Understanding Insurance Fraud

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Insurance fraud is the second costliest white-collar crime in America, after tax evasion. It is estimated that $80 billion is paid out each year in fraudulent insurance claims. It is estimated by the Coalition Against Insurance Fraud that the average American household pays over $950 a year in additional premiums to cover the cost of insurance fraud. According to industry estimates, healthcare fraud alone costs Americans $54 billion a year.

The Insurance Research Council revealed some alarming information obtained from a recent survey regarding types of insurance crime that is considered “acceptable” by an unusually high percentage of the public. These types of insurance fraud include the following followed by the percentage of those surveyed who felt that it was acceptable:

o Increasing the claim to cover the deductible – 40%

o Increasing the claim to cover the premiums paid – 36%

o Including defective or obsolete appliances on a lightning claim – 29%

o Listing adults as main driver of a car being driven by an under age driver – 20%

o Omitting accidents/tickets from an insurance application – 14%

o Continuing medical treatment to increase the value of a claim – 11%

o Pretending a hit-and-run accident occurred to submit a claim – 7%

o Abandoning a car and reporting it stolen to the insurance company – 6%

o Reporting an injury at home as work related in order to collect workers’ compensation benefits – 10%

o Cooperating with lawyers, doctors or chiropractors to file false or exaggerated workers’ compensation claims to get money from insurers – 17%

Insurance fraud typically consists of the following types or instruments of fraud:

o Workers’ compensation premium fraud occurs when an employer provides false information in order to obtain a lower insurance rating.

o Workers’ compensation fraud occurs when an employee files an inflated or false injury claim in order to receive benefits or increase benefits.

o Staged accident fraud occurs when a person intentionally causes or is involved in an accident, or walks in and reports an accident in order to compensation or false or intentional damages and injuries. This could include automobiles or fake “slip and fall” claims.

o Property fraud is the falsification or inflation of a claim for the loss of personal or commercial property in order to obtain benefits. This includes losses due to the theft, disaster, or arson of insured property and vehicles.

o Benefits fraud occurs when an uninsured person receives benefits reserved for an insured person as it relates to his or her policy. A typical example of benefits fraud includes a non-covered dependent receiving medical or dental treatment by using a parent’s name or identity. Similarly, we have seen friends and roommates commit benefits fraud as well.

There are certainly many other types of insurance fraud, but these are clearly the most prevalant.

The first step in uncovering insurance fraud is to identify some of the most ordinary clues, or “red flags,” that signal possible dishonesty in an insurance claim. These red flags are facts or information that will require further investigation into the nature of the claim.

Once the “red flags” are identified, it is paramount that a complete investigation then be conducted! A written or recorded statement locks the claimant into a set of facts that cannot be easily changed, especially when confronted by a contradictory video or photographic surveillance product. For this reason statements from all parties and witnesses involved in an insured loss should be the very first entries in a claims file.

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