Malcolm Rivera
Insurance fraud is a specific intent crime that occurs when an individual or entity deliberately deceives an insurance company to obtain an illegitimate gain. It can occur during the purchase, use, sale, or underwriting of insurance. Fraudulent activities include providing false statements, staging accidents, submitting forged documents, theft of premiums, unlicensed activity, and churning. Insurance fraud hurts consumers by increasing the cost of insurance coverage and consumer goods and services. It also results in higher prices, fines, and jail time for those involved. According to the Coalition Against Insurance Fraud, insurance fraud costs American consumers at least $80 billion annually, with the FBI estimating an average yearly cost of $400 to $700 per family in premiums.
| Characteristics | Values |
|---|---|
| Definition of insurance fraud | Occurs when an insurance company, agent, adjuster, or consumer commits a deliberate deception to obtain an illegitimate gain |
| Who does insurance fraud hurt? | Insurance fraud hurts consumers, insurance companies, and society as a whole. |
| How does insurance fraud hurt consumers? | Insurance fraud financially impacts consumers by increasing the cost of purchasing and maintaining insurance coverage. The Coalition Against Insurance Fraud estimates that fraud costs consumers $308.6 billion a year. The FBI estimates that fraud costs the average family between $400 and $700 a year in premiums. |
| Examples of insurance fraud | - Submitting forged documents to fraudulently continue a disability claim - Providing false statements to an insurance company, such as falsely reporting vehicles as stolen or vandalized - Staging an accident - Churning – falsifying information to convince a consumer to use the cash value of an existing policy to buy a new, more expensive policy |
| How to prevent insurance fraud | Consumers should verify that the insurance company they are doing business with is legitimate and authorized to sell insurance in their state. Consumers should also be cautious of intense sales pressure tactics and policies that are significantly lower in price than comparable coverage. |
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What You'll Learn
Illegitimate insurance companies
Fake insurance companies often provide consumers with documents that look real. In some cases, these policies may be represented by legitimate insurance agents who have themselves been misled by the fraudulent company. For example, a company selling a health sharing plan might call the plan insurance when it is actually an unregulated, non-insurance product.
To avoid being defrauded by illegitimate insurance companies, the National Association of Insurance Commissioners (NAIC) encourages consumers to Stop. Call. Confirm before purchasing coverage from an insurance company. Consumers should verify that the company they are about to do business with is legitimate by contacting their state insurance department. It is also wise to get all coverage information in writing before purchasing a policy.
Insurance fraud is a "specific" intent crime, meaning that a prosecutor must prove that the person involved knowingly committed an act to defraud. This can include making a misrepresentation (written or oral) to an insurer with knowledge that it is untrue. Insurance fraud can result in multiple felony charges, restitution, and jail time.
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Deceitful sales tactics
High-Pressure Sales Pitch
This tactic involves urging a consumer to buy a policy immediately, claiming that the price may change or that it is a limited-time" offer. This creates a sense of urgency and may lead consumers to make impulsive decisions without adequate research.
Inappropriate Sales Practices
Illegitimate insurance companies may sell illegal products or policies through direct-mail solicitations, newspaper or magazine advertisements, or online channels. They may offer policies at significantly lower prices than the market rate to attract consumers looking for cheaper options. These companies often provide consumers with realistic-looking documents, making it challenging for consumers to differentiate between legitimate and illegitimate offerings.
Quick-Change Tactics
Deceptive agents may try to convince consumers to change their coverage quickly without allowing time for proper research. They prey on consumers' fears of missing out on a good deal and use manipulative language to push for a hasty decision.
Unwilling or Unable to Prove Credibility
Legitimate insurance agents are licensed and willing to share their credentials and qualifications. If an agent seems hesitant or unable to provide proof of their credibility, it could be a red flag. Consumers should be cautious when dealing with agents who make extraordinary claims or promises that seem too good to be true.
One-Size-Fits-All Approach
While not necessarily deceitful, this lazy sales tactic involves using the same sales pitch for all potential clients without personalizing the approach. This may indicate that the agent is more focused on making a sale than understanding the unique needs of the consumer.
To protect themselves from deceitful sales tactics, consumers should verify the legitimacy of the insurance company and agent, request all information in writing, and contact their state insurance department for additional guidance and support.
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False statements
A false statement can be made when an individual is applying for insurance, or when they are making a claim. For example, an individual may lie about the primary location of their vehicle, claiming it is garaged in a rural area when in fact it is kept in the city, where premiums are higher. They may also lie about the purpose of the vehicle, stating it is for pleasure when in fact it is used for their daily commute to work or school.
Insurance fraud is a felony and can carry a sentence of up to five years in state prison and a $50,000 fine. It is important to be aware that insurance companies have a Special Investigation Unit (SIU) or trained special fraud investigators to detect and pursue fraudulent activities.
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Fraudulent claims
Insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for financial gain. Fraud may be committed by applicants, policyholders, third-party claimants, or professionals who provide services to claimants. Fraudulent claims are a type of insurance fraud that involves submitting false, misleading, or inflated information in an insurance transaction or claim. This can include staging accidents, misrepresenting facts on insurance applications, or submitting claims for injuries or damage that never occurred.
For example, a person may purposely slam on their brakes in heavy traffic, hoping that another vehicle will hit them from behind. They then submit a claim to the other party's insurance company for damages, seeking to have their vehicle totalled and paid off by the insurance company. This type of staged accident is considered insurance fraud. Similarly, individuals may provide false information on their insurance applications, such as misrepresenting where their vehicle is garaged or underestimating mileage, to obtain lower premiums.
Insurance fraud has significant financial impacts on insurance companies, consumers, and businesses. It increases costs for insurance companies, leading to higher premiums for consumers. According to estimates, insurance fraud costs Americans approximately $308.6 billion annually. Additionally, individuals who commit insurance fraud may face felony charges, restitution, and jail time.
To protect themselves from fraudulent claims, consumers are advised to verify the legitimacy of insurance companies before purchasing coverage and to carefully review all paperwork and billing statements from auto body shops, healthcare providers, and other service providers.
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Unauthorised activity
Insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for financial gain. Fraud may be committed at different points by applicants, policyholders, third-party claimants, or professionals who provide services to claimants. Unauthorised activity is a common form of insurance fraud. This includes:
- Providing false information: Knowingly providing false information to an insurance company is fraudulent. This could include misrepresenting facts on an insurance application, such as falsely stating that a vehicle is garaged in a rural area to obtain lower rates.
- Staging accidents: Purposely staging an accident or incident to claim insurance money is insurance fraud. This could involve abrupt braking in traffic to cause a vehicle collision or faking a theft or arson incident.
- Inflating claims: Also known as "padding", this involves inflating claims to receive a higher payout. This can be done by individuals or professionals, such as medical providers, who pad costs associated with legitimate claims.
- Misrepresentation: Making a misrepresentation, either written or oral, to an insurer with knowledge that it is untrue is insurance fraud. This could include misrepresenting non-covered treatments as medically necessary to obtain insurance payments.
- Unauthorised charges: Dishonest auto body and repair shops may engage in insurance fraud by listing unauthorised repairs or charging for parts that were not used.
Unauthorised activities in insurance fraud can have significant consequences, including felony charges, restitution, and jail time. It is important for consumers to be vigilant and report any suspected fraud to protect themselves and the insurance industry.
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Frequently asked questions
Insurance fraud occurs when an insurance company, agent, adjuster, or consumer commits a deliberate deception to obtain an illegitimate gain. This can occur during the process of buying, using, selling, or underwriting insurance. For example, an agent might urge a consumer to buy a policy immediately, fail to deliver the insurance policy to the company, and then cancel or refuse to renew the policy.
Insurance fraud is not a victimless crime. It has been estimated to cost U.S. consumers $308.6 billion yearly. This includes higher premiums, as well as higher prices for consumer goods and services. The FBI estimates that fraud costs the average family between $400 and $700 a year in premiums.
Examples of insurance fraud include:
- Submitting forged documents to fraudulently continue a disability claim
- Staging an accident to receive insurance benefits
- Fraudulently reporting vehicles as stolen or vandalized to collect insurance money
- Providing false statements to an insurance company, such as claiming that your vehicle is garaged in a rural area when it is actually garaged in a city
