What Is Insurance Fraud? - NYCM Insurance Blog

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Nov 21, 2017

What Is Insurance Fraud?

Insurance fraud is a serious problem that directly affects policyholders and providers throughout the country. The Coalition Against Insurance Fraud estimates that insurance fraud costs Americans at least $80 billion each year.

With so much fraud occurring throughout the country, you might be wondering what insurance fraud is and how it affects the average policyholder.

Insurance fraud occurs “when an insurance company, agent, adjuster or consumer commits a deliberate deception in order to obtain an illegitimate gain”, as defined by The National Association of Insurance Commissioners.

The following questions will help you understand what fraud is and how it affects policyholders, insurance companies and government agencies:

What Types Of Insurance Fraud Exist?

Fraud exists in many different forms, and some are more severe than others. However, no matter how harmless certain fraudulent actions might seem, they can still end up costing policyholders and causing insurance companies tremendous headaches.

Some examples of insurance fraud include:

  • Staged auto accidents
  • Staged auto thefts
  • Arson
  • Slip and fall schemes
  • False residential and commercial burglaries
  • Phony medical reports
  • Fake policies from fraudulent companies or agents
  • Inflated automobile and property repairs to cover an insured’s deductible

It is extremely difficult to detect all instances of fraud, as fraud can originate from consumers, fake insurance companies and employees who represent legitimate insurance companies. It is estimated that ten to twenty percent of all insurance claims are fraudulent.

Who Does Insurance Fraud Affect?

Insurance fraud is far from a victimless crime. In fact, insurance fraud affects millions of Americans every year, with consequences ranging from financial issues to bodily harm, and in some cases, even death. Insurance fraud is a severe crime that creates significant problems for all parties involved.

These problems come in the following forms:

Increased insurance premiums - Many individuals see their premiums increase due to the costs associated with combating insurance fraud. False claims cost insurance companies tremendous amounts of money and leads to a negative impact on premiums for honest consumers.

Loss of coverage or no coverage for policyholders - Individuals who have been sold false insurance policies can end up being underinsured or completely uninsured in many cases. This leaves some individuals having to pay out of pocket for claims.

Loss of personal possessions or property - In some cases of fraud, individuals may be subject to personal loss of possessions due to arson. In other cases, individuals sold fake coverage may be subject to loss of personal possessions due to non coverage in the event of an accident.

Personal injury or death - In severe cases including arson, staged auto accidents, and slip and fall schemes, any number of potentially life threatening scenarios can arise. These scenarios are due to the actions of those seeking to obtain personal gain by committing a fraudulent act against an insurance agency or policyholder.

How Can We Combat Insurance Fraud?

In an effort to reduce fraud and deter individuals from committing fraudulent acts, several government agencies, coalitions and policies have been put in place to educate individuals, report fraudulent activity and take action against those committing these crimes.

Listed below are a few fraud prevention agencies/associations and their purposes:

The Coalition Against Insurance Fraud - The coalition was founded in 1993 to assist with enacting new anti-fraud laws, educating the public, conducting research, and sponsoring collaborative initiatives designed to bring together like-minded organizations and individuals for the purpose of preventing insurance fraud.

The National Association of Insurance Commissioners Antifraud Task Force (NAIC) - This organization was created and is governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. The purpose of this organization is to establish regulatory support and standard setting for all of the locations in which it serves.

State Fraud Bureaus - Each state has its own bureau dedicated to the detection, investigation and prevention of insurance fraud. Some states offer hotlines for anonymous tips and some have even established dedicated websites for the purpose of reporting this type of illegal behavior.

Individual initiatives by insurance and government agencies have also been set in place to detect insurance fraud.

What Are The Penalties For Those Who Commit Insurance Fraud?

Fraud is a serious crime and is treated as such in the criminal justice system. Penalties for fraudulent acts range from fines to prison sentences spanning anywhere from one year to twenty-five years. Other criminal penalties, restitution, civil remedies and administrative penalties are applicable as part of the Model Insurance Fraud Act.

What Can I Do To Prevent Fraud From Occurring?

The most significant step you can take to assist with fraud prevention is ensure that you personally abide by all regulations and lawsrelating to insurance fraud.

As a consumer, you can assist with the prevention of fraud by reporting any cases of insurance fraud you are a witness to. NYCM Insurance has its own SpecialInvestigations Unit (SIU) for detecting and investigating many forms of fraud and for training purposes. There are also many other insurance agencies with similar units to which you can report suspicious activities.

Alternatively, you can also reach out to your local FBI office or the New York State Department of Financial Services if you become aware of any potential fraudulent acts committed by either a consumer, an insurance agent or a company.

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