Insurance fraud is not a victimless crime. Often, punishment isn’t inflicted on the criminals, but rather honest people in that they end up paying higher premiums to offset the costs of this fraud. In fact, each year, insurance companies and small local agencies will lose approximately $30 billion combined because of insurance fraud.
What is Insurance Fraud?
Insurance fraud is where you or another individual attempts to or succeeds in obtaining a fraudulent payment or another outcome from an insurance company as a result of a claim or an act that has been committed. This happens when you attempt to get some type of advantage or benefit from the insurance company that you’re not entitled to. It can also be when the insurer knowingly denies some type of benefit that is due.
You can help stop insurance fraud by learning how to report it. Typically, you would contact your state Department of Insurance about the fraud you suspect has happened and provide them with as many details of the fraud as you can. First, you need to be able to identify some common types of insurance fraud.
Hard Fraud vs. Soft Fraud
Insurance fraud falls into two categories: hard fraud and soft fraud. If you were to invent or plan a loss deliberately such as auto theft, collision, or fire that your insurance policy covers in order to collect money for the damages, this would be considered hard fraud. Soft fraud is where you exaggerate a claim that would otherwise be legitimate.
Common Types of Fraud
1) Unnecessary Medical Tests and Blood Work
This is where a doctor orders multiple unnecessary medical tests or blood work that have nothing to do with your current or suspected diagnosis.
2) Car Accident
Most of these insurance fraud cases only involve the accident victim and the driver. However, there are some cases in which the victim, driver, and the insurance investigators are all involved in the fraud if they provide false statements that help inflate the value of the cars involved resulting in them receiving an insurance payout for all vehicles.
3) Medical and Health Insurance Fraud
These types of insurance fraud are very common and lucrative. They usually involve a “slip-and-fall” accident where a customer falsely claims that they slipped and fell inside a business and sues for medical bill reimbursement, lost earnings, and emotional distress.
4) Fake Death
With this type of insurance fraud, a person takes out a substantial life insurance policy making their spouse the beneficiary. Then they will turn around and fake their own death, so their spouse collects the money. Once their spouse receives the money, they both flee the country and often will change their identity.
5) Staged Home Fires
This fraud works in a couple of ways. The homeowner stages a home fire and either removes their valued possessions before the fire, or they leave their valuables in the home after they are ensuring that their insurance company knows the value of their possessions that were destroyed in the fire.
6) Renters Insurance
This is where you would take out an inexpensive renter’s insurance policy which is designed to cover the costs of your personal belongings in the event of theft, damage, or loss, then turn around and sell your belongings, reporting them stolen to your insurance company to receive payment for them.
This list of insurance fraud types is not exhaustive. And remember, it’s important that you report any insurance fraud that you witness to your state Department of Insurance right away.