Types of Insurance Fraud and How to Look Out for Them

Types of Insurance Scams

Insurance fraud is one of the leading causes of financial instability and stress for families all over the United States. According to the FBI, insurance scams end up costing somewhere between $400 to $700 per annum to the average American family on insurance premiums.

This might not seem alarming, but the figure stacks up. To give perspective to that, consider that after the hurricane Katrina, $80 billion were provided by the government to mitigate damages. Out of this, $6 billion were lost to insurance fraud within 3 months.

“When it comes to insurance fraud prevention, you have to jump into the mind of a conman – beat them at their own game.”

There are numerous types of insurance frauds and here, we’ll go over some of the more common ones and how families can adopt insurance fraud prevention techniques to shield themselves from them.

Types of Insurance Fraud

As mentioned above, insurance scams can take many shapes, forms and names. However, when you look at it from a bird’s eye view, they all fall into four broad categories:

  • People scamming insurance agents for personal gain
  • Insurance agents scamming families
  • People setting up elaborate schemes to make money off someone else’s insurance
  • Selling insurance without a license and refusing payments when demanded

Here are some examples of insurance scams to show you how they can fall into these four categories:

  • Identity theft
  • Employee-agent fraud
  • False claims
  • Misrepresentation of amount payable by agent
  • Faked death
  • Insurance company fraud

Looking Out for & Preventing Insurance Fraud for Families

If you’d like to read up on some very shameful insurance fraud scams, the Insurance Fraud Hall of Shame is a very useful resource, as it can help you prepare for if you ever become victim to something like this.

Here are some examples to consider

  • Identity theft, where identities of addicts were stolen to claim over $175 million in health insurance claim.  
  • A parent continued collecting disability checks after her son died. She had faked the disease as well.
  • A salon owner burned his salon down and claimed $40,000 as insurance. The fire resulted in the deaths of two firefighters.

False Claims

This is one of the most common insurance frauds and can range from car accidents, faked deaths, staged circumstances to much more. Insurance scammers usually attack families by jumping in front of their cars, attempting to claim damages.

People might hit your car with theirs as well, perhaps by break-testing in the middle of the road or driving straight into you with a ‘staged’ witness.

One surefire way to prevent this insurance fraud is to install a dashcam in your car.

As for slip and fall claims, you might have to install cameras on your property. Just make sure you are taking the necessary precautions if doing any construction at your place.

Inflated Claims

With the frequency of natural disasters increasing by the decade, so is the frequency of inflated claims. Take the Katrina example mention above, for instance.

Inflated claims are also particularly popular if someone gets injured because of perhaps the angle of your window (sun shining into their eyes), an animal in your lawn, or even an accident where you actually are at fault.

Here, insurance scammers demand for a sum much higher than what is owed. You can avoid this by remaining vigilant and performing due diligence in regards to the damage incurred.

Insurance Company Fraud

This goes without saying, insurance fraud isn’t exclusive to individuals but is also committed by agents or agencies. These include:

  • Premium diversion
  • Fee churning
  • Underwriting, etc.

To prevent insurance fraud by agents or agencies, it is a good idea to check the licensure and reviews (if available) of the insurance provider before signing up with them. Trustworthy insurance providers are hard to come by and it might take some effort to find them, but once you do, you can rest assured that you’ll be treated right.

Legacy Armour is one such trustworthy insurance provider who doesn’t just offer you and your family good premiums, but also looks out for insurance fraud on your behalf! So get in touch today to learn more about our processes and how we can help you identify and prevent insurance fraud.

Steps Towards Preventing Insurance Fraud

Fraud Prevention Steps

In 2016, there were more than 1,800 fraudulent insurance claims which put strain on insurance fraud investigators’ already strenuous job. According to a report by the State of Insurance Fraud Technology, this figure increased exponentially from 2016 to 2018.

Unfortunately, it takes a long time for an insurance fraud to be proven in court, which is why there’s a saying;

“Insurance fraud is like a disease, and as with any disease prevention is better than cure.”

Here, we will highlight some steps insurance agents can take to prevent insurance fraud, not only against yourselves but against your clients as well.

Preventing Insurance Fraud

1.    Formulate A Fraud-Detection Framework & Strategy

The idea behind fraud-detection strategies should be to make a foundational framework out of it which can be implemented company-wide. It could either take the form of an automated software that uses institutional knowledge towards identifying which claims are real or not and manage workflow accordingly. It could also include a full social networking analysis of involved parties.

It’s up to human insurers or insurance fraud investigators to conduct relevant research accordingly, which might include;

  • Scoring engines
  • Third-party data
  • Criminal history, and other tools.

The three steps of insurance fraud investigation should always be followed; i.e., recognition, identification, and investigation of suspicious claims.

2.    Know the Likelihood of Insurance Fraud

If you have a limited budget, it is important to know when to dispatch fraud prevention agents and where to focus them. One way of doing that is by conducting area-specific research involving the suspicion and likelihood of fraud. Identify whether criminal or cultural fraud is more common in a certain area and take actions accordingly.

It is important to keep an eye on unclaimed insurance benefits, too, since that’s what identity thieves usually go after. Data analytics can help in this case. Use the ‘suspicion score’ to your advantage here.

By implementing an automated framework and combining it with data analytics, all that remains in terms of fraud prevention is making sure your insurance fraud investigators are on their toes.

3.    Reviewing Claims

Any insurance company, be it small or big, must always know which claims to target, at what time, and with what tools. Fortunately, this step can also be automated by implementing predictive modeling and advanced analytics into the mix of your framework.

Or you could continue working on it manually if you’re short on budget but have sufficient manpower.

As you review claims and continue to rescore claims, analyze and revise (if need be) the Suspicion Scores. This will help you prevent fraud by highlighting patterns that you would ordinarily miss.

4.    Adopting A Layered Approach & Revising

There’s a reason why you read the term “due diligence” over and over again when on the road to become an insurance agent. Due diligence must also be done when taking steps towards fraud prevention.

No one tool is enough to tackle the ever-changing world of insurance fraud, therefore different and ‘newer’ fraud-detection tools should be created and implemented into your framework from time to time.

This is known as adopting a layered approach – should a fraudster get past one layer, the other shall detect it, allowing you to take preventive measures. These tools must be reviewed and revised as new laws and guidance principles are implemented.

With all that said and done, one of the most important steps insurance companies can take to prevent fraud is be vigilant, be smart, and always be ready. Disaster doesn’t ask before striking, so you shouldn’t wait for it.

If you need any clarification or further help in regards to fraud prevention, we recommend you get in touch with us via call or email. We’re always eager to help!