top of page
Writer's picturethelineinfo

What is Insurance Fraud?

Updated: Aug 14, 2023


Image of the words "Insurance Fraud" superimposed over a blurred image of dollar bills.

There is no doubt that the insurance industry makes a lot of money. MetLife, one of the largest insurers in the world, made a total revenue of $30 billion alone in 2021.


Insurance companies make money by the amount they receive in premiums, or money a person pays to be insured. And like any other business, that money is put back into the company so they can continue providing service to their customers.


Because the insurance industry is so big, it gives way for fraudsters to take advantage. Fraud occurs in different forms and can be committed by anyone who either works for the insurance industry or is a customer.


According to the FBI, the most common form of insurance fraud is called premium diversion. That is when an insurance agent, or someone posing as an agent, steals premiums instead of delivering them to the underwriter.



Stock image of men in suits holding packages underneath black umbrellas.

People claiming to be insurance agents may attempt to take money from people through phony insurance policies.


Another form of premium diversion involves individuals who sell insurance without a license and then collect premiums without paying out claims.


Other forms of fraud involve scams meant to collect more money than one is entitled to. This can include exaggerating claims by policy holders, falsifying information, inflating costs of repairs by companies, and so on.


The Coalition Against Insurance Fraud reports that insurance fraud costs Americans $308.6 billion annually. Such a high cost means that consumers have to end up paying more for premiums.


Charlotte Bowyer, a Marketing Communications Manager for Onfido, a tech company specializing in ID verification, writes that the motivation to commit fraud comes down to three elements: opportunity, rationalization, and pressure.


Because so much business is conducted online, it is easier for fraudsters to take advantage of loopholes which allow them to commit the fraud over and over. That is where opportunity lies.


Some fraudsters also consider targeting businesses rather than individuals simply because they figure that businesses can afford the loss, according to Bowyer. It is there that the rationalization component comes in.


Events like job loss resulting from a worldwide catastrophe like the Covid-19 pandemic may cause some fraudsters to steal out of pressure. When it is not possible to immediately recover financially, fraud may be rationalized as the only available option.



Green light image of dollar bills.

People who commit fraud are only looking out for themselves.


Other reasons for committing fraud include greed, addiction, and a sense of entitlement.


The FBI is the principal investigator of fraud in the United States. The Federal Trade Commission is the consumer protection agency in the U.S. Its job is to report fraud and scammers alike.


Aside from them, each state has their own department of insurance which investigates fraud. In Utah, the Utah Insurance Department Fraud Division (IFD) uses targeted law enforcement to investigate insurance-related crimes. California also uses targeted law enforcement for their fraud investigations.


Penalties for insurance fraud vary from state to state. In California, insurance fraud is considered a felony and is punishable by probation and fines to imprisonment.


In Utah, a fraud can be considered either a misdemeanor or a felony depending on the severity of the fraud. Punishment in severe cases includes fines and imprisonment.

To avoid becoming a victim of insurance fraud, the Louisiana Department of Insurance laid out guidelines to protect oneself from becoming the victim of insurance fraud.


One recommendation is to shop around for insurance and to not just settle on the first policy that comes along. Get quotes and compare benefits to find the right insurance provider.


Another is to only buy from authorized companies or agents. States have online resources to verify an agent’s licensure, whether it’s a state-run website or a statewide organization.


One thing they recommend is to never pay for premiums in cash. Although they recommend paying with check or money order, customers can arrange for an automatic withdrawal from their checking account in order to pay for their insurance.


Check with a state regulatory agency to learn more about insurance fraud and ways to avoid becoming a victim of it.

Recent Posts

See All

Comments


bottom of page