Insurance Fraud: How Accusations Happen

Insurance fraud is a deliberate deception committed by an individual or entity to obtain illegitimate financial gain. It can be perpetrated against consumers or insurance companies and takes various forms, including premium diversion, selling unlicensed insurance, submitting false or exaggerated claims, misrepresenting facts on applications, and staging accidents. This type of fraud has a significant financial impact on insurance companies, consumers, and businesses, with an estimated cost of $308.6 billion annually in the United States. To combat insurance fraud, federal and state laws have been enacted, and law enforcement agencies, such as the FBI, work closely with insurance companies and their Special Investigation Units (SIUs) to detect, investigate, and prosecute fraudulent activities.

Lying about a cause of loss

Lying about the cause of loss is a form of insurance fraud, which is a deliberate deception perpetrated against an insurance company or agent for financial gain. While some people who commit insurance fraud are organised criminals or professionals who inflate service costs, many are ordinary people who want to cover their deductible or view filing a claim as an opportunity to make money.

Lying about the cause of loss can take many forms. For example, an individual could claim that damage to their television was caused by a lightning strike when it was not, or they could claim that their vehicle was damaged in an accident when in fact, the damage occurred prior to taking out the insurance policy.

Another example of lying about the cause of loss is when individuals or groups file exaggerated or false claims after a natural disaster. Some claimants may even intentionally damage property after a disaster to receive a higher payout. This type of fraud is known as catastrophe-related property fraud, and it is a significant problem for insurance companies.

Insurance fraud is a costly problem, with estimates suggesting it costs US consumers $308.6 billion annually. This, in turn, costs the average US family between $400 and $700 per year in increased premiums.

To combat insurance fraud, insurance companies have established Special Investigation Units (SIUs) or trained special fraud investigators to detect, investigate, and pursue action against fraudulent activities. These investigators consist of special claims adjusters, law enforcement experts, and former law enforcement officers, attorneys, accountants, and claim experts. In addition, advances in technology, such as predictive modelling, link analysis, and artificial intelligence, are also playing a bigger role in addressing fraud.

Staging an accident or loss

One common tactic used by fraudsters is to have multiple conspirators in separate cars drive alongside their intended victim on a highway, preventing them from changing lanes. The driver in front will then slam on their brakes, causing a rear-end collision for which the victim will likely be found at fault. This is a basic indicator of fault in most states and can lead to a premium increase of up to 49%. Another tactic is for the conspirators to swerve into the victim's lane, claiming to have seen an object or animal in the road, which can be difficult to disprove later.

Fraudsters often target specific types of people and locations. Seniors and young women driving alone are common targets, as they are perceived as less confrontational and less likely to want to make an insurance claim. Staged accidents also occur more frequently in urban, wealthy neighbourhoods, where there is a higher chance of collisions and drivers with better insurance coverage.

To protect yourself from staged accidents, you can:

• Get a dashcam to record what happens before an accident.
• Document and identify all damage, using your phone to photograph the fraudster's car and record the contact information of everyone involved.
• Call the police and notify your insurance company, communicating any suspicions you have.
• Refuse to give the other driver cash or payment.

Premium diversion

To avoid becoming a victim of premium diversion, be wary of companies you've never heard of, agents or representatives who are overly aggressive and promise rates far below competitor pricing, and companies that are difficult to contact. You can contact your state insurance department to ensure you're dealing with a legitimate agency and insurance company. Maintain records of payments and contact the insurer directly to make sure they've been receiving them.

If you suspect premium diversion, you can report the company or individual to your state's insurance commissioner or to national organisations dedicated to fighting insurance fraud, such as the Coalition Against Insurance Fraud and the National Association of Insurance Commissioners. Premium diversion is a serious offence and can result in heavy fines, license revocation, and even prison time.

The FBI estimates that insurance fraud costs more than $40 billion per year, with premium diversion being the most common type of fraud. This type of fraud provides more opportunities and bigger incentives for committing illegal activities.

False or exaggerated claims

One common example of soft fraud is "padding", where claimants inflate claims to cover their deductible. This can also be referred to as "upcoding". For instance, a doctor might bill an insurer for a medical procedure that was never performed, or for a more expensive procedure than the one actually carried out.

Another example of soft fraud is filing duplicate claims. This can involve submitting multiple claims for the same loss, or billing separately for tests or procedures that should be billed together at a reduced cost ("unbundling").

In other cases, claimants may exaggerate injuries or symptoms to continue receiving lost income benefits. This can include claiming a non-work-related injury as a work-related injury, or claiming an injury that never occurred.

Following natural disasters, some claimants may submit false or exaggerated property damage claims. In some cases, claimants may even intentionally damage their property after a disaster to receive a higher payout.

Fraudulent business practices

Asset diversion is another common fraudulent business practice. This involves the theft of insurance company assets, often in the context of an acquisition or merger. The subject will use borrowed funds to acquire control of an insurance company and then use the company's assets to pay off the debt. Any remaining assets are then diverted to the subject.

Insurance company fraud is another type of fraudulent business practice. Illegitimate insurance companies and dishonest agents can defraud consumers by collecting premiums for bogus policies with no intention or ability to pay out claims. These companies may offer policies at significantly lower prices than the market rate to attract unsuspecting consumers. In some cases, even legitimate insurance agents can be misled by these fraudulent companies.

Legitimate companies that are not licensed to sell insurance may also evade state regulations and mislead consumers into buying "insurance" that is actually an unregulated, non-insurance product. Employees of legitimate insurance companies can also deceive consumers for personal gain, such as by collecting premiums without delivering the policy to the company, resulting in the policy being cancelled or not renewed.

Some other warning signs of fraudulent business practices include:

• Intense sales pressure tactics, urging consumers to buy a policy immediately.
• Premiums that are more than 15-20% lower than comparable coverage from other companies.
• Company contact information that is difficult to find or inaccessible.

Frequently asked questions