Ruth Johnson announces crackdown on auto insurance scams

SEPTEMBER 16, 2013FAIR Logo Thumbnail Image

Secretary of State launches anti-fraud task force with Michigan State Police, prosecutors, state officials and industry leaders to protect drivers

LANSING, Mich. – Saying her office has uncovered significant evidence of fake and fraudulent auto insurance, Secretary of State Ruth Johnson today announced a new initiative to protect consumers.

"We have bad guys who actually set up phony help desks so when our Secretary of State office clerks call to verify a policy, they reach a real person who vouches for a bogus auto insurance policy," said Johnson. "We are going to put the brakes on the criminals who are selling this stuff and are preying on unsuspecting Michigan drivers."

Johnson announced the launch of a joint effort -- the Fighting Auto Insurance Rip-offs (FAIR) initiative that will include the Michigan State Police, prosecutors, state officials and insurance industry leaders. She said her office is cracking down on suspected fraud through targeted staff training and aggressive vehicle registration suspensions, but the problem needs to be jointly addressed by the State of Michigan, the law enforcement community and the industry.

Col. Kriste Kibbey Etue, director of the Michigan State Police who attended today's press conference, said the MSP is honored to support this effort.

"The Michigan State Police is pleased to partner with the Department of State and the insurance industry on the FAIR Task Force," she said. "We look forward to the opportunity of helping identify long-term solutions to better protect our citizens by reducing auto insurance fraud."

Johnson said the severity of the problem became clear after a new law she supported that was sponsored by Sen. Bruce Caswell, R-Hillsdale, required all insurance companies to send electronic insurance verification to her office twice a month.

On July 31, Johnson's office conducted a one-day snapshot of the 15,000 registration renewals done across all Secretary of State branches. When electronic verification was not available, staff members verified about 3,500 paper insurance certificates submitted by customers. More than 16 percent of the certificates checked that day were invalid or fraudulent.

"This is not an urban or regional problem," Johnson said. "We had fakes and forged copies turn up in more than half of Michigan's 83 counties."

Johnson said auto insurance scammers are arrogant and flagrant in breaking the law. One policy, used by nearly 30 customers, included an official-looking QR computer code. But when scanned, the QR code links to an online site that says only, "Llamas are sooo cool."

Johnson said it's clear some drivers knowingly purchase bad insurance but others buy fraudulent policies and believe they are covered until they are in an accident and file a claim. She said every honest Michigan motorist -- who follows the law and carries no-fault insurance &#8211 has to pay the costs of having uninsured motorists on the road and those costs are in the hundreds of millions of dollars.

Also joining Johnson at today's press conference was Eaton County Prosecutor Douglas Lloyd who today announced felony charges in a case where the suspect allegedly advertised fake insurance online on Craigslist, with the warning, "use at your own risk ... no refunds."

According to Prosecutor Lloyd, the law enforcement community is committed to going after such scams. "County prosecutors stand ready to ensure charges are brought against people selling or presenting fraudulent insurance certificates," he said. "We look forward to working together to protect Michigan consumers, and to stop people from cheating the system."

Other supporters today included R. Kevin Clinton, director of the Michigan Department of Insurance and Financial Services; Peter Kuhnmuench, executive director of the Insurance Institute of Michigan; and Kurt Gallinger, chairman of the Michigan Insurance Coalition.

Kuhnmuench said fraud drives up the cost of insurance for everyone. "If someone isn't paying their fair share, the cost is shifted to everyone else," he said.

Gallinger said the problem has been ignored too long, adding, "Michigan's insurance industry looks forward to working with Secretary Johnson and the law enforcement community to develop a comprehensive plan to crack down on fraud."

Johnson said her department is training staff on what to look for to stop fakes and working closely with authorities to build strong cases for prosecution. This year, the Secretary of State's office has already suspended 4,300 vehicle registrations compared to 431 suspensions in all of 2011 before electronic verification was instituted. New signs in branch offices will alert customers that presenting fraudulent insurance is a felony.

The FAIR Task Force will explore new means to combat insurance fraud through procedural changes, new investigative efforts and potentially new legislation. It will include representatives from the Secretary of State's office, the Michigan State Police, the Prosecuting Attorneys Association of Michigan, the Insurance Institute of Michigan, the Michigan Insurance Coalition, Property Casualty Insurers Association of America and the Michigan Association of Insurance Agents.

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For media questions, please call Gisgie Dávila Gendreau at 517-373-2520.