The insurance industry is enormous. It consists of over 7,000 individual companies, and around $1 trillion premiums are cumulatively accumulated each year. Nevertheless, whenever such great streams of money are involved, there is almost always plenty of fraudulent activity.
Most regular consumers might not be aware of insurance fraud. However, insurance fraud is the second biggest target for fraudsters after banking fraud, costing over $40 billion annually. You might be thinking that insurance fraud does not concern you directly, unless, of course, if it happens to you one day. But here’s where you’re wrong, as insurance fraud is predicted to cost American families around $400 to $700 each year in increased premiums.
With that in mind, here are the five most frequent types of insurance fraud to keep you informed:
- Insurance company fraud
Insurance fraud can be committed by both policy holders and insurance companies. In the instance of insurance company fraud, policyholders become the victim of fraudulent activities, such as premium diversion and fee churning.
Premium diversion occurs when insurance agents secretly pocket premiums instead of declaring them to the agency. All’s good when nothing happens to the policyholder. But if an accident occurs, there will be no funds for reimbursement. So, the victim will not only be in an accident but will also have to pay out of their own pocket for any damages. Imagine paying monthly premiums to find out that you don’t even have an insurance policy!
The key takeaway is:
Always vet your insurance agents before agreeing to anything or making any payments.
- Falsifying claims
Falsifying claims is the most common type of insurance fraud. In order to receive an early payout, dishonest policyholders take to creating false claims, such as slip and fall claims. In fact, some policyholders go to great lengths to make the whole scenario look believable.
- Disaster fraud
When a disaster strikes, all hell breaks loose, and insurance companies become extremely busy processing claims. For fraudsters, this is the perfect opportunity to falsify a payout, as policyholders can submit claims that will be approved and paid without further investigation. Take Hurricane Katrina, for instance, where an estimated $6 billion of government funding was said to have actually gone towards insurance fraud.
- Faking death
In the most extreme of extremes, some fraudsters become even more creative and fake their own death. As we all know, life insurance policies, in most cases, offer a substantial payout. Seeing the dollar signs invokes the green-eyed monster to come up with the ultimate scenario.
- Forgery and identity theft
This type of insurance fraud is more commonly seen with health insurance. It involves individuals using other people’s sensitive information to make false insurance claims for legitimate treatments. The remainder is pocketed as cash.
One common method is by stealing elderly citizens’ identities to purchase pricey medical equipment. The victim’s insurance pays for it. In turn, the scammers re-sell this equipment for a quick buck. Victims of this usually face increased premiums with no idea why.
Preventing insurance fraud for consumers
Unfortunately, there is no one victim of insurance fraud. From policyholders to insurance companies and even the government, fraudulent activities can affect everyone. Thus, it is also our collective responsibility to take insurance fraud seriously and take careful measures when it comes to tackling this problem.
To avoid becoming a victim of insurance fraud, first, you should stay informed so that you remain one step ahead of trouble at all times. Insurance has become a necessity for us. However, you have the ability to customize your insurance plans according to your needs. Avoid dishonest agents who might upsell complicated policies.
Second, know your policy. You will receive a set of documents, including a copy of your policy. Go through it, get to know it, and ask around if you have any questions or notice any discrepancies.
Third, know your insurance agents. Spend some time to research potential insurance agencies and get to know the agents who will be assigned to you. Agents are the ones who will be there should anything happen, and you want to find out how to go about filing your claim. At the very least, you want someone who is communicative and is there for you when you need them.
If we let insurance fraud continuously get out of hand, imagine just how high premiums might become in a few years’ time!