket the premiums

RESEARCH PROBLEM STATUS

Overview of Life Insurance market in the US

History and Development of Life Insurance

600-100 BCE, ancient Greece and Rome: concept "burial club"

Growth boom

Direct LIPremiumssurpassed

$200 billionTotal assets:

$7 billion

Overview of Life Insurance Fraud in the US

The 2016 RGA Fraud Conference:

Insurance Fraud cost

American household

Life InsuranceFraud cost

Actual Cost of Fraud

Overview of Life Insurance Fraud in the US

2022 estimation: cost of life insurancefraud: $74.7 billion

1%-3% of claims are either subject to aninvestigation for fraud or

misrepresentation or are rejected outright20% of life insurance claims are canceledduring the contestability period

Two cases of Life insurance fraud

Two Elderly Women Arrested

Two Elderly Women Arrested

in Deadly Scam of Life Insurance

CASE STUDY 1 CASE STUDY 1

2008, LA, USA, Helen Golay & Olga Rutterschmidt were convicted ofmurder and sentenced to consecutive life terms for having taken

homeless men under their wings, housed, fed, and looked after them for

2 years, then killed them with hit-and-run style to take out millions ofdollars in life insurance policies on each man

CASE STUDY 1

Plaintiff: Mutual Life Insurance Company of New York - the oldest continuous writer of insurance policies in the US

CASE STUDY 1

Rutterschmidt and Golay befriended the two homeless guys, providing themwith a place to stay and food

The guys had no clue that they had discretely taken out various life

insurance policies on them and convinced them to sign policies with the twoladies as sole beneficiaries

Vados was found dead in Hollywood Last June, McDavid died under similarcircumstances

Establishment of the case

6 applications: $589,125.75Majority of the premiumspaid by Golay - single

beneficiary of 2 insurancepolicies

Insurance on Vados's life

Insurance company Policyholder

Rutterschmidt $1,000,000 Not given denied Rutterschmidtand Golay

Globe Life Golay $20,000 Not given denied Golay United Investors

Life Golay $100,000 Not given denied Golay

Empire General Golay $500,000 Not given $251,575 Rutterschmidt

$251,575 Golay AARP Group Life Golay $75,000 Not given $75,796.51 Golay

AAA Insurance Company Golay $800,000 Not given $810,556.39 GolayGarden State Life

Insurance Company Golay $100,000 Not given denied Golay

Great West Life Annuity Insurance Company Golay $150,000 Not given Not given Golay

First Penn Pacific Insurance Golay $800,000 Not given

$402,000 Rutterschmidt

$402,000 Golay

American Life Insurance Company of New

York

Golay $150,000 Not given denied Golay

17 applications: $3,700,040

Golay paid the majority of

the premiums - single owner

of 8 policies

Insurance on McDavid’s life

How did the Insurance company find out

about the fraud?

> Information provided by the 2 women about their relationship with McDavid does not match

> The parallels between the death of

Paul Vados in 1999 and McDavid are too

close for comfort

CASE ANALYSIS CASE ANALYSIS

Application fraud case - Claims fraud Insurable interest: Ogla pretended to

be their fiancée or spouse; Helen pretended to be their close sibling.

Utmost good faith: false representations, yearly earnings and

no additional insurance

What is this kind of fraud? What specific principles in Insurance had these women violated?

CASE ANALYSIS CASE ANALYSIS

Life insurance: an exception to the insurance Indemnity principle

No central index and no information sharing between firms

The negligence of Insurance company

What leads to these fraudulent action?

CASE ANALYSIS CASE ANALYSIS

March 18, 2008: Helen and Olga werecharged with two counts of first-degreemurder and conspiracy to commit first-degree murder They were sentenced toconsecutive life terms without the

possibility of parole

Decision of the Court

Queens Man and Woodside Woman

Arrested in Conspiracy to Kill

Guyana Immigrants for Insurance

Money

CASE STUDY 2 CASE STUDY 2

James, 46, & Mallay, 61: charged with arranging the poisoning and

shooting deaths of 4 victims, 2 in a close-knit Guyanese community inQueens and two in Guyana since the early 1990s

Mallay took out a US$400,000 insurance policy on his own law before hiring a 'hit-man’ to gun down his relative in Queens in 1993

brother-in-In another case, $300,000 was collected from the death of Mallay’s ownnephew in Guyana, Hardeo Sewnanan Sewnanan was poisoned in June1999

CASE SUMMARY

US Federal agents, prosecutors

MetLife - one of the largest

global providers of insurance,

annuities, and employee benefit

programs, 90 million customers

in over 60 countries

Plaintiff:

Richard James, 46, a Guyaneseimmigrant in New York, a well-known insurance agent in theQueens Guyanese communityBetty Mallay, 61, a Woodsidewoman

Defendants:

PARTIES PARTIES

1991, Mallay-a postal carrier for the US Postal Service, was arrested & convicted of theft from the postal service, sentenced to 15 months

imprisonment While he was incarcerated, his mother died of a heart attack Mallay blamed these problems on Vernon Peter

Dass recruited friends, Camuldeen Allie, "Barry" & "Fingers" to assist him

July 28, 1993, the four drove to Dilly's home, using Allie's car Dilly

came out of his home and Allie came behind him and shot him several times in the head The four then fled in Allie's car

Peter collected $400,000 in insurance proceeds following the death of her husband and loaned Mallay $60,000

Murder of Vernon Peter

GENERAL INFORMATION

September 1993, 3 months after Dilly's death, Richard James and Ronald Mallay met at the

home of Gulabie Gobin ("Gulabie")

January 6, 1996, Alfred Gobin was murdered in Guyand Though Gulabie and her siblings

never paid for her father's policies, they

received at least $200,000 as beneficiaries.

Gulabie subsequently lent James and Mallay

almost $60,000.

Murder of Alfred Gobin GENERAL INFORMATION

October 1994, without Somaipersaud's knowledge, James created a

$100,000 policy on him, naming Virma Kassim, James' sister, as the

beneficiary The policy provided that in the event of an accidental

death, an additional $100,000 would be paid to the beneficiary

Fall of 1997, Mallay approached Kenrick Hassan ("Kenrick''), a member

of Mallay's extended family, and offered him $10,000 to kill

Somaipersaud.

January 23, 1998, Somaipersaud was found dead in a park in Queens

Somaipersaud died of acute alcoholism and chlorpromazine Maline

Ramnarine, James' girlfriend, & Arjun, among others, received some

proceeds from the policy

Murder of Basdeo Somaipersaud

GENERAL INFORMATION

ATION October 1996, James negotiated and witnessed two $250,000 life insurance policies for Hardeo

Sewnanan ("Sewnanan"), Mallay's nephew

1999, Mallay again asked Kenrick Hassan to commit murder, this time asking him to murder Sewnanan, Hassan declined but referred Mallay to his brother Derick Hassan

Mallay identified his nephew Sewnanan to Derick and gave him $10,000 for the project

January 8, 1999, Sewnanan died in Guyana of poisoning

Mallay received $400,000

Murder of Hardeo Sewnanan

CASE ANALYSIS

Revelation of the fraud case

MetLife, James insurance company, received an anonymous tip alleging the accused was involved

in a conspiracy to kill insured people for the proceeds

Sewnanan died in Port Mourant from ingestion of alcohol & ammonia James was the agent and

Mallay the beneficiary on at least 2 policies written on Sewnanan’s life

MetLife analyzed policies written by James and reportedly found “rate of death claims of

individuals insured under policies written by James was 318 percent higher than expected or by chance and that a large number of deaths were

violent or under unusual circumstances.”

CASE ANALYSIS

Fraud classification Principles violated

Insurable interest: Normally, someone buying

a policy must show an “insurable interest” in

the well-being of the person insured, usually

by virtue of marriage, a blood relationship or

economic factors

Utmost good faith: Most policies name

relatives as beneficiaries, but it is not unusual

for a non-relative such as a business partner

to be named

This is a claims fraud case

Chasm in insurance policy:

No central index orinformation sharingamong life insuranceproviders in the insurancesector

Get an amount of lifeinsurance prior to passingaway to arrange for

personal and professionaldemands

The government stated: MetLife Inc.discovered the scheme after noticing that 21death claims had been filed on policieswritten by James within a few years

They both avoided the death penalty inBrooklyn Federal Court though Jurorscould not reach unanimous agreement onthe sentence, so Ronald Mallay and RichardJames will be sentenced to life in prison

RECOMMENDATIONS

RECOMMENDATIONS RECOMMENDATIONS

Data analytics

1

2 Consistently train and educate claims team to stay current

3 Ensure everyone in your organization, not just claims andunderwriting, is aware of fraud schemes and can identify red flags

4 Attend conferences

5 Collaborate with business units