Insurance: Behavioral Changes And Implications

There are many reasons why a person's behaviour might change after obtaining insurance. For example, a person might become more cautious and risk-averse, knowing that they are now financially protected against certain events. They might also become more mindful of their health and wellbeing, especially if they have health or life insurance. In some cases, obtaining insurance can lead to a sense of security and reduced stress, which can positively impact a person's behaviour and overall well-being. On the other hand, some people might exhibit more reckless behaviour, knowing that they are financially protected in case of any incidents.

Furthermore, the process of obtaining insurance can also influence a person's behaviour. For instance, if they had to undergo a medical examination or lifestyle assessment as part of the insurance application, they might be motivated to improve their health and lifestyle habits. Additionally, the financial implications of insurance, such as regular premium payments, can impact a person's spending habits and overall financial behaviour.

It's important to note that the impact of obtaining insurance on a person's behaviour can vary depending on individual factors such as their personality, socioeconomic status, and the type of insurance obtained.

Insurance fraud

There are two types of fraud: hard fraud and soft fraud. Hard fraud occurs when a policyholder deliberately destroys property with the intention of collecting on their insurance policy. Soft fraud, which is more common, occurs when a policyholder exaggerates an otherwise legitimate claim or lies on their application to obtain a lower premium.

• Premium diversion: An insurance agent fails to send premiums to the underwriter and instead keeps the money for personal use.
• Fee churning: A series of intermediaries take commissions through reinsurance agreements, reducing the initial premium until there is no money left to pay claims.
• Asset diversion: Control of an insurance company is acquired using borrowed funds. The subject then uses the company's assets to pay off the debt and diverts the remaining assets.
• Workers' compensation fraud: Entities offer workers' compensation insurance at a reduced cost and then misappropriate premium funds without providing insurance.
• Disaster-related fraud: False or exaggerated claims, misclassification of flood damage, claims filed by individuals outside the disaster zone, bid-rigging by contractors, and charity fraud.
• Staged accidents: Individuals purposely cause accidents to claim insurance money.

Lying about a cause of loss

Lying about the cause of a loss to an insurance company is considered fraud and can have serious repercussions. People lie to insurers for various reasons, often for financial gain, such as saving money on premiums or obtaining a higher payout on a claim. However, the consequences of lying can range from minor to major and include:

Increased Premiums

Insurers may increase your insurance premiums if they identify incorrect information on your policy. The severity of the lie will impact your annual payments. For example, lying about the annual distance driven can result in increased premiums as insurers consider higher mileage to be a higher risk.

Claim Denial

Insurance companies have the right to deny your claim if they deem you were not truthful. For instance, if you state that you only use your vehicle occasionally, but in reality, you have a long daily commute, and then get into an accident during that commute, your insurer can deny your claim.

Policy Cancellation

Insurers can cancel your policy if you withhold information or lie about certain details. For example, lying about past tickets or insurance history may lead to policy cancellation. This will put you in a high-risk category, making it harder and more expensive to obtain insurance in the future.

Future Coverage Denial

Being dishonest with your insurer can lead to them denying you coverage in the future. They may choose not to renew your policy, and you may face difficulties obtaining a policy from other insurers.

Legal Issues and Criminal Penalties

Lying to an insurance company is a form of fraud and can result in legal issues and criminal charges. You may have to pay fines or face jail time, depending on the severity of the fraud. Under Canadian law, insurers can also sue to recover costs and damages.

Examples of Common Lies

Some common areas where people lie to insurers include:

• Address: People may lie about their address to obtain cheaper insurance, especially in cities.
• Driving for Ridesharing Services: Many drivers do not inform their insurers that they drive for services like Uber or Lyft to avoid premium increases.
• Tenants in Rental Properties: Homeowners may not disclose tenants in their properties to avoid the need for landlord insurance.
• Home-Sharing or Commercial Use: Failing to inform insurers about commercial activity in your home, such as Airbnb rentals, can result in claim denials or coverage cancellation.
• Fireplaces or Wood Stoves: Omitting these from your policy can reduce costs, but if damage occurs, your claim may be rejected.
• Pools and Trampolines: These increase liability risks, and failing to disclose them can lead to inadequate coverage in the event of an incident.
• Renovations: Not disclosing home renovations may result in claim rejections if damage occurs during or after the project.

Staging an accident or loss

In a staged accident, criminals will intentionally drive an old vehicle into a stationary object, a conspirator's vehicle, or an unsuspecting driver's car, before filing a claim for pain and suffering under their auto insurance policy's personal injury protection coverage. This type of fraud is particularly common in no-fault states, where insurance companies are required to reimburse their policyholders for medical expenses, regardless of who is at fault. While no-fault laws are intended to benefit average drivers, they can also make it easier for criminals to obtain quick settlements.

To stage an accident, fraudsters may employ a variety of tactics. One common tactic is to have conspirators in two or three separate cars drive alongside the target vehicle on a highway, preventing them from changing lanes. The driver in front will then slam on the brakes, causing a rear-end collision—a basic indicator of fault in most states. Alternatively, the conspirators may swerve into the target vehicle's lane, claiming to have seen an object in the road or a deer, which can be difficult to disprove later.

To protect yourself from becoming a victim of a staged accident, it is important to watch out for suspicious driving behaviour, such as drivers behaving strangely or circling in roundabouts repeatedly, or vehicles with dented bumpers or broken taillights. If you suspect that you are being targeted, try to record the incident and gather as much information as possible, including the contact information of all drivers involved, and notify the police and your insurance company as soon as it is safe to do so.

If you find yourself involved in a staged accident, it is important to remember that, even if the accident was staged, you may still be found at fault, which could result in an increase in your insurance premium. Therefore, it is crucial to gather evidence and document the incident as thoroughly as possible. Consider investing in a dashcam, which can provide video evidence of what happened before and during the accident.

Buying the needed coverage after an accident or loss

It is important to be familiar with your auto insurance policy before you need it. Read it carefully and review your policy before you allow others to drive your car. Some drivers might be excluded from your policy, meaning that the policy will not cover accidents when they are driving.

If you have a car accident, contact your insurance provider as soon as possible to begin the insurance claims process. How much your insurance company pays depends on the type of car insurance coverage you had at the time and who is considered at fault in the accident.

If you have a full coverage car insurance policy, your insurance company will compensate you for a new vehicle after a total loss accident. Most insurance companies consider a vehicle to be totaled when the cost of repairs exceeds the vehicle's value. A car might also be totaled if it can't be repaired safely.

Once you receive the settlement, you can go out and purchase a new car. The process of purchasing a new vehicle after a total loss depends on whether you have a loan. If you're still paying off a loan when the car is totaled, your lender will receive the money, and you get to keep the remainder. If you own the vehicle, you will be able to spend your full settlement check on a new car.

If your car is totaled, gap insurance pays the difference between what you still owe and the value of your vehicle. Gap insurance is an optional policy that is sold by most car insurance companies and some lenders.

If you are uninsured and facing a total loss on your car, you will have to pay the whole balance of the loan yourself. Most states require a minimal amount of liability insurance to register a vehicle, so you could also get hit with penalties such as fines or a suspended driver's license.

In the case of health insurance, it is unlikely that a person would be able to sign up for coverage after being injured, as people generally have to sign up during an open enrollment period. There is one important exception, however. Enrollment in a state's Medicaid program for low-income people is open year-round.

Exaggerating a legitimate claim

An example of soft fraud would be exaggerating the severity of injuries sustained in a car accident to collect a larger payout. Another example would be exaggerating the damage to a vehicle after a crash, for instance, misrepresenting the details of an accident to receive a higher payout. This could involve passing off older damage as new damage to receive more money for repairs.

In the case of property insurance, exaggeration of the estimate of loss is common. Insurers face a dilemma when an insured person provides an inflated figure for the quantum of loss. This is because it is initially very difficult for the insured to total up a rational estimate, especially after a fire or other major incident.

In some cases, exaggeration may not be considered fraudulent. For example, in the UK case Orakpo v Barclays Insurance Services (1995), it was recognised that inflated figures for negotiation should not usually be treated as fraudulent. Similarly, in the case Nsubuga v Commercial Union Assurance Co (1998), the court commented that "people will often put forward a claim that is more than they believe that they will recover" and that this is a "commercial reality".

However, exaggeration of a claim can have serious ramifications. Not only can the insurer deny the claim, but the claimant could also be liable to the company for any money paid out, for the costs of the insurance company's investigation of the claim, and even for punitive damages in some cases. The claimant could even face criminal charges, including fines, probation, and jail time.

Frequently asked questions