Did you know that insurance fraud costs the industry around $ 308 billion annually? Insurance fraud has made headlines ever since the conception of insurance for all the wrong reasons. Experts have estimated that 1 in 5 insurance claims are fraudulent. To put things into perspective, insurance fraud is one of the most common white-collar crimes and is second only to tax evasion. The Coalition Against Insurance Fraud reports that nearly 8 out of 10 consumers are also worried about insurance fraud because insurance companies can not afford to absorb large-scale financial blows. This means that fraud costs an extra $ 900 in premium costs per insurance consumer. This is why insurance fraud is harmful to both insurers and the insured.

Acts of insurance fraud

Before we dive into some of the extremely creative claims that fraudsters have used, let’s deep dive into the different acts of insurance fraud that insurers and the insured are most worried about:

• Auto insurance: The most common fraudulent acts of auto insurance fraud are false theft claims or inflating repairs where people exaggerate the extent of damage to get larger claims than they need. It’s common to see owners sometimes abandon cars, claiming they were stolen. In the past, accidents have been staged, cars or bikes are damaged with intent, and dates and circumstances of accidents are falsified to get more coverage. It’s incredible to note that auto insurers lose around $ 29 billion annually to fraud.

• Homeowners insurance: Just like auto insurance, this kind of insurance is also seen as low-hanging fruit for people who commit insurance fraud and don’t know any better. One of the most common problems is fraudulent claims which are false or exaggerate the extent of property damage, staged burglary or thefts, arson and intentional damages.

• Healthcare: Not far behind, the healthcare industry is also very susceptible to insurance fraud. Many fraudulent acts include billing services that are not provided and billing for expensive services with even higher rates. Double billing is also a common act of insurance fraud in the healthcare industry.

• Life and disability: To take a more sinister turn, the life and disability insurance industries have grim acts of fraud where fake death claims are some of the most common acts of fraud to claim term insurance, which can be huge sums of money. Many people also make falsified beneficiary claims and fake disability claims and also submit forged documents to continue disability claims. These are the kinds of cases that people make movies about, from Double Indemnity to Weekend At Bernie’s, for folks in insurance, these films hit closer to home.

• Agent/industry fraud: Not to be one-sided, insurance fraud can also be committed within the industry by insurers with theft of premiums.  Another fraudulent act is “churning”, which is a way to falsify information to a consumer to get them to use the cash value of an existing policy to buy a new one, which is always more expensive. These sorts of cases are generally reported from larger insurance companies.

• Workers’ compensation: Last but not least, workers’ compensation can also see its acts of fraud. For example, working while collecting workers’ compensation benefits is considered fraud, and of course, faking an injury is also a common act of fraud, as is claiming to be injured at a workplace while the injury could have been sustained somewhere else. Employers failing to carry workers’ compensation insurance is also considered an act of fraud.

Compelling stories about why insurance fraud is never a good idea

Insurance fraud is not something that just happens in the movies, the insurance industry has witnessed some of the most creative, bizarre, and tragic cases of insurance fraud, which have left the industry reeling. Unfortunately, this has a domino effect because insurance companies are then forced to hike their premiums to financially recover from these losses, . That ultimately hurts the insured who cannot afford to pay escalated premiums.

• Case 1: Not too long ago, Nicholas Di Puma had concocted an elaborate story about how a kitchen mishap caused his house and car to burn down. He claimed to have put out a small fire with a kitchen cloth, which burst into flames, forcing him to throw it out of his front door and land onto the back seat of his convertible, which then went up into flames as well. Of course, the authorities were quick to notice holes in his story and said his story sounded like “a plot of a Three Stooges movie”. Di Puma was proven guilty of second and third-degree attempted insurance fraud and was ordered to pay $ 37,997 in damages and was hit with a 5-year probation period.

• Case 2: John and Anne Darwin were a couple in the UK, they were drowning in debt and hatched a plan to fake John’s death so that they could cash in on his life insurance claims. For a short period, they succeeded, and Anne received £ 680,000 in life insurance claims, the couple settled their dues and moved to Panama where they lived for a while. However, they were caught following to a social media post and were ultimately sentenced to 6 years in prison.

• Case 3 – In another case of auto insurance fraud, Andy House, who was a luxury car dealer drove his $ 1 million Bugatti Veyron into a swamp with the hope of collecting a $2.2 million payout. He claimed to have lost control of the vehicle while swerving, trying to avoid a pelican. However, the entire incident was recorded by a Buggati enthusiast, which ruined House’s fraud attempt as there were absolutely no pelicans in sight in the video.

• Insurance fraud can take a very sinister turn, like the case of Gerald Hardin, for instance, where he cut off his friend’s hand to claim a $ 671,000 dismemberment claim. The accomplice whose hand was dismembered was mentally challenged and was then made to submit a claim against his home insurance policy along with dismemberment policies. The police caught on, and Hardin was sentenced to just 5 years in prison.

Who commits insurance fraud?

The decision to commit insurance fraud, we can only imagine is not something that’s taken lightly, or maybe in some cases, is taken far too lightly with no fear of consequences. Either way, now that we can understand that there are so many different kinds of fraudulent claims that can be made, here are some of the most likely members of society who commit insurance fraud:

1. Organized criminals dealing with fraudulent business activities
2. Professionals or agents who inflate service costs or charge for services not availed
3. Ordinary people in extraordinary situations where they feel like insurance fraud is the easy/only way out of their problems.

Steps that insurers can take to safeguard themselves from fraudulent claims:

It’s important to recognize that fraud prevention is important to protect both insurers and the insured, to keep premiums affordable and the industry afloat.

• Having stringent claim controls and processes is a must to avoid opportunities for loopholes.

• Agents should be trained and educated regularly so that they are aware of all possible fraud threats. This is a standard affair at Gonzalez Insurance.

• Training should be given at every level to ensure that everyone in the organization is aware of fraud and can identify red flags in time.

• The use of data and predictive analysis should be leveraged to detect fraud, especially while dealing with large volumes of claims where human error is possible.

At Gonzalez Insurance, we pride ourselves on having extremely well-trained agents who can offer some of the best rates in the market because we can efficiently detect and deal with acts of fraud promptly so that it doesn’t have to be absorbed, which has a domino effect on premiums. If you’re looking for insurance, reach out and we can tailor make a plan to best suit your needs.