What is Insurance Fraud?
Insurance fraud is the willful abuse of an insurance policy for financial gain. Fraud is an intentional act and is illegal. It includes any deliberate deception perpetrated against an insurance company and any deliberate deception committed by an insurance company or its representatives. Insurance fraud is a problem for both insurance companies and consumers.
Insurance is a vital safeguard in our society and a contract founded on trust. When homes are destroyed, serious illness encountered or accidents happen in the workplace, we trust insurance companies to be there for us. Insurance fraud undermines that trust and hurts those legitimately insured.
Studies indicate 10 percent or more of property/casualty insurance claims are fraudulent. Fraud is the second most costly white-collar crime in America behind tax evasion. Add it all up and insurance fraud costs Americans billions of dollars each year. Not only does fraud cause higher insurance rates, but it also raises our taxes and inflates prices for consumer goods. In 2008, the Coalition Against Insurance Fraud estimated that insurance fraud costs Americans at least $80 billion annually, nearly $950 a year per family.
Insurance cheats range from organized criminal enterprises, to unscrupulous doctors and lawyers, to dishonest body shop operators, and even to your neighbors. Regardless of who they are, insurance criminals are motivated by one thing: money. It´s all about greed and taking what isn´t rightfully theirs.
Types of Insurance Fraud
There are two kinds of fraud – ‘hard’ and ‘soft.’ Hard fraud is a dedicated criminal effort to defraud insurance companies by staging accidents, committing crimes such as arson, or otherwise planning to intentionally commit a crime. While it is definitely out there, this kind of fraud is surprisingly rare when you compare it to ‘soft’ fraud, such as claiming a little more damage on an accident report. Many Louisiana residents aren’t aware that insurance fraud – especially soft fraud – is a crime. Many more think it is “victimless.” No matter what you might think, insurance fraud in all its forms hurts Louisiana as a whole.
If you feel uneasy about any insurance–related transaction, call the Department of Insurance Fraud Unit at 1–800–259–5300. If you don’t want your name used, you can request that your involvement be kept confidential.
Auto Insurance Fraud
Protect yourself by becoming aware of different types of auto insurance fraud, such as:
• Fictional Theft – A policyholder files a phony insurance claim for a “stolen” vehicle that he knows is simply in “storage.”
• Repair Shop Rip–offs – The owner of an auto repair shop or glass shop offers to inflate a policyholder’s damage estimate as a favor to cover the deductible.
• Adjuster Rip–offs – An insurance company directs its adjusters to deliberately limit amounts payable on certain items so that claimants are not properly reimbursed for their losses.
• Uncompleted Repairs – The owner of an auto repair shop routinely does not replace parts that are required to complete repairs, or an insurance company requires that substandard work be done by repair shops.
• Deceptive Claim – An accident victim files a claim for repairs that had been previously claimed.
• Staged Accidents – Beware on the road. Automobile accidents and insurance fraud often go hand in hand. Keep plenty of distance between your vehicle and the one in front it. Avoid “short stops” from the vehicle in front. Often times, the scam is to complain of neck and back injuries. Also beware of drivers who cut into your lane and immediately put on the brakes. The results of these types of scams involve multiple claims against your insurance policy and could involve physicians and attorneys as well.
Producer Fraud – Beware of Schemes
• Pocketing Premium Payments – One common insurance scheme occurs when a producer fails to turn over a premium to an insurance company, leaving the customer without coverage. A dishonest producer sometimes gambles that a client won’t have a claim and “pockets” the premium money. You can protect yourself from this type of fraud by paying your insurance premiums by check or money order made payable to the company, not to the producer or agency, whenever possible.
• Twisting – Insurance producers usually receive their largest commissions for the first year a policy is in effect, with lower commissions in later years. Because of this, some producers may “twist” the truth and urge you to change policies or companies. This happens most frequently with life insurance policies. However, you should be wary of changing any of your policies because there could be drawbacks.
• Stacking – Normally, one policy covers a consumer’s needs in each insurance area. However, for investment purposes some consumers may deliberately decide to buy more than one annuity or life insurance policy. Some producers try to sell you unnecessary multiple policies, claiming that you need extra coverage. This happens most frequently with life or health insurance policies.
• Sliding – Sliding occurs when unethical producers try to sell you coverage you either don’t want or don’t need by telling you it is part of a “package.” They may not even tell you about the extra coverage at all. Sometimes producers will “slide” in extra coverage that carries a high commission along with the low commission coverage you are purchasing. The most common kind of items that producers “slide” are accidental death coverage, guaranteed renewable term life insurance or motor club membership.
• Churning – Churning occurs when a producer tries to sell an additional policy to a person who already has a policy with a cash value. The producer promises the person a new policy at a low cost. The problem is that the policy costs so little because the rest of the premium is being drawn out of his or her first policy’s cash value. The new policy will eventually deplete the cash value of the first policy. The policyholder will be left trying to come up with money to pay for both policies, or his coverage will lapse.
• Other Schemes – Unethical producers sometimes sell fabricated insurance policies, while some claim they represent the federal or state government. Others may use the license of a former or retired insurance producer. Check with the Louisiana Department of Insurance to verify the license of a producer or company by clicking here.
• Owner Give-Up – A type of insurance fraud that results in the willful destruction of a vehicle in order to process a claim. This type of fraud is prompted by the economic strain of vehicle ownership during hard economic times. When drivers can no longer afford their vehicle, they resort to extreme measures by arranging for the car or truck to be damaged or stolen. An insurance claim is then submitted for the loss. Not only is the loss fraudulent, but many of these vehicles end up being found by police burned and abandoned. The rationale for the burned state is that it ensures that the vehicle is not going to be repaired and returned to the owner once recovered. Simply put: The owner doesn´t want his car back. He wants the claims payout.
Identity Theft Insurance Fraud
With the ever advancing developments in accessing information on the internet, the interest in our most basic personal information is at an all-time high. Although there are those who still gather personal information by diving through residential and commercial garbage bins, the most frequent attempts to rob one´s identity comes by way of the internet. At an alarming rate, more and more Americans are becoming victims of identity theft. The gathering of names, addresses, birth dates, social security numbers, driver’s license numbers and credit card numbers pose a threat to personal safety.
Too often identity theft turns into insurance fraud when identity thieves use your personal information to purchase automobiles and insurance policies and then file false insurance claims resulting from a staged accident, a false medical claim from the accident, or a false stolen vehicle report. In addition, identity thieves obtain homeowner’s or rental insurance policies with your personal information and submit false claims for burglaries and repairs.
Workers Compensation/Medical Fraud
The most costly and wide–spread types of insurance fraud that plague the insurance industry are worker’s compensation and medical fraud. These types of fraud can range from an employee faking a work related injury to collect benefits to an organized team of corrupt physicians, patients and attorneys that submit inflated or outright false medical claims to insurance companies and Medicare. The complex nature of these types of fraud put the insurance industry, the American public and the health care delivery system at risk.
Fraud Targeting Senior Citizens
Senior citizens are a popular target for insurance fraud. Criminal schemes designed to defraud the individual, the insurance company and the government, have all been committed against seniors. During disasters, crimes most often involve unscrupulous contractors who take advantage of senior citizens who may live alone and are already traumatized by unforeseen circumstances.
Hurricanes, tropical storms, hail, floods, earthquakes, tornadoes and lighting strikes all make up natural disasters. Other disasters such as levee failures and oil well explosions are examples of man-made disasters that have an equally damaging effect on communities. Too
often, the results of these events are magnified by individuals and companies that take advantage of these bad situations and prey upon people when they are most distracted by what has just happened.
Disaster fraud occurs at an alarming rate. A fraud task force set up after Hurricanes Katrina and Rita received and screened over 26,000 fraud complaints and referred over 17,000 of those complaints to law enforcement agencies for investigation. In the wake of a damaging storm, home repair contractors often go door–to–door offering roofing, siding and repair services. While a majority of the contractors are reputable, there are unscrupulous home repair contractors who prey on consumers who are anxious to get their property and lives back in order.