Fraud
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Insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for the purpose of financial gain. Fraud may be committed at different points in the insurance transaction by applicants for insurance, policyholders, third-party claimants or professionals who provide services to claimants. Insurance agents and company employees may also commit insurance fraud. Common frauds include “padding,” or inflating actual claims, misrepresenting facts on an insurance application, submitting claims for injuries or damage that never occurred, and “staging” accidents.
Insurance fraud may be classified as “hard” or “soft.” Hard fraud is a deliberate attempt either to stage or invent an accident, injury, theft, arson or other type of loss that would be covered under an insurance policy.
Soft fraud, which is sometimes called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim. A car owner involved in a “fender bender” who pads the claim to cover the policy deductible is committing soft fraud. Another example is exaggerating the number and value of items stolen from a home or business. Soft fraud may also occur when people purposely provide false information to influence the underwriting process in their favor when applying for insurance. To lower insurance premiums or increase the likelihood that the application for insurance will be accepted, people may underreport the number of miles driven, misrepresent where a car is garaged, fail to provide an accurate medical history when applying for health insurance, or falsify the number of employees and the nature of their work for workers compensation coverage.
| - The Insurance Information Institute estimates that fraud accounts for 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses or about $30 billion a year.
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KEY STATE LAWS AGAINST INSURANCE FRAUD
| - Immunity statutes protect the person or insurance company that reports insurance fraud from criminal and civil prosecution.
- Fraud bureaus are state law enforcement agencies, mostly set up in the department of insurance, where investigators review fraud reports and begin the prosecution process.
- Mandatory insurer fraud plans require companies to formulate a program for fighting fraud and sometimes to establish special investigation units to identify fraud patterns.
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