`Smile, Cheater, You're On Candid Camera'

Hidden cameras. Surveillance vans. Undercover agents wired for sound. Burly ex-police detectives carrying guns. Not the standard tools of the trade for most insurers. But then, privately held auto insurer Robert Plan Corp. is not your standard insurance company. "This is the wild West," says the company's high-energy president, Robert M. "Bobby" Wallach. "We're in hand-to-hand combat with fraud."

Wallach's battleground: the urban auto insurance market. Many of his 550,000 policyholders, and those of the 90 insurers whose policies he services, have been turned away in the voluntary market because of their driving records or because standard carriers don't serve their area. Many go into state-supervised assigned-risk pools in Robert Plan's two largest markets, New York and New Jersey, and pay the higher rates of nonstandard carriers.

Most insurers assiduously court the safest drivers. Robert Plan, though, manages to turn a profit in a market where most insurance companies fear to tread, through creative and aggressive investigation of applications and claims. "Certainly, they're among the most successful in doing automobile insurance in urban areas," says Richard C. Hsia, New York State Insurance Dept. deputy superintendent. "It's not maybe going too far to say that Wallach invented a business," adds Salomon Brothers Inc. insurance analyst A. Michael Frinquelli. "The insurance industry is often considered passive: 'You tell us information, we put you in a category.' Robert Plan has taken a passive mechanism and made it an active one."

Robert Plan exhaustively scrutinizes applications to ensure the exact magnitude of the risk and thus the proper premium. It treats most of its applications, and its claims, as suspicious. Wallach says that 70% of applications are "misstated," with applicants fibbing about whether they drive to work, whether drivers under the age of 21 use the car, where their primary residence is, and other details that could increase premiums. About 35% of application reviews result in premium increases.

Robert Plan relies on its own investigators to check out potential fibs. Applicants who say they don't drive to work may be surprised by a phone call asking what subway stop they got off at that morning. Investigators may visit applicants' homes. A company spokesman recounted how one gained entree by announcing that he was from the New York State Lottery. The applicant admitted, contrary to his application, that underage drivers lived in the household. The result: a higher premium.

TIRE CHANGERS. Robert Plan is even more scrupulous in probing claims, so it won't have to pay any more than necessary to settle them. Investigators often engage in surveillance. To find out what a claimant looks like, the company may tell the individual to report to a specified doctor for an "independent medical exam." When the receptionist at the doctor's office calls out the person's name to come in for the exam, an investigator sitting in the waiting room gets his visual ID.

The investigator may then observe the claimant's behavior to ascertain, for instance, whether the person has really been incapacitated. One ploy is to move a garbage can or close a garage door that has just been opened to see if the claimant feels well enough to move it back. The results are usually documented with photos or videotape.

Other tactics are even more aggressive. Company investigators say one maneuver that "works well" is letting the air out of a tire to see if someone claiming a back injury feels well enough to change it. Wallach, though, says he "absolutely does not condone" this and, if it is going on, will stop it.

Some of the company's techniques have come under fire from consumer activists. "There's no question that there's a need for more effective cost controls and antifraud efforts in the industry," says Robert Hunter of the National Insurance Consumer Organization in Washington. "On the other hand, there's a line that is hard to define about how far you go....Do they cross a line in saying that everyone's a crook until proven innocent, even though they're a client?" Wallach bridles at such comments: "That people say we are heavy-handed--that's a crock. They say that because we're doing so well."

PORSCHE PASSION. Indeed, since 1986, the dollar amount of business that Robert Plan services or underwrites has grown from $50 million to about $800 million. Revenues increased 50%, to $340 million in 1993, and, says Wallach, they will hit $500 million next year.

Wallach, after stints as a financial new-products development specialist, joined the company in 1989 to help continue that growth. He solicited a $30 million investment by insurance powerhouse American International Group Inc., which now owns a 23% stake in Robert Plan. A public offering is expected next year. AIG Chairman Maurice R. Greenberg, though, is a bit concerned by the company's rapid growth. Wallach, says Greenberg, is "creative and can do some things better than the standard companies can do on their own." But, he cautions, the company "shouldn't grow too quickly....You can get indigestion by expanding before you get stability."

Wallach's intensity carries over into his personal life. He approaches everything with great passion, be it fast cars (he owns a Porsche turbo, a Ferrari, an Aston Martin convertible, three Mercedes, "and a Lexus, to drive when everything else breaks down"), championing inner-city youth sports, or working with the Diabetes Institute Foundation in Virginia Beach, Va. (A daughter is diabetic.) Wallach's colorful speech is renowned in the industry. He was upset recently when a comment he made on TV about dropping a "thermonuclear bomb" on organized fraud sounded like it was aimed at individual policyholders.

Individual policyholders shouldn't rest easy, though. They may escape the bomb. But if they try to put one over on Robert Plan, they're still likely to end up with some financial bruises.

         TARGETS DRIVERS IN TOUGH MARKETS With few competitors, company can charge 
      premium rates to client companies and policyholders.
      Checks may include a visit to someone's home or cleverly framed questions over 
      the phone. For instance, applicants who claim they don't drive to work are 
      asked what subway or bus they use.
         USES STAFF INVESTIGATORS Special investigative unit, which includes many 
      ex-police detectives, may tail claimants, record their actions with photos or 
      videotape from surveillance vans.
         HELPS PROSECUTE FRAUD Company turns over evidence to law enforcement 
      officials. Publicity deters lawyers, doctors, and body shops from helping 
      claimants cheat company and clients.
      DATA: BW
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