Insurance Fraud

Insurance Fraud

What Is Insurance Fraud?

Insurance fraud is defined as an illegal act committed by either the buyer or seller of an insurance contract. Selling policies from nonexistent companies, failing to submit premiums, and churning policies to generate additional commissions are all examples of insurance fraud committed by the issuer. Buyer fraud, on the other hand, can include exaggerated claims, a falsified medical history, policies that were purchased after the fact, viatical fraud, a faked death or kidnapping, and even murder. Liability coverage extends to owners and independent contractors.

How Insurance Fraud Works

An attempt to take advantage of a contract for insurance is called insurance fraud. Insurance should not be used as a means of financial gain for the insured; it should be used to protect against risks.

Insurance fraud by the company issuing the policy does happen, but the majority of instances involve the policyholder trying to get more money by inflating a claim. Less common but more sensational situations include killing someone for insurance money or staging a death. Insurance fraud has the disadvantage that insurers charge their customers higher premiums to cover the increased cost of resolving such problems. 

What are the types of insurance fraud?

 Insurance fraud typically falls into three categories: non-disclosure, exaggeration and deliberate.

  • Non-disclosure: can occur unintentionally or on purpose. In essence, fraudulent non-disclosure refers to the failure to disclose information to an insurer that could have influenced that insurer’s decision to insure you or to pay a claim. For instance, you might not disclose a DUI conviction when applying for auto insurance, or you might tell your insurer that your car is always parked in a safe garage overnight when in reality you usually leave it parked on the street. It is crucial to remember that concealment of information, even unintentionally, is fraud.
  • Deliberate fraud: is planned, deliberate, and intended to defraud an insurance company. Setting property on fire or staging a theft to claim an insurance payout are two common examples of intentional fraud. Setting property on fire or pretending to steal something in order to get an insurance payout are two common examples of intentional fraud.
  • Exaggeration: This fairly simple offense primarily occurs when someone files a claim. It entails inflating the extent of the harm or the expense of the loss in an effort to increase the claim’s settlement amount. 

As the different types show, fraud in insurance is not just committed by criminals. Even well-behaved individuals may occasionally feel pressured to omit crucial information or exaggerate the value of a claim in order to benefit themselves; additionally, it is possible for someone to falsify information without being aware that they are doing so in violation of the law.

The five most common examples of insurance fraud

Where there is an insurance company, there are con artists trying to take advantage of the situation and profit from inflated claims. No matter if they stage house fires or purposefully cause minor auto accidents. Each and every trick in the book is known to insurers. Let us examine 5 of the most prevalent instances of insurance fraud.

1. Stolen Cars

According to estimates, the UK insurance industry loses more than £1 billion a year due to motor insurance fraud. These claims are frequently opportunistic and involve little to no preparation. However, there are also many instances where criminal gangs carry out elaborate frauds after months of planning and organization.

Stolen automobiles are one of the most prevalent types of insurance fraud. More people are doing this, and it is getting more profitable. Especially given the rise in the number of people purchasing “new for old” insurance policies. Fraudsters frequently purchase a brand-new car, use it for a few years, then turn it in. By filing an insurance claim, they are then given a brand-new car or cash equivalent and can effectively drive for free.

It is getting harder to convince insurers that your car was actually stolen as a result of improvements in vehicle security. There may be additional financial gain from selling the car. In some instances, con artists will sell the vehicle to a criminal body shop to be disassembled before telling their insurer that the vehicle was stolen.

Another strategy entails having a friend “steal” the vehicle. In order to make sure the damage is such that it would not be feasible to repair, they will intentionally crash it before abandoning it.

The most complex stolen car fraud entails shipping the car abroad, selling it to a foreign customer without any documentation, and then declaring the car stolen once it has arrived.

2. Minor Car Accidents

For the purpose of filing insurance claims, some fraudsters will stage small auto accidents. This may entail abruptly breaking so that the car in front crashes into the back of the car. This may result in fraudsters filing personal injury claims for whiplash in addition to claims for vehicle damage. 

When two drivers want to make a whiplash injury claim, they occasionally stage an accident. There are also “phantom passenger” claims, in which fraudsters misrepresent to insurers that a collision involved numerous passengers. A crackdown on whiplash claims has been implemented by insurers in recent years. In an effort to prevent fraud, many insurers demand that claimants submit to a medical examination in order to determine the severity of the injuries they are claiming for.

3. Staged Home Fires

People have occasionally set their own homes on fire in an effort to make a sizable insurance claim. Occasionally, homeowners will remove priceless items from the house before lighting the fire. The most pricey items will then be the subject of an insurance claim. Unfortunately for scammers, it is not difficult for investigators to figure out whether the fire was intentionally started. Investigators are sometimes even able to determine whether the things listed as being insured were actually present in the building when the fire broke out.

4. Commercial Liability Fraud

A worker’s illness, injury, or death brought on by their employment is covered by employers liability insurance. Injuries, illnesses, and fatalities to members of the public are covered by public liability insurance. Numerous instances of employers making false statements about the aforementioned have been documented. These claims can range from those involving made-up accidents to those that exaggerate actual ones and some of them require extensive planning. 

5. Burglary, Robbery and Theft

There have been instances where both homeowners and renters staged robberies and burglaries in order to make home-related insurance claims. They might ask a friend to break in, cause mayhem, and “steal” things, or they might purposefully cause damage to their property. Occasionally, locals exaggerate actual crimes by claiming ownership of things they never actually owned.

Insurance companies have taken great measures to catch those they believe are making false claims recently, despite the fact that fraudulent insurance claims are extremely common. Insurance companies now spend £200 million annually on detecting and preventing fraud, and 130,000 false claims were found in just 2014 alone.

Buyers

Insurance policy purchases made with the intention of illegally making money off of them can take many different shapes. In order to obtain a settlement payment or a replacement vehicle, insurance fraud with regard to automobiles, for example, may include disposing of a vehicle and then declaring it stolen.

The initial vehicle might have been covertly sold to a third party, left in a remote area, set on fire, or pushed into a body of water. In the event that the owner decides to sell the car, they will likely try to make a profit by keeping the money and then reporting the car as stolen to get more money.

Why do people engage in fraud?

There are many reasons why someone might commit insurance fraud.

  • Some people might engage in it due to financial hardship.
  • It is possible that some people do not realize they are breaking the law and mistakenly believe their actions are okay.
  • A small number of people might carry out such actions in a more methodical and deliberate manner with the intention of profiting at the expense of other policyholders.

Psychology of fraud

The psychology of fraud are as follows:

  1. Motivation: the force behind dishonest behavior.
    Examples include a sense of entitlement, greed, financial stress, and addiction.
  2. Opportunity: This happens frequently during interactions with insurers and is frequently a transient circumstance with a low risk but high reward financial outcome. The most frequent chance occurs when submitting an insurance claim for actual loss or damage.
  3. Rationalization: the fraudster’s attitude and the justifications they offer for their actions.
    For instance, “insurance companies make a lot of money; they can afford it,” and “I will not get enough money to replace my damaged item with the one I want.”

 

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