Wednesday Briefing: A Little About Insurance Fraud
Insurance Fraud – The Basics
According to the FBI, the insurance industry consists of more than 7,000 companies that collect over $1 trillion in premiums each year. The massive size of the industry contributes significantly to the cost of insurance fraud by providing more opportunities and bigger incentives for committing illegal activities.
The total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year. That means Insurance Fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums.
What Is Insurance Fraud?
The FBI defines insurance fraud is an illegal act on the part of either the buyer or seller of an insurance contract. Insurance fraud from the issuer includes selling policies from non-existent companies, failing to submit premiums, and churning policies to create more commissions. Buyer fraud, meanwhile, can consist of exaggerated claims, falsified medical history, post-dated policies, viatical fraud, faked death or kidnapping, and murder.
What Are Some Common Insurance Fraud Schemes?
Premium Diversion
Premium diversion is the embezzlement of insurance premiums, and it is the most common form of insurance fraud. This is when an insurance agent fails to send premiums to the underwriter and instead keeps the money for personal use. Another common premium diversion scheme involves selling insurance without a license, collecting premiums and then not paying claims.
Disaster Fraud Schemes
There are several types of fraud that fall under this heading. Providing or exaggerated claims by policyholders to their insurers is a very common form of insurance fraud. Another is the misclassification of flood damage as wind, fire, or even theft. There is also the practice of damage claims filed by individuals residing hundreds of miles outside the disaster-zone. Bid-rigging by contractors or falsely inflating the cost of repairs is a common fraud scheme. With any disaster, you will find charities working to assist. Most charities are legitimate and helpful, but unfortunately that’s not always the case. There are those “charities” that may employ fraud scams designed to misappropriate funds donated for disaster relief.
What Are Some Of The Worst Cases Of Recent Fraud?
Every year there are numerous unbelievable cases of insurance fraud, fraud crimes cost $80 billion dollars annually. For the past 20 years, The Insurance Fraud Hall of Shame has reviewed many of these fraud cases, electing a list of insurance criminals called the Shamers, to put a human face on fraud. In 2018, one medical supply scam had scammers contacting people on Medicare to get their social insurance numbers and personal information. Then the scammers would use the information to order medical equipment, costing taxpayers and Medicare millions of dollars.
The Insurance Fraud Hall of Shame is one resource that lists some extreme cases of insurance fraud in 2020.
Here are some extreme and terrible fraud examples:
A caregiver starved a disabled man and denied him medicine stealing over $107,000 through false Medicaid health insurance claims
Turning against family members to collect money is no stranger to the criminals in the Hall of Shame. In the 2018 Hall of Shame, a parent poisoned their 15-month-old son to get the $50,000 life insurance, lied about his medical conditions, and then continued to collect the disability checks after he died. In 2020's list, a son turns against his mother, hiring someone to kill his mother to collect on the life insurance and fund a glamorous lifestyle.
A Texas man organized a gang to destroy rundown homes after buying fraudulent insurance policies to cover the said homes. They damaged at least a dozen homes, burning them or flooding them to collect on the insurance, with claims of $1.7 million.