Why Insurance Fraud is a Major Problem
Insurance fraud robs the economy of billions of dollars each year, costing the average US family between $400 and $700 annually. Factor in the human cost as a result of decreased quality of care and mortality and that number is even higher.
Insurance fraud investigations take patience, diligence, and perseverance. Here is your ultimate guide to detecting, identifying, and investigating insurance fraud cases.
To conquer insurance fraud, one must first know what insurance is. In basic terms, it is a contract between an insurer and an insured. In a contract, the insurer indemnifies the insured against losses, damages, or liability from an unknown event.
A preexisting condition must not exist for insurance to be valid. For example, obtaining automobile insurance after an accident is not insurance and does not indemnify the insured for any injuries suffered. Insurance fraud exists when individuals attempt to profit by failing to comply with the terms of the insurance agreement.
Perpetrators of insurance fraud try to create losses or damage rather than joining others who have no losses but wish to keep themselves protected in case an unknown event should occur. Fraud can occur at any stage of an insurance transaction by any of the following:
- Individuals applying for insurance
- Third-party claimants
- Professionals who provide services to claimants
Car Insurance Fraud
Here are some of the most common types of car insurance fraud to look out for:
- Injury fraud – either through staged car accidents or fraudulent claims leading to payments for unnecessary medical treatment or treatment not actually received
- Exaggerated claims damages – used to cover the deductible
- Conspiracy with medical providers and attorneys – receiving unnecessary medical treatment or getting payments for treatment not actually received
- False registration or documentation – registering a vehicle in a place where premiums are lower, understating annual mileage or misrepresenting the use of a commercial vehicle
How to detect insurance fraud
Detecting insurance fraud is easier than it sounds. Once you know the red flags of fraud, it’s easy to identify a scheme and investigate it.
One possible sign of insurance fraud is layering. This is the practice of using multiple cash equivalents like money orders from different banks or money services businesses to make payments on an insurance policy.
Structuring, or making multiple large cash deposits within a short period of time, is another sign. Many fraudsters know the threshold for reporting is $10,000 in one transaction. This usually leads them to make a number of deposits (often at different accounts or financial institutions) in smaller amounts. Structuring can be obvious, such as depositing $9,900 each day or harder to spot, like two $5,000 transactions at two different banks on the same day.
Some people think insurance fraud is OK!
According to this website:
The number of Americans who believe it is acceptable to alter insurance claims has decreased over the past 11 years. Still, according to new findings from an online Insurance Research Council (IRC) public opinion study, 24 percent of Americans believe it is acceptable to increase an insurance claim by a small amount to make up for deductibles they are required to pay. Additionally, 18 percent believe it is acceptable to increase a claim to make up for premiums paid in previous years when they had no claims.
Younger male respondents were more likely to view claim padding as acceptable. Among 18- to 34-year-old males, 23 percent agree it is alright to increase claim amounts to make up for premiums, compared with just 5 percent of their older male counterparts and just 8 percent of females aged 18-34.
After comparing this year’s results to the past 32 years, IRC sees a positive shift in consumers’ views of the ramifications of insurance fraud. While 10 percent of the “Insurance Fraud: A Public View, 2013 Edition” respondents agreed that “insurance fraud doesn’t hurt anyone,” 86 percent of Americans agree with the statement “insurance fraud leads to higher rates for everyone.”
Two-thirds (66 percent) approved of legislation to limit attorney and medical provider access to police accident reports for the purposes of soliciting new clients or patients, a marked increase from 2002, IRC said. And, 80 percent were willing to participate in claim processes that could help insurers detect and prevent fraud, such as examinations under oath (85 percent) or independent medical exams (80 percent). Eighty-two percent agreed that persons who commit insurance fraud should be prosecuted to the fullest extent of the law.