Consider the following headlines of recent news. “Police busted a gang involved in insurance fraud”, “Insurance policy renewal scam busted”, and “Insurance fraud preyed on disease & poverty.” Did you notice something common in these? It’s “Insurance fraud”! Recently, Deloitte released a survey of India in 2023 which stated the rise of insurance fraud in the country. Do you know over 60% of frauds occur in the life and health insurance segments? What is insurance fraud? Why are such scams rising? Can we avoid it? If yes, then how? In this article, we will delve into answering all of your questions.
What is Insurance Fraud?
The term “Insurance fraud” refers to the misuse of insurance policies to gain illegal benefits. Basically, it involves the exploitation of insurance contracts for financial gains. If you are thinking that only the issuer scams the customers, then you are only partially correct. Because such scams can be done by both parties i.e. buyer & seller (company). In the next section, we will delve deeper into types of Insurance fraud. But before that, you must know how insurance fraud works.
From the Seller’s side (Issuer)
- Selling the policies from non-existent companies
- Failure in premium submissions
- Manipulating the policies to demand more commissions.
From the Buyer’s side (Customer)
- Exaggerated claims
- Falsified medical history
- Post-dated policies
- A faked scenario involving death, kidnapping, or murder
As you know, the aim of “Insurance” is to protect the customers against risks. But not to serve as a source to enrich the insured. Although, the majority of such cases involve the policyholders who attempt to receive more money through false claims. But recently, frauds from the issuers have increased as well.
Types of Insurance Frauds
As per the FBI, Insurance fraud schemes are classified into two types based on the scamming party. (Note: FBI means Federal Bureau of Investigation).
Sellers Fraud Schemes
Here are some of the significant frauds schemed by the insurance sellers-
- Premium Diversion: A seller may collect insurance premiums from you but fail to remit them to the insurance company. They keep the money for personal gain.
- Fee Churning: This occurs when an insurance agent sells a policy to you and then encourages you to switch to another policy with the same company. In this way, they generate more commissions by manipulating you.
- False Documentation: A seller may provide false or misleading information or documentation to support an insurance claim.
Buyers Fraud Schemes
Below are the most common fraud activities done by insurance buyers-
- Staged Accidents: These are accidents that are intentionally planned and orchestrated by the fraudster to make it appear as if they were not at fault. They may also include fake injuries or damage to vehicles.
- False Claims: This type of fraud involves making false claims for losses that did not occur, or inflating the amount of a legitimate claim to obtain a larger payout.
- Application Fraud: It involves misrepresenting information on an insurance application to obtain a lower premium or to qualify for coverage that would not otherwise be available.
- Premium Fraud: This type of fraud involves intentionally providing false information to an insurance company in order to obtain lower premiums.
- Billing Fraud: This type of fraud involves healthcare providers billing insurance companies for services that were not provided, or billing for services that are not medically necessary.
- Workers’ Compensation Fraud: This type of fraud involves filing false or inflated claims for work-related injuries, or continuing to collect benefits after returning to work.
- Identity Theft: This type of fraud involves using another person’s identity to obtain insurance benefits.
Ways to Avoid Insurance Frauds
You must be vigilant enough to take essential steps to protect yourself. The following steps can help you to reduce the risk of falling victim to insurance fraud-
1. Do proper research
By being vigilant and taking steps to protect yourself, you can reduce the risk of falling victim to insurance fraud. You must do your due diligence and thoroughly research the offers that sound too good to be true.
2. Read the policies carefully
Always read the policies carefully and ensure that you understand each term and condition mentioned in them. Also, look at limitations and exclusions. Clarify all of your doubts with your agent.
3. Be cautious of unsolicited offers
If you receive an unsolicited offer for insurance or a too-good-to-be-true deal, be cautious. Scammers often use this tactic to lure people into fraudulent schemes.
4. Keep good records
Keep detailed records of all insurance claims, including receipts, invoices, and other documentation. This can help protect you if there is a dispute or investigation.
5. Report suspected fraud
If you suspect that you have been the victim of insurance fraud or have witnessed fraudulent activity, report it to your insurance company. Also, you can report it to the appropriate law enforcement agency.
6. Be wary of anyone asking for personal information
Be cautious of anyone who asks for personal information such as your Social Security number or credit card information. Scammers may use this information to commit identity theft or other fraudulent activities.
7. Ask for ID Proof
Ask your insurance agent to provide their ID proof. This will ensure that the agent is legitimate.
8. Do Not Pay in Cash
Always pay through a bank transfer or cheque. This will help you keep a trail of transactions in case of any discrepancies.
9. Verify Premium Payment
Make sure that the premium you are paying is the usual amount. If it is less than usual, clarify it with the insurer.
10. Never Authorize an Agent to Complete Policy Documents
Do not sign blank claims or policy documents, and never give your signature without understanding the contents of the document.
Insurance frauds can be tackled if you do not fall for unrealistic higher returns or quick settlements. The best solution for this is to select a reputable insurance company with a good track record and solid reputation. To avoid fraud, insurance companies heighten the cost of services through expensive premiums. Ultimately, the insurers face the final blow of fraud by paying higher fees to the insurance companies.