What to do when insurance fraud hits home

For many, insurance fraud conjures up images of fake injuries and claims for damage that either never occurred or were not as bad as reported. This type of crime is certainly a big problem, but fraud can also be perpetrated against regular insurance customers.

What can you do if you become a victim? What are your rights? Here are tips for fighting back against insurance fraud.

What is insurance fraud?

As defined by the National Association of Insurance Commissioners (NIAC), “Fraud occurs when an insurance company, agent, adjuster…commits a deliberate deception in order to obtain an illegitimate gain. It can occur during the process of buying, using, selling or underwriting insurance.”

Areas with the highest rates of fraud include:

  1. Auto insurance
  2. Workers’ compensation
  3. Health insurance & medical claims

Types of insurance fraud

There are different categories of fraud, depending on whether the victim is an individual or an insurance company. Some categories also tend to have higher rates of fraud.

Examples of insurance fraud against consumers:

  • Collecting premiums for nonexistent policies. For example, an “insurance company” offers a policy at a cost in order to entice you to sign up when there is no policy. Sometimes, brokers will even present physical documents.
  • Insurance agents or brokers collect premiums and then fail to send the policy to the actual insurance company.
  • A non-licensed company selling “insurance.” For example, an organization selling a health discount plan, which does not qualify as health insurance. Fraud of this nature rose dramatically after the passage of healthcare reform (“Obamacare”) in 2010.
  • “The General Accounting Office of the federal government identified 144 fake insurers nationwide that sold bogus health insurance to more than 200,000 policyholders, resulting in more than $252 million in unpaid claims,” according to the National Association of Insurance Commissioners.

Protecting against insurance fraud

There are some things you can do to prevent becoming a victim of insurance fraud.

Before buying any plan, check with your state insurance department to confirm that the company is legitimate. You can also call your state insurance department if you suspect that you have been a victim of fraud or you have questions about a proposed “policy.”

The National Association of Insurance Commissioners suggests some scenarios that should send up “red flags” to an insurance consumer. These often point to an unscrupulous or fake insurance company or agent/broker:

  • An agent/broker tries to pressure you to “sign right away” because the premium may go up.
  • You notice that the premiums are significantly lower than other companies. If the rates are 15-20% lower than anywhere else, it could be a scam.
  • You cannot find a listed phone number or you have difficulty getting anyone on the phone when you do call.

“To help fight the growing problem of insurance fraud, the NAIC created a uniform fraud reporting system through which consumers and insurance departments can electronically report suspected fraud to the appropriate insurance department.”

Fraud against insurance companies

While this article focuses on victims of fraud, you cannot forget that insurance companies are often the target. And if you think this type of fraud doesn’t affect you, think again. Everyone who holds an insurance policy becomes a victim in the form of rising premiums or having to jump through hoops to prove the legitimacy of their claim.

Examples of fraud against insurance companies:

  • Staged accidents
  • Fake or exaggerated injuries
  • Fake or exaggerated damage to property
  • Inflated claims (padding)
  • Misrepresenting facts or lying on insurance applications, known as “premium leakage”
  • Services never rendered or non-delivery of equipment
  • Theft
  • Arson

The Insurance Information Institute (III) “…puts fraud at about 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses each year… Over the five-year period from 2013 to 2017, property/casualty fraud amounted to about $30 billion each year.”

Auto insurance fraud stats

A large percentage of auto insurance fraud comes from people staging accidents and then making false claims about injuries and medical expenses. “Staged-crash rings fleece auto insurers out of billions of dollars a year by billing for unneeded treatment of phantom injuries,” according to InsuranceFraud.org.

Other findings from InsuranceFraud.org:

  • A 2015 report by the Insurance Research Council found that automobile claim fraud amounted to $5.6 to $7.7 billion in excess payments.
  • 21 percent of bodily injury and 18 percent of personal injury claims that included a payout appeared to be fraudulent.
  • Personal auto insurers lost about $29 billion a year due to premium leakage (missing or incorrect information on applications).

Again, fraud against insurance companies is a crime that hurts everyone. The more theft, the more you end up paying in the form of spiking premiums and extra headaches getting your claims processed and paid.

Be honest on insurance applications and claims, and speak up if you become a victim

Insurance fraud is a billion dollar problem facing consumers and insurance providers. As a consumer, there are steps you can take to protect yourself. If you suspect you are a victim of an unscrupulous insurance agent or company, or the policy or company doesn’t exist, report the crime.

Victims should contact their state insurance department to report any incidence of fraud. New Yorkers can click this contact map to be directed to the proper authority. The matter will then pass into the hands of the Insurance Fraud Bureau which will investigate the crime. Their nine divisions cover fraud across many aspects of the insurance sector. Victims may also consider contacting their state’s Attorney General to report insurance fraud.

You can report anything you feel is suspicious via the National Association of Insurance Commissioners’ Online Fraud Reporting System. The New York Alliance Against Insurance Fraud also offers great resources for prevention, protection, and action and you can access this insurance fraud resource for more information.

If you are in need of legitimate insurance from a reputable provider for your home, rental apartment, car, or motorcycle, or you need term life insurance, get a free insurance quote From NICRIS. You can also call 516-544-0006 to schedule a free, one-hour personalized insurance review.