Fraud is a major, ongoing plague for the insurance sector. Consumers often view the problem far less seriously than do insurance companies. There are various reasons why the two groups perceive fraud so differently. There is a similarity with how individuals view tax fraud. Regardless any justification, many feel that “cheating” on taxes or insurance claims may be acceptable because they may consider both as unnecessary and unwelcome financial burdens.
However, insurance fraud victimizes both insurance companies and their customers. Fraud saddles both groups with substantial, measurable costs. On the insurance company side, fraud drains time and resources. Every insurance company has to commit a high level of its resources to combat fraud. It takes time and personnel to investigate suspicious claims, it has to pay out losses on claims that it can’t prove invalid, it often has to create and maintain special investigative units with related costs, and it must invest in new ways to keep up with new schemes. Customers are hurt by fraud in different ways too. One cost is the increase in premiums caused by insurance company efforts to recoup their higher cost of business. I think that insurance claimants are harmed by the, sometimes, hostile approach that insurers feel they need to use in order to ferret out fraud. That aggressive posture creates tension and problems for those with legitimate claims.
Insurance fraud refers to lying to or deceiving an insurer in order to make money or to illegally secure insurance. Some common fraud schemes include:
- "padding" (inflating the true amount of) a claim
- lying or hiding (concealing) important information when applying for insurance
- lying or hiding (concealing) important information when reporting a loss
- submitting false claims
- "staging" accidents
- failing to report recovered property
- faking theft claims
- committing (home or vehicular) arson for profit
Because of the costs associated with fraud, consumers should have an interest in the role they can play in reducing the impact of fraud.
Please see part two of this article for information on fighting fraud.
Fighting Auto Insurance Fraud
Persons attempting to commit insurance fraud often do so by deceiving innocent drivers during actual accidents or by involving innocent drivers in "staged" accidents. Do the following in order to minimize this risk:
- Drive defensively, keeping space between you and surrounding cars.
- When traffic slows, begin braking before the car in front of you does.
- Be careful when turning into a lane that allows two or more autos to turn left at the same time. Victims of insurance fraud are often people who float across the line when turning and then are intentionally sideswiped by a person who is "staging" an accident.
- If you are in an accident, write down license numbers of all cars involved in the accident, get the names and contact information of all persons involved and their insurers. Count the number of passengers in the other cars and get their names, addresses and any other pertinent information.
- Call the police and get a police report even if the damage is minimal. DO NOT let another driver talk you out of calling the police.
- Carry a disposable camera in your glove compartment or make use of a cell phones camera feature and take pictures of the damage to the vehicles and of all drivers and passengers in the cars.
Fighting Homeowners Insurance Fraud
It is far more difficult to involve an innocent party in homeowner fraud. However, a homeowner can help himself and help deter fraudulent claims by properly maintaining their home, and by removing or repairing items that could create tripping hazards to outside parties. Also, if someone is injured in your home, be certain that you get full information and be sure that an injured person gets any needed treatment. Carefully document any incident, including all impressions about likely injury. It may also be prudent to show healthy skepticism over any information on medical bills or claims.
Report suspicious actions such as a friend who asks you to store valuable property and you then find that they reported to his insurer that the property was stolen.
Think of insurance fraud as money out of your pocket because it is. According to the US Chamber of Commerce, fraud adds 25% to property and casualty insurance rates.
If you are involved in an accident and you are suspicious that fraud may be involved, report it to the authorities and your insurer.
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