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Personal and Business Banking

Insurance Fraud

StreetWise Insurance Guide

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Insurance Fraud

How much fraud costs you and what you can do to fight it

Insurance fraud is big business in the U.S. How big? About $80 billion dollars a year—that's an average of $950 for each American family—according to the Coalition Against Insurance Fraud whose members represent insurance companies, consumer groups, and government agencies.

The most obvious cost to consumers appears as higher premiums, because insurers pass on the cost of insurance fraud to policy holders. But consumers pay for insurance fraud in other ways, too. The cost of consumer goods and services rises when manufacturers, service providers, and merchants pass through their increased insurance costs. Fraudulent insurance investment schemes rob Americans, particularly the elderly, of hard earned savings. Staged auto accidents and arson not only destroy property but endanger lives.

What is insurance fraud?

Insurance fraud occurs when any individual or group deceives an insurer in an attempt to collect money to which they are not legally or contractually entitled. Fraud may also occur when an insurer or agent does not pay legitimate claims or overcharges customers for insurance; these types of fraud are defined by state statues and regulations and the terms of individual contracts.  A final type of insurance fraud occurs when swindlers create bogus insurance schemes to sell worthless or non-existent insurance products to the public.

What's the difference between “hard” and “soft” insurance fraud.

“Hard” fraud describes deliberate schemes to steal money from insurers. Perpetrators may range from a single individual to a large organized criminal group. A few hard fraud examples include:

  • arson to collect insurance

  • staged automobile accidents

  • medical providers deliberately overbilling insurers, overbilling Medicare, or billing for tests that were never given

  • faking death or murder schemes to collect life insurance

  • faking theft of auto or personal property

  • faking disaster losses to claim disaster relief

“Soft” fraud describes what many consumers might describe as “fudging” or “stretching the facts” or even “telling little white lies.” The Insurance Information Institute describes this kind of fraud as “opportunistic.” Most people who commit soft fraud would consider themselves basically honest, but may feel that “pushing the limits a bit” with insurance companies is okay because they feel that insurers don't treat consumers quite fairly. Two general examples of soft fraud include:

  • giving inaccurate information on an application (i.e. underreporting mileage driven annually, misrepresenting or omitting a health condition)

  • “padding” an insurance claim for a legitimate accident or loss (i.e. inflating damage from an auto accident or claiming existing damage happened in the accident, exaggerating an injury; exaggerating the number and/or value for goods stolen)

Ten tips to protect yourself and help prevent insurance fraud

Use these ten tips, gathered from insurance fraud prevention experts, to help protect your family and fight back against insurance fraud.

  1. Buy insurance only from registered companies and licensed agents.

    Every state insurance office provides a publicly accessible database of insurance companies and agents properly registered with the state. Remember this is just a first step. Smart consumers still evaluate the credentials, track record, and financial health of insurance companies and agents. This guide shows you how.

  2. Read all insurance policies and paperwork carefully before signing the contracts.

    Make sure that the terms provide the coverage you expected and that the deductibles and premiums are also what you expected. Double check that services that were represented as “free” have not been charged for somewhere in the policy. Double check for any exclusions or limits and make sure that you understand and agree to these.

  3. Don't sign blank insurance forms of any kind.

    Make sure that all application and claim forms as well as any other paperwork is completely filled in before signing.

  4. Never pay premiums in cash or make checks out to the agent personally.

    Pay premiums by check or money order made out to the insurance company. With many insurers, you may arrange for automatic direct withdrawal of premiums from your checking account; your request for this service should be in writing and you should receive written documentation from the insurer.

  5. Be truthful in completing all insurance forms.

    Whether you are applying for insurance or submitting a claim, stick to the facts. Don't omit or “fudge” medical information; don't “pad” insurance claims.

  6. Guard your insurance information like the private information it is.

    Thieves and insurance fraudsters can use your insurance policy numbers and other information to steal from you and the insurers. Don't give your health policy number out, for example, in response to people offering “free” medical exams or screenings. Don't be too quick to swap insurance information if you're in an auto accident; wait for the police to make a report.

  7. If you are involved in an auto accident, always call the police. Also note suspicious circumstances or activity.

    Staged automobile accidents are a major source of auto insurance fraud. So always make a police report. Stay alert, be observant, and report any suspicious activity. For example, did the car cut suddenly in front of you and slam on brakes? Did the other driver wave you to turn in front of them or proceed through an intersection first, then hit you? For protecting yourself in any accident, keep a disposable camera in the glove box and take pictures immediately of the vehicles, placement and other people involved.

  8. Request and obtain detailed bills — for auto/collision repairs, for home/property repairs and for all medical services.

    Service providers can pad their bills without your knowledge. Getting a detailed bill for services allows you to check and question errors or billing for services you didn't receive.

  9. For health insurance, always check your “Explanation of Benefits” (EOB) carefully.

    Check that the services rendered and dates and other information are accurate. If you have questions, call your insurer.

  10. Report fraud and suspected fraud to your state insurance office.

    All states have a mechanism for reporting fraud. Most states provide a toll-free number and many have online complaint forms.