Insurance Fraud Ultimately Costs Consumers and Insurers Alike
Just like in countless other industries, there are people involved with the insurance field – both employees and consumers – who play big roles in committing insurance fraud. Such individuals and entities may include insurance policy applicants, third party administrators, policy holders, and other professionals who provide services to insurance carriers and the customers they serve.
Insurance fraud is considered to be any type of deliberate act of deceit, falsehood, or other form of dishonest undertaking that is perpetuated either by or against an insurance company or its agents for the purpose of unwarranted financial gain.
There are numerous ways in which insurance fraud can be committed, and it can take place at all different stages of an insurance transaction. Just some examples include the submission of false or inflated claims, dishonesty when representing the facts on an application for insurance coverage, submitting to insurance companies claims for damage or procedures that did not actually take place, or falsely staging accidents or other events for the purpose of wrongful insurance claim “reimbursement.”
The True Cost of Insurance Fraud
Although it is thought that insurance companies are the primary victims of insurance fraud, the reality is that there are many others who are affected as well. These can include businesses and consumers who essentially pay for such fraud in the form of higher premiums, as well as potentially reduced coverage amounts.
Insurance fraud is an issue of national importance – and it literally affects each and every home, business, and consumer in the U.S. – even being considered as a large factor in the overall economy itself.
Different Types of Insurance Fraud
There are many different types of insurance fraud; however, these fraudulent activities can be broken down into two primary categories – internal and external insurance fraud. These are separated as follows:
- Internal Insurance Fraud – Some types of insurance fraud can take place from inside the insurance companies themselves via the companies’ agents, management teams, and even company executives. Such internal insurance fraud may include adding unwanted or unneeded amounts of coverage to customers’ policies, the diversion or embezzlement of customers’ policy premium payments, improperly handling reserve funds, and the churning of company fees and agent commissions.
- External Insurance Fraud – With external insurance fraud, individuals and insurance companies may attempt to unethically and illegally profit from insurance policy claims. Other forms of external insurance fraud can include the falsifying of injuries by policy holders, exaggerating claim amounts, falsifying disaster damages, and “manufacturing” fraudulent claims whereby an auto accident or other incident is “staged.”
In addition to internal and external insurance fraud, there is also hard and soft fraud. Hard insurance fraud exists when someone either deliberately causes or stages a loss for the specific purpose of making a claim for payment from an insurance policy. With this type of fraud, an individual will intentionally attempt to “create” or invent an insurance claim that would be covered for reimbursement or payment under an insurance policy.
Hard insurance fraud can be committed by just one person acting alone, or it can include well organized conspiracies such as a group of medical professionals who all work together in cheating the system. In any case, hard insurance fraud is one of the most costly types of insurance fraud – even being considered as either a Class B or Class C felony.
Conversely, “soft” insurance fraud occurs when an individual or entity has a legitimate claim, but they will add to, or “pad,” the amount. This may occur when a person overstates the value of property that has been damaged or destroyed such as inflating the amount of damage done to their car in an auto accident. While soft insurance fraud is considered to be much more pervasive than hard insurance fraud, it is still classed as being a misdemeanor.
How to Spot and Combat Insurance Fraud
Today, there are a number of ways to detect insurance fraud before it occurs. First, preventing such fraud should begin with an awareness of how and when such acts take place. Many law enforcement groups and investigators are now using leading edge technology and other tactics to identify, apprehend, and convict those who commit insurance fraud.
In addition to using technology, spotting insurance fraud should also include public education and awareness of what to look for. By having a deeper knowledge about what actually constitutes insurance fraud, consumers can better protect themselves – and the insurance industry as a whole – if they are able to spot fraud before it even occurs.
By initiating more public awareness campaigns, it is felt that a better understanding of what insurance fraud is – as well as how severe these types of crimes really are – consumers and businesses will be much less likely to commit it.