“Insurance fraud occurs when an insurance company, agent, adjuster or consumer commits a deliberate deception in order to obtain an illegitimate gain.
It can occur during the process of buying, using, selling or underwriting insurance.
Insurance fraud may fall into different categories from individuals committing fraud against consumers to individuals committing fraud against insurance companies.
Insurance fraud, estimated at over a hundred billion dollars per year, not only imposes costs on insurance companies and threatens their competitiveness and future viability, but it is also financially damaging to consumers and detrimental to the economy and society as a whole” (NAIC).
While fraud types are greatly varied and always evolving and affects all types of insurance, the most frequently seen and reported types of insurance fraud involve: automobile insurance- the most prolific industry for fraud cases, workers’ compensation- committed by both employees and employers in high-risk industries, and health insurance and medical fraud which can be particularly costly both monetarily and in lives lost.
There are other types of fraud that can occur within insurance industries but just with these three most common, it is easy to see how devastating insurance fraud can be and the ripple effect it can have on people and communities and entire industries!
Types of Insurance Fraud Commonly Seen Today
Fake insurance companies and dishonest insurance agents can defraud consumers in a number of ways using underhanded and deceptive tactics.
One common ploy they use is collecting premiums for bogus policies that they issued while having no intention of making good on the policy terms or without even having the ability to pay claims on that policy in the first place.
These “companies” may offer policies at a much lower price than what legitimate companies are offering in order to woo consumers who are trying to save money.
In many cases, a fake insurance company will provide consumers with documents that look real. In other instances, these policies may even be represented by legitimate insurance agents who themselves have been misled by fraudulent companies.
One easy red flag to watch for is something that seems too good to be true.
If coverage, costs, or anything else seems too good to be true compared to what you have been quoted or offered by other insurance companies, take it as a warning sign!
“Between the years 2000-2002, the General Accounting Office of the federal government identified 144 fake insurers nationwide that sold bogus health insurance to more than 200,000 policyholders, resulting in more than $252 million in unpaid claims.
Similarly, there are many fake companies selling auto, homeowners, renters, life, disability, prescription drug and long-term care policies” (NAIC).
This rate has only skyrocketed since then and hundreds of thousands of victims discovered they have been taken advantage of each and every year, and sadly the number in some industries is only continue to grow.
Legitimate companies can conduct fraud if they are not properly licensed by the state to sell insurance and try to pass themselves off as legitimate insurance providers.
Scammers can also lead consumers to think they are selling “insurance” while evading state insurance regulations and protocols.
For example, a company selling a health discount plan might call the plan insurance when it is actually an unregulated, non-insurance product.
If the would-be victim doesn’t do their research and jumps in too quickly, they can be taken advantage of and end up paying money to a scammer for a fraudulent policy that does absolutely nothing for them when they need it.
Employees of legitimate insurance companies have also been know at times to intentionally deceive consumers for matters of personal, usually financial, gain.
For instance, an unscrupulous agent can collect premiums from a policy holder without ever officially reporting the insurance policy to the company.
The customer is basically paying the employee directly and never actually have any issuance coverage at all! This can also happen when an existing policy holder sends payments that an employee keeps for themselves rather than turning in.
This will cause the customer to become delinquent with their policy. The insurance company could cancel or refuse to renew the policy.
Consumers can also be guilty of insurance fraud when they attempt to deceive the insurance provider and try to get more money than what they are owed for a claim that they make on their policy.
Deliberate attempts to stage an accident, injury, theft, arson or other type of loss that would be covered under an insurance policy is the most common type of insurance fraud conducted by consumers.
There are also cases where and consumer will try to exaggerate a legitimate claim or intentionally provide false information on an application or a claim.
Claiming a damaged car was worth $50,000 instead of $40,000 is an example of this as is a case of a policy holder claims damage to their shed happened during a storm when it didn’t.
Protect Yourself Against Fraud
One of the biggest steps towards protecting yourself against insurance Fraud is knowing why it happens.
“According to the Coalition Against Insurance Fraud, the causes vary, but are usually centered on greed, and on holes in the protections against fraud.
Often, those who commit insurance fraud view it as a low-risk, lucrative enterprise.
For example, drug dealers who have entered insurance fraud think it’s safer and more profitable than working street corners.
Compared to those for other crimes, court sentences for insurance fraud can be lenient, reducing the risk of extended punishment.
Though insurers fight fraud, some pay suspicious claims anyway, as settling such claims is often cheaper than legal action” (CAIF).
This is why you need to do everything you can to look for red flags and protect yourself against insurance fraud and scams.
Consumers need to be watching for the following warning signs when they are dealing with insurance policies, companies, and claims as they may indicate that a company is fake or at the very least less than pure with their goals and intent:
- If an agent or broker uses high-pressure tactics, tries to strong arm you into signing, or says things like rates will be going up in the next 24 hours or similar pressure tactics.
- The premiums from one company are more than 15-20% lowers than the average price you have been quoted from other providers for the exact same type of coverage.
- If you have trouble finding a phone number for the company, cannot get in touch with anyone via phone, or the rep who answers fails to give their name and the company name.
Before you ever take a step to sign an application for an insurance policy or make any kind of payment to an insurance company, it would serve you well to take the time to confirm that the company you are going to be working with is legitimate.
Your state insurance department can be reached easily by phone with a quick number look up and they can quickly verify whether an insurance company legally exists and whether or not they are authorized to sell insurance in their state.
This little bit of work ahead of time could save you a lot of time, hassle, stress, and damages if it saves you from falling victim to an insurance scam!