The Case for Creating a Michigan Auto Insurance Fraud Prevention Agency

Published November 17, 2011

In February 2008, Pennsylvania resident Corey Middleton called the police and his insurance company to report a serious problem. Someone, he said, had stolen his car from a street parking space in Philadelphia. His insurer and the police did cursory initial investigations and, unable to establish the car’s location, the insurer cut Middleton a check for more than $15,000.

There was a real crime, but prosecutors say it wasn’t a random theft. Government and insurance company officials allege Middleton lied to both police and his insurer—that his claim was fraudulent and, rather than falling victim to a random theft, Middleton had paid someone else to get rid of the car. In late February 2011, almost three years to the day after he allegedly submitted the false claim, Middleton was arrested by agents from the Pennsylvania Attorney General’s Office on charges of insurance fraud.

The arrest followed an investigation that, unlike similar ones in Michigan and elsewhere, didn’t rely on taxpayer money. The money instead flowed from a special entity, the Pennsylvania Insurance Fraud Prevention Authority, which operates without taking a penny of general revenues and has saved the state’s honest consumers more than $113 million since its creation. This Heartland Policy Brief describes how Michigan could benefit—in the form of less crime and lower automobile insurance rates—by following Pennsylvania’s lead in forming a public-private partnership to crack down on insurance fraud.

The paper consists of three sections: the first describes Michigan’s automobile insurance fraud problem; the second examines the case for an auto insurance prevention authority; and the third makes some Michigan-specific recommendations for designing an insurance fraud authority. A conclusion sums up the case.

The bottom line is simple: Cracking down on automobile insurance fraud by creating a special insurance-industry-funded auto insurance fraud authority would yield enormous dividends to consumers and business in Michigan.