What You Should Know About Insurance Fraud

insurance fraud

Unfortunate as it may be, there are different types of insurance fraud. Some are deliberate, some involve small lies that seem insignificant, and some without the person realizing they’re committing insurance fraud.

Insurance fraud, in any shape, is costly and each year it can be in the billions! Although it’s easy to brush it off as costs that only affect insurance companies, insurance fraud ends up costing you and others more. It can hit you as higher premiums, higher excesses, or policies with more things an insurer won’t cover. These changes generally target cutting down the increasing costs of fraud.

How Insurance Fraud Works

Insurance fraud is an effort to violate an insurance contract. Insurance should safeguard against risks, not make the insured affluent.

While insurance fraud by the policy issuer isn’t unheard of, the majority of cases involve policyholders trying to increase their payouts by exaggerating their claims. More sensational instances like faking a death or resorting to physical violence for the insurance money are quite infrequent.

Ultimately, the downside is that insurers transfer the increased expenses incurred from dealing with such problems to their policyholders in the shape of elevated premium rates.

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What are the types of Insurance Fraud?

Here are the key categories that insurance fraud generally falls into:

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Non-disclosure can be both intentional or accidental. Fraudulent non-disclosure means failing to disclose information to an insurer that could influence their decision to provide coverage or process a claim. For example, when applying for car insurance, you might forget to mention a previous DUI conviction or falsely stating you consistently park your car in a secure garage overnight, even though it’s usually parked on the street. Even if you didn’t mean to forget, it’s still considered fraudulent.

As the name suggests, deliberate fraud is a premeditated and intentional effort to defraud an insurance company. Intentional fraud is extremely common. For instance, deliberately setting fire to property or faking a theft to increase the claim payout.

Verifying claims can be a challenge for insurers. That’s mainly where a person can exaggerate the amount of damage or cost of loss to increase payout when they make an insurance claim.

Car fronting is a case of fake user registration that affects the car insurance sector. Fronting is when someone gets a more favorable insurance quote through a more mature/experienced driver, though someone else drives the insured vehicle. Since it’s a challenge for insurers to determine who the “main driver” is, car fronting is a common car insurance fraud.

Crash for cash is another fraud specific to car insurance. It involves fabricating documents or setting up real collisions to show or cause car accidents. It has three key scenarios:

Staged accidents: Fraudsters deliberately crash or damage their vehicle.
Induced accidents: Fraudsters force innocent drivers to bump into their vehicle.
Ghost accidents: The only evidence of an accident is false documentation.

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A ghost broker is essentially someone posing as an insurance company to commit fraud. This scam spreads through social media and specifically targets less tech savvy or vulnerable individuals. Ghost brokers can operate offline too, often relying on word-of-mouth or shady local businesses.

Fake User Registration and Multi Accounting

This generally targets gadget insurance. Now that more insurance companies operate online, they’ve become targets for fraudsters.

Apart from the usual difficulties with verifying claims, insurance companies must also address the question of whether they are dealing with a genuine individual.

If the answer is no, it’s likely that they are dealing with a multi-accounting fraudster. Creating numerous online accounts using stolen IDs has become incredibly simple. Fraudsters find batches of stolen or leaked IDs and use them to create online insurance accounts and make insurance claims.

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How You Can Avoid Committing Insurance Fraud

Research Insurance Providers

Choose reputable insurance companies with a solid track record and good customer service.

Verify Agents and Brokers

If an agent approaches you, ask to see their ID. Make sure they have proper licenses and are registered with the appropriate authorities.

Insurance agents WON’T ask you for cash. Make sure to confirm the details of your policy with customer service before writing the check. This will ensure you don’t fall victim to any possible insurance frauds. Even if an agent is representing a private firm, make the check out to the insurance company and not for any such firm.

Don’t disclose your benefits.

Your policy mentions who it covers–don’t let others use it. Disclosing your details is guaranteed to lead to insurance fraud. Fraudsters might pose as an agent, asking you for your policy details. If they call and ask if you have any complaints about your policy, be on red alert.

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Immediately Report Lost Policy Documents

If you lose a policy document, a fraudster might find it and use it to make claims in your name. Make sure you have them stored securely and make copies as well. In case you misplace them, immediately inform the insurance fraud investigator.

Write Policy Documents Yourself

When purchasing policies offline, make sure you fill in the documents yourself. Go through the terms and conditions, read what the policy includes, and check for errors. Don’t lie on the document! Providing false information will instantly be filed as insurance fraud. Don’t sign any document unless you’ve read it through.

You can refer to this article as the base information you need. Conduct your own research. Ask around. Talk to your insurance provider or agent and narrow down what you should look out for. Insurance fraud is an ever-present threat to insurers, and you can never be too sure you won’t make a mistake.

Stay informed about known insurance frauds, protect your personal information, and always remain honest when filing for coverage. So, stay vigilant, stay informed, and stay protected.

You can read more about insurance companies, products and topics related to insurance from our blogs.

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