Insurance is a way of financially protecting yourself from the risks and liabilities you face every day. There are lines of coverage that protect business owners, homeowners, drivers on the road and more. Common types of insurance include health insurance, life insurance and car insurance. Some states have enacted requirements for insurance coverages, though many understand the financial dangers of going through life without appropriate coverage. In order to keep coverage costs low, activities involving insurance fraud can be criminally prosecuted in many areas.
Defining Insurance Fraud
Insurance fraud deals with any attempts to receive improper payment from an insurance company. Acts like this include individuals or companies trying to swindle the insurance company to pay for an event or situation that wouldn’t be covered or eligible for coverage under the insurance policy. When fraud is committed, the insurer pays out a claim unnecessary, driving up the rates for the rest of the consumers.
It is estimated that insurance fraud costs the industry as a whole close to $80 billion a year. Insurance fraud can be difficult to detect but knowing the more common insurance frauds examples helps companies, police and prosecutors stay alert. Schemes are usually categorized as either soft or hard fraud, with hard fraud being the more difficult to accomplish but also reaping higher payouts from the unsuspecting insurance company. This could be an individual committing arson on personal property in order to collect the policy payout.
Soft fraud schemes are milder in nature but policyholders have the same intent. In these situations, the individuals might exaggerate the conditions of an incident or adjust the photo documentation to adjust the perception of a legitimate claim for a higher payout. It could also be that a policyholder lies or withholds information during the insurance application in order to get a better rate on the premium.
Seeing How Fraud Works
Since there are many different types of insurance policies available, the situations regarding fraud are endless. These are a few of the more common incidents insurers uncover when looking for fraud.
- An insured takes out a policy that is worth much more than the value of the insured policy. The insured then damages the property while making it look like an accident to collect the money from the policy. Nearly $800 million is taken from the industry in this way.
- An insured will make a claim for an accident that has not occurred. Some of these more serious claims involve owners of a life insurance policy faking their own deaths to give their family the policy payout and relocate to a secluded or foreign location.
- Health insurance fraud can happen through the acts of a patient or a physician. A patient may provide the wrong information when filling out an application for services or programs if prescription drugs are sold to a third party, if transportation benefits aren’t used for a medically related purpose or by loaning the insurance card to another person. Physicians can commit fraud by incorrectly coding the treatment given to a patient in order to collect additional money for services not rendered or by altering the cost of the services to be more than what they’re worth.
- Car insurance fraud is committed when policyholders submit damage claims for accidents that didn’t occur or for injuries that didn’t occur because of an accident. Fraud in this area also includes the insured filing more than one claim for a single incident, reporting higher costs for repairs or lost wages from an accident or falsely registering their car at a location separate from their actual residence to qualify for a cheaper premium rate.
The insurance companies have a right to report acts of insurance fraud to law enforcement, and the prosecutor would be able to bring criminal charges against the individual. While punishment varies across the country, those found guilty could face imprisonment or fines, and in severe cases, both consequences could be leveraged. The individual is also required to pay restitution.