The word fraud is used to describe deceit, trickery, or breach of confidence perpetrated for profit or to gain an unfair advantage.  Add the word insurance in front of it and we are now describing a crime – a crime through which a total of 80 billion dollars per year is stolen!  Insurance fraud is committed every day…and, surprisingly, hardened criminals and crime rings aren’t the only culprits.  Often times, insurance fraud is committed by a neighbor, friend, or relative – the same people who would never dream of robbing a store or stealing money from someone else’s purse.  And it is not a victim less crime…insurance fraud is both costly to the consumer in the form higher premiums and, when manifested as staged auto accidents and/or arson, insurance fraud can be resultant in injury or even death.

Consider the following scenarios:

While you are on vacation, your home is broken into. In order to recoup your insurance deductible you consider exaggerating what was stolen to your insurance company. You’ve paid insurance premiums for years and never put in a claim.  It’s tempting…

While applying for car insurance, you consider telling your agent you live in a different location in order get a cheaper rate.  Honestly, it’s only a few miles difference.  It’s tempting…

Your dishwasher springs a leak and damages a section of your kitchen floor.  You consider asking the repairman to pad your estimate in order to cover the deductible.  It’s tempting…

While the above situations may be tempting, they are not innocent temptations.  These situations constitute insurance fraud – a felony punishable in the state of Pennsylvania by up to $15,000 in fines and 7 years in prison!  Let’s look a little closer at the 4 types of insurance fraud:

Automotive Insurance Fraud

  • Average annual cost to insurers – $58 billion (an expense responsible for increasing consumer cost $200 annually)
  • Examples:  staged accidents and thefts, filing claims for pre-existing damage and false injuries, and failure to disclose an uninsured individual was driving at the time of an accident.

Health Insurance Fraud

  • Average annual cost to insurers – $30 billion
  • May be committed by either individual subscribers or health care providers.
  • Examples:   Individual subscribers may allow someone else to use his/her identity and insurance information to obtain services or use their benefits to pay for prescriptions not personally prescribed.  Health care providers may bill for services not rendered the patient, bill each step of an inclusive procedure as a separate procedure, misrepresent patient diagnoses to justify expensive procedures/tests, misrepresent non-covered treatments/procedures as medical necessity, or perform unnecessary procedures/tests for financial gain.

Homeowners’ Insurance Fraud

  • Average annual cost to insurers – $30 billion
  • Examples:  staged burglaries, fabricating supporting evidence for a claim, intentionally inflicting damage to the property for the sole purpose of filing a claim, exaggerating the extent of damage to cover deductibles, overstating the value of damaged/stolen property, and lying about the extent, cause, date or location of damages.
  • Note:  many policies carry a lifetime maximum – when health care providers defraud insurance companies, those expenses also impact individual subscriber benefits.

Workers’ Compensation Insurance Fraud

  • Average annual cost to insurers – $5 billion
  • May be committed by either employees or employer.
  • Examples:  An employee may fake an injury in the workplace, exaggerate the extent of a legitimate injury incurred at work, claim an injury incurred elsewhere occurred at work, or continue to collect benefits while concealing income from a new job.  Employers may fail to carry workers’ compensation insurance, claim employees as independent contractors, lie about the nature of employees’ work to qualify/pay for lower premiums, or underestimate company payroll to reduce premium payments.

To reiterate, each type of insurance fraud described above is punishable by up to $15,000 in fines and 7 years in prison!  Consider visiting the PA Insurance Fraud Prevention Authority (IFPA) website to read actual case examples and learn prevention strategies:http://www.helpstopfraud.org/TypesofInsuranceFraud/AutomotiveInsuranceFraud/tabid/66/Default.aspx

There are two keys to ensuring you don’t commit insurance fraud – knowledge and honesty.  Understand what your current policies do and do not cover.  Answer all questions about a claim or on applications honestly.  

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