Fraud can have a serious impact on insurance company ratings and their overall financial stability - which is one reason why the industry is skeptical of a new proposal in California.
This week, the National Insurance Crime Bureau (NICB) came out against a proposal in the state to downgrade many insurance fraud related crimes from felonies to misdemeanors. The group warns that this will have unforeseen consequences while also resulting in more danger to the public.
For example, the NICB suggests that prosecutors will be unlikely to pursue cases that are misdemeanors, and that organized crime rings could be emboldened to increase fraudulent activities such as auto accident scams. "Taking the power out of the hands of the public prosecutor to charge someone with a felony crime will have a serious impact on public safety. Insurance fraud is a serious crime that demands serious consequences," the NCIB and other industry groups wrote in a letter to Governor Arnold Schwarzenegger.
The proposal is said to be an attempt to help California rein in a large budget deficit. However, it also comes at a time when insurance related crimes have been increasing nationwide in response to the current economy and when insurance company ratings have already been undermined by falling financial markets and an active 2008 storm season.