Unfortunately, insurance fraud is common and has a long history. A 2022 report says that fraud in this space costs insurance companies (and consumers) about $308.6 billion. The FBI stated that approximately $6 billion was lost as a result of false insurance claims or procedures during Hurricane Katrina. Sadly, even though many frauds are now more easily detectable thanks to technological advancements, they are still a part of the process.

According to a survey, 77% of millennials are more likely to fall victim to an email scam and lose money. Additionally, the average loss suffered by elderly victims was $34,200. Insurance fraud not only harms the specific policyholders but also gives the insurance companies a financial shock. Insurance fraud is now recognized as a crime in about 48 states.

However, a sizable portion of Americans remain ignorant of the fundamental forms and indicators of fraud. Let us now examine various insurance fraud scenarios, their identification, and preventative measures.

Types of insurance fraud

Frauds concerning policyholders or consumers

Individuals commit this kind of fraud to get money from the government or insurance companies. These types of frauds can take many forms including identity theft, vehicle fraud, and more. Here are a few instances of what they may look like:

• Some drivers could intentionally trap an individual in a staged accident. Next, they initiate legal proceedings to obtain money from the individual’s insurance company.
• At times someone’s personal information is used to make false claims or obtain unfair gains, such as property damage or medical care. In this case, the credit history of the victim gets impacted, and the individual might not even know that claims are being filed under their name.
• People can pose as insurance companies or agencies, collect premiums, and never provide the necessary coverage (or even paperwork). Some underwriters may also fill in wrong information which may later hamper the policy or individual at times of need.

Individuals must stay away from unlicensed underwriters or agencies. They must also guard against passing on crucial information to strangers. They must closely examine the credentials and antecedents of the agency they deal with to assure themselves of their authenticity and track record.

Frauds done to insurance companies

Insurance companies also receive more than their fair share of false complaints and information on claims. Here is what these frauds can look like:

• Policyholders make false or exaggerated claims. This could be a mismatch in the claim amount or complaint about a damage, sometimes about events that never happened. Insurance companies may suffer financial losses in such situations if due diligence is not carried out.
• Another tactic is lying to insurance companies to obtain reduced premium rates. People frequently lie about their driving or medical histories to lower their insurance costs. This can dramatically alter the risk of the cover provided and cause a loss to insurance companies.
• Insurance companies also have to deal with fraud involving individuals causing damage to their own assets or property to obtain insurance money.

The only way to prevent these scams is to carefully review each new application and new claim. Today, insurance companies are turning to fact-checking using technology or modern algorithms. Due to these losses that the insurance company must incur, insurance premiums increase for all consumers.

How to address these insurance frauds?

It is crucial to remember the following advice to prevent these kinds of scams.

• Check your policy

Knowledge is among the most vital things when it comes to protecting oneself from insurance fraud. It is important to know the nuances and have a basic understanding of your policy. It enables an individual or small business to ignore fraud calls, remain calm, and avoid being caught filing false claims.

• Safeguard information

Never divulge any personal information to unauthorized third parties. Watch out for phishing and mail scams, especially for the kind of personal data that can be used to report fraud. Thus, be mindful of sharing information like your social security number, account information, or passwords. It is crucial to safeguard your policy numbers and documents because they contain sensitive information as well.

• Be vigilant

Being aware of your surroundings is crucial in this digital age. Verify the authenticity of the insurance agency you are dealing with. Always remain aware of the status of your policies and keep accurate records in a secure digital or physical location. Reporting any suspicious activity or claim information to the insurance company or legal officers should happen right away.

• End-to-end processes

Utilizing technology to keep an eye on the claims procedure and double-check all paperwork is crucial for insurance companies before processing any claims. Since small amounts of money are involved in many fraud cases, more attention should be paid to that area. It is necessary to closely examine the procedures, which include gathering accurate documentation. It is necessary to improve processes and provide regular training to the insurance agents so that all touchpoints are equally evaluated.

One of the main issues facing policyholders and the insurance company is insurance fraud. That’s why it’s very important to work with a trusted insurance advisor after verifying their credentials.