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:
● Arson
● 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.
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.
