Get Smart About
Insurance Fraud

What many Americans don't know is that insurance fraud increases insurance rates for consumers nationwide. According to the National Insurance Crime Bureau (NICB), insurance fraud costs each American household $200 to $300 per year—a loss totaling at least $30 billion a year.

Educate Yourself. Knowing what fraudulent practices are in use enables you to best protect yourself from becoming a victim of insurance fraud.

Protecting Yourself from Insurance Fraud

In conjunction with NAIC, state insurance departments sponsor an annual "Get Smart about Insurance Week," to educate consumers on their insurance rights and insurance fraud protection.

You can "get smart" about insurance fraud 52 weeks out of the year by doing the following:

Stop. Call. Confirm. Before signing up for a new policy, stop, call your state department of insurance and confirm that your agent or company is licensed to sell insurance in your state. You may also want to do some research on your agent or company through consumer sites like A.M Best, or Weiss Ratings.

About Insurance Fraud

Insurance fraud is defined as an intentional misrepresentation of facts and circumstances to an insurance company to illegally obtain funds. Insurance fraud is a very common white-collar crime, right up there with tax evasion.

Insurance fraud can be committed at different points in the insurance transaction, by applicants, policyholders, third-party claimants or professionals such as physicians or chiropractors who provide services to the claimants. Insurance fraud may also be committed by insurance agents by misrepresenting themselves to a client, resulting in the consumer paying for coverage he or she may not actually have.

Insurance Fraud: Hard vs. Soft

"Hard" insurance fraud occurs when there is a deliberate attempt to stage or invent an accident, injury, theft or other incident that would be covered by insurance.

In the world of auto insurance fraud, "crash test dummies" are known as drivers and passengers used in staged auto accidents. “Crash test dummies" will typically approach people and convince them to participate in the scam, saying that legal, medical and all other paperwork will be taken care of. Generally, the two motorists will then crash their cars into each other and report the accident to authorities. In addition, the driver and any passengers in the car will falsely claim they were injured in the accident.

The result for consumers? Auto insurance fraud increases premiums for everyone—criminals and law-abiding alike.

In Florida, a new trend in hard auto insurance fraud is called "ditching" or "owner-give up." "Ditching" typically occurs when the owner can no longer afford the vehicle or is otherwise unhappy with it. The vehicle is then dumped somewhere or burned, after which the claimant reports that his or her car has been stolen or victim of arson.

On the other end of the fraud spectrum, "soft" insurance fraud occurs when the policy holder exaggerates a legitimate claim. Soft insurance fraud also occurs when people provide false information their insurance agent to favorably affect the underwriting of their policy. Soft insurance fraud includes fudging facts, like the number of miles driven and where a car is garaged, or providing an inaccurate medical history when applying for health insurance.

Both hard and soft fraud contribute to all forms of insurance fraud—auto, health, home and life—and takes money out of the pockets of consumers across the country.

Combating Insurance Fraud

Groups such as the NICB and the National Association of Insurance Commissioners (NAIC), along respective state departments of insurance, are combining their efforts to combat insurance fraud and teach consumers to protect themselves.

Community outreach programs remain at the forefront of the campaign to stop insurance fraud. Many cities are conducting training programs for consumers, as well as law-enforcement officials.

The nation's property/casualty insurers have made significant investments to create Special Investigative Units which are composed of specially trained professionals to investigate suspicious insurance claims and track down offenders.

Some states are taking things into their own hands, enacting laws to deter fraud and setting up fraud bureaus devoted to fighting insurance fraud.

Keep Record of Payments. If you pay for your premium with a personal or cashier's check make sure to get a receipt for your payment. And never, under any circumstances, make the check out to your agent. To be even better protected, keep a copy of your checks or cash payments to your care provider because someone "somewhere along the chain" can be padding the statements being sent to your insurance company.  Insurance investigators are combing records of incoming statements, and they are going way back in the records for any sign of irregularity.

Get a Checkup. Make an annual appointment to meet with your insurance agent to go over any personal insurance policies you have. This will allow you to make adjustments to your policy and ask any questions that may have arisen since you last spoke with your agent.

Report Fraud. If you suspect you or someone else is a victim of any form of insurance fraud, contact the NCIB at (800) TEL-NCIB, your state's department of insurance or visit the NAIC on the Web to fill out an online form. Reports or complaints can be made anonymously, so don't hesitate to share information about a fraudulent agent or claimant.

Fighting insurance fraud is a difficult war to wage, but government assistance in combination with consumer knowledge can make all the difference.