What Is Insurance Fraud? - NYCM Insurance Blog

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Nov 21, 2017

What Is Insurance Fraud?

Use This Guide to Learn about Insurance Fraud, and How to Avoid It.


When you hear the term “insurance fraud”, you might be wondering what exactly it is, and how it affects you, as an average policyholder. Insurance fraud is a serious problem that directly affects insurance companies as well as policyholders throughout the country. The Coalition Against Insurance Fraud estimates that this issue costs Americans around $80 billion each year.


As defined by The National Association of Insurance Commissioners,   insurance fraud occurs “when an insurance company, agent, adjuster or consumer commits a deliberate deception in order to obtain an illegitimate gain.” Continue reading from more information on insurance fraud and how you can avoid it.


What Types of Insurance Fraud Exist?

Fraud exists in many different formats. While some forms of fraud may appear to be more severe than others - it’s important to know that no matter how harmless a fraudulent action might seem, it can cost policyholders money in the end.


Here are some examples of different types of insurance fraud:   


      Falsified policies from fraudulent companies or agents

      False residential and commercial burglary reporting

      Inflated automobile and property repairs

      Staged auto accidents and theft

      Slip and fall schemes

      Phony medical reporting


It can be extremely difficult to detect all instances of fraud, as fraud can be perpetrated by consumers, auto repair shops, fake insurance agencies and companies, and their employees. 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. Consequences range widely from financial issues, to bodily harm, and in some cases, even death. Insurance fraud is a crime that can create significant problems for all parties involved.

Here are just a few of the problems that insurance fraud can lead to.


Increased Insurance Premiums.

Insurance premiums may increase due to the costs associated with combating insurance fraud. False claims cost insurance companies tremendous amounts of money which can lead to an impact on premiums for honest consumers.


Loss of Coverage.

Those who have been sold falsified insurance policies can end up being underinsured and oftentimes completely uninsured. This leaves said individuals having to pay out of pocket for claims even after paying their premiums.


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 who were sold fake coverage may be subject to loss of personal possessions due to their state of non-coverage in the event of a loss.

Personal Injury or Death.

In severe cases where arson, staged auto accidents, or slip and fall schemes take place, any number of potentially life-threatening scenarios can arise. This is due to the actions of those seeking to obtain personal gain by committing a fraudulent act against an insurance company or policyholder.


How Is Insurance Fraud Being Combatted?

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, report fraudulent activity, and act against those committing these crimes.

Listed below are a few fraud prevention agencies and 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

Many states have their own bureau dedicated to the detection, investigation, and prevention of insurance fraud. Some states even offer hotlines for anonymous tips and some have even established dedicated websites for the purpose of reporting this type of illegal behavior.


Many 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?


Insurance fraud is considered a severe crime and is treated as such within the criminal justice system. Penalties for fraudulent acts can range anywhere from hefty fines to a prison sentence. Other criminal penalties, restitution, civil remedies, and administrative penalties are applicable as well, 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 laws relating to insurance fraud.


As a consumer, you can assist with the prevention of fraud by reporting any cases you are a witness to. At NYCM Insurance, we have our own Special Investigations Unit (SIU), as required by New York State Insurance Regulation, who specialize in detecting fraud. There are many insurance agencies that have similar units to which you can report suspicious activities. Alternatively, you can also reach out to your local police department or FBI office if you become aware of any potential fraudulent acts committed by either a consumer, an insurance agent, or a company.


Along with insurance fraud, there are often other lesser-known terminologies and coverage definitions in the world of insurance. Check out the link below for more information about the basics of your personal insurance policy.