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Insurance Auto Insurance Fraud
Insurance Fraud
The Insurance Information Institute estimates that fraud accounts for 10 percent
of the property/casualty insurance industry’s incurred losses and loss adjustment
expenses, or about $30 billion a year. This fraud results in higher premiums.
Fraud may be committed at different points in the insurance transaction by
different parties: applicants for insurance, policyholders, third-party claimants
and professionals who provide services to claimants. Common frauds include
“padding,” or inflating actual claims; misrepresenting facts on an insurance
application; submitting claims for injuries or damage that never occurred; and
“staging” accidents.
Prompted by the incidence of insurance fraud, 41 states and the District of
Columbia have set up fraud bureaus (some bureaus have limited powers, and
some states have more than one bureau to address fraud in different lines of
insurance). These agencies have reported increases in referrals (tips about suspected
fraud), cases opened, convictions and court-ordered restitution.
Insurance fraud can be “hard” or “soft.” Hard fraud occurs when someone
deliberately fabricates claims or fakes an accident. Soft insurance fraud, also known
as opportunistic fraud, occurs when people pad legitimate claims, for example, or,
in the case of business owners, list fewer employees or misrepresent the work they
do to pay lower workers compensation premiums.
People who commit insurance fraud range from organized criminals, who
steal large sums through fraudulent business activities and insurance claim
mills, to professionals and technicians, who inflate the cost of services or charge
for services not rendered, to ordinary people who want to cover their deductible
or view filing a claim as an opportunity to make a little money.
Some lines of insurance are more vulnerable to fraud than others.
Healthcare, workers compensation and auto insurance are believed to be the
sectors most affected.
Insurance fraud received little attention until the 1980s when the rising
price of insurance and the growth in organized fraud spurred efforts to pass
stronger antifraud laws. Allied with insurers were parties affected by fraud—
consumers who pay higher insurance premiums to compensate for losses from
fraud; direct victims of organized fraud groups; and chiropractors and other
medical professionals who are concerned that their reputations will be tarnished.
One out of five Americans think it is acceptable to defraud insurance companies
under certain conditions, according to the Coalition Against Insurance
Fraud. The organization released the findings in a 2008 study, “The Four Faces
50 I.I.I. Insurance Handbook www.iii.org/insurancehandbook