HOME

TheInfoList



OR:

Insurance fraud is any act committed to
defraud In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensa ...
an insurance process. It occurs when a claimant attempts to obtain some benefit or advantage they are not entitled to, or when an insurer knowingly denies some benefit that is due. According to the United States
Federal Bureau of Investigation The Federal Bureau of Investigation (FBI) is the domestic intelligence and security service of the United States and its principal federal law enforcement agency. Operating under the jurisdiction of the United States Department of Justice ...
, the most common schemes include premium diversion, fee churning, asset diversion, and workers compensation fraud. Perpetrators in the schemes can be insurance company employees or claimants. False insurance claims are
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
claims filed with the
fraud In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compen ...
ulent intention towards an insurance provider. Insurance fraud has existed since the beginning of insurance as a commercial enterprise.Manes, Alfred. "Insurance Crimes."
p. 34.
Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are diverse and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities affect the lives of innocent people, both directly through accidental or intentional injury or damage, and indirectly by the crimes leading to higher insurance premiums. Insurance fraud poses a significant problem, and governments and other organizations try to deter such activity. An
epigram An epigram is a brief, interesting, memorable, and sometimes surprising or satirical statement. The word is derived from the Greek "inscription" from "to write on, to inscribe", and the literary device has been employed for over two mill ...
by the Roman poet
Martial Marcus Valerius Martialis (known in English as Martial ; March, between 38 and 41 AD – between 102 and 104 AD) was a Roman poet from Hispania (modern Spain) best known for his twelve books of ''Epigrams'', published in Rome between AD 86 and ...
provides a clear evidence the phenomenon of insurance fraud was already known in the Roman Empire during the First Century AD: : "Tongilianus, you paid two hundred for your house; : An accident too common in this city destroyed it. : You collected ten times more. Doesn't it seem, I pray, : That you set fire to your own house, Tongilianus?"
''Book III, No. 52''


Causes

The "chief motive in all insurance crimes is financial profit". Insurance contracts provide both the insured and the insurer with opportunities for exploitation. According to the
Coalition Against Insurance Fraud The Coalition Against Insurance Fraud is a coalition of insurance organizations, consumers, government agencies and legislative bodies working to enact anti-fraud legislation, educate the public, and provide anti-fraud advice.Brostoff, Steven. “Ne ...
, the causes vary, but are usually centered on greed, and on holes in the protections against fraud. Often, those who commit insurance fraud view it as a low-risk, lucrative enterprise. For example, drug dealers who have entered insurance fraud think it's safer and more profitable than working street corners. Compared to those for other crimes, court sentences for insurance fraud can be lenient, reducing the risk of extended punishment. Though insurers fight fraud, some pay suspicious claims anyway, as settling such claims is often cheaper than legal action Another basis for fraud is over-insurance, in which someone insures property for more than its real value. This condition can be difficult to avoid, especially since an insurance provider might sometimes encourage it to obtain greater profits. This lets fraudsters profit by destroying their property, because they receive an insurance payout greater that the value of the property. The most common forms of insurance fraud are re-framing a non-insured damage to make it an event covered by insurance, and inflating the value of the loss.


Losses due to insurance fraud

It is hard to place an exact value on the money stolen through insurance fraud. Insurance fraud is deliberately undetectable, unlike visible crimes such as robbery or murder. As such, the number of cases of insurance fraud that are detected is much lower than the number of acts that are actually committed. The best that can be done is to provide an estimate for the losses that insurers suffer due to insurance fraud. The
Coalition Against Insurance Fraud The Coalition Against Insurance Fraud is a coalition of insurance organizations, consumers, government agencies and legislative bodies working to enact anti-fraud legislation, educate the public, and provide anti-fraud advice.Brostoff, Steven. “Ne ...
estimates that in 2006 a total of about $80 billion was lost in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
due to insurance fraud. According to estimates by the
Insurance Information Institute The Insurance Information Institute (I.I.I.) is a U.S. industry association which exists "to improve public understanding of insurance – what it does and how it works." Founded in 1959, the organization is based in New York City. Since ...
, insurance fraud accounts for about 10 percent of the property/casualty insurance industry's incurred losses and loss adjustment expenses. The National Health Care Anti-Fraud Association estimates that 3% of the health care industry's expenditures in the United States are due to fraudulent activities, amounting to a cost of about $51 billion. Other estimates attribute as much as 10% of the total healthcare spending in the United States to fraud—about $115 billion annually. According to the FBI, non-health insurance fraud costs an estimated $40 billion per year, which increases the premiums for the average U.S. family between $400 and $700 annually. Another study of all
types of fraud In law, fraud is an intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law or criminal law, or it may cause no loss of money, property, or legal right but still be an element o ...
committed in the United States insurance institutions (property-and-casualty, business liability, healthcare, social security, etc.) put the true cost at 33% to 38% of the total cash flow through the system. This study resulted in the book title "The Trillion Dollar Insurance Crook" by J.E. Smith. In the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
, the Insurance Fraud Bureau estimates that the loss due to insurance fraud in the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
is about £1.5 billion ($3.08 billion), causing a 5% increase in insurance premiums. The
Insurance Bureau of Canada The Insurance Bureau of Canada (IBC; french: Bureau d'assurance du Canada) is a trade association representing home, auto, and business insurance companies in Canada Canada is a country in North America. Its ten provinces and three ...
estimates that personal injury fraud in
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by to ...
costs about C$500 million annually. Indiaforensic Center of Studies estimates that Insurance frauds in
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
costs about $6.25 billion annually.


Hard vs. soft fraud

Insurance fraud can be classified as either hard fraud or soft fraud. Insurance Information Institute. "Fraud." Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to claim payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars. Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in an automotive collision an insured person might claim more damage than actually occurred. Soft fraud can also occur when, while obtaining a new health
insurance policy In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known a ...
, an individual misreports previous or existing conditions to obtain a lower premium on the insurance policy.


Types of insurance fraud


Life insurance

The majority of life insurance fraud occurs at the application stage, involving applicants misrepresenting their health, their income, and other personal information in order to get a cheaper premium. As more and more insurance amendments can be performed online or over the telephone, identity theft has become an enabling crime that can lead to the amendment of life insurance terms to benefit a fraudster; for example, by adding a second stolen identity as a new beneficiary. Life insurance fraud may involve faking death to claim life insurance. Fraudsters may sometimes turn up a few years after disappearing, claiming a loss of memory. An example of life insurance fraud occurred in the case of John Darwin, a former teacher and prison officer who turned up alive in December 2007, five years after he was thought to have died in a canoeing accident, claiming to have no memory of the period after his disappearance. Similarly, former
British Government ga, Rialtas a Shoilse gd, Riaghaltas a Mhòrachd , image = HM Government logo.svg , image_size = 220px , image2 = Royal Coat of Arms of the United Kingdom (HM Government).svg , image_size2 = 180px , caption = Royal Arms , date_est ...
minister
John Stonehouse John Thomson Stonehouse (28 July 192514 April 1988) was a British Labour and Co-operative Party politician and cabinet minister under Prime Minister Harold Wilson. Stonehouse is remembered for his unsuccessful attempt at faking his own death i ...
went missing in 1974 from a beach in Miami but was discovered living under an assumed name in
Australia Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
. He was subsequently
extradited Extradition is an action wherein one jurisdiction delivers a person accused or convicted of committing a crime in another jurisdiction, over to the other's law enforcement. It is a cooperative law enforcement procedure between the two jurisdi ...
to Britain and imprisoned for seven years on charges of fraud, theft, and forgery.


Health care insurance

Health insurance fraud is described as an intentional act of deceiving, concealing, or misrepresenting information that results in health care benefits being paid to an individual or group. Fraud can be committed either by an insured person or by a provider. Member fraud consists of claims on behalf of ineligible members and/or dependents, alterations on enrollment forms, concealing pre-existing conditions, failure to report other coverage,
prescription drug A prescription drug (also prescription medication or prescription medicine) is a pharmaceutical drug that legally requires a medical prescription to be dispensed. In contrast, over-the-counter drugs can be obtained without a prescription. The r ...
fraud, and failure to disclose claims that were a result of a work-related injury. Provider fraud consists of claims submitted by bogus physicians, billing for services not rendered, billing for higher level of services,
diagnosis Diagnosis is the identification of the nature and cause of a certain phenomenon. Diagnosis is used in many different disciplines, with variations in the use of logic, analytics, and experience, to determine "cause and effect". In systems engin ...
or treatments that are outside the scope of practice, alterations on claims submissions, and providing services while medical licenses are either suspended or revoked. Independent medical examinations debunk false insurance claims and allow the insurance company or claimant to seek a non-partial medical view for injury-related cases. According to the
Coalition Against Insurance Fraud The Coalition Against Insurance Fraud is a coalition of insurance organizations, consumers, government agencies and legislative bodies working to enact anti-fraud legislation, educate the public, and provide anti-fraud advice.Brostoff, Steven. “Ne ...
, health insurance fraud depletes taxpayer-funded programs like Medicare, and may victimize patients in the hands of certain doctors. Some scams involve double-billing by doctors who charge insurers for treatments that never occurred, and surgeons who perform unnecessary surgery. According to Roger Feldman, Blue Cross Professor of Health Insurance at the
University of Minnesota The University of Minnesota, formally the University of Minnesota, Twin Cities, (UMN Twin Cities, the U of M, or Minnesota) is a public land-grant research university in the Twin Cities of Minneapolis and Saint Paul, Minnesota, United States. ...
, one of the main reasons that medical fraud is such a prevalent practice is that nearly all of the parties involved find it favorable in some way. Many
physician A physician (American English), medical practitioner (Commonwealth English), medical doctor, or simply doctor, is a health professional who practices medicine, which is concerned with promoting, maintaining or restoring health through th ...
s see it as necessary to provide quality care for their patients. Many patients, although disapproving of the idea of fraud, are sometimes more willing to accept it when it affects their own medical care. Program administrators are often lenient on the issue of insurance fraud, as they want to maximize the services of their providers. The most common perpetrators of healthcare insurance fraud are
health care provider A health care provider is an individual health professional or a health facility organization licensed to provide health care diagnosis and treatment services including medication, surgery and medical devices. Health care providers often receive ...
s. One reason for this, according to David Hyman, a Professor at the
University of Maryland School of Law The University of Maryland Francis King Carey School of Law (formerly University of Maryland School of Law) is the law school of the University of Maryland, Baltimore and is located in Baltimore City, Maryland, U.S. Its location places Maryland L ...
, is that the historically-prevailing attitude in the medical profession is one of "fidelity to patients". This incentive can lead to fraudulent practices such as billing insurers for treatments that are not covered by the patient's insurance policy. To do this, physicians bill for a different service that the policy covers, rather than the service they rendered. Another motivation for insurance fraud is a desire for financial gain. Public healthcare programs such as Medicare and
Medicaid Medicaid in the United States is a federal and state program that helps with healthcare costs for some people with limited income and resources. Medicaid also offers benefits not normally covered by Medicare, including nursing home care and per ...
are especially conducive to fraudulent activities, as they are often run on a
fee-for-service Fee-for-service (FFS) is a payment model where services are unbundled and paid for separately. In health care, it gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality ...
structure. Pontell, Henry N., et al. "Policing Physicians." p. 118. Physicians use several fraudulent techniques to achieve this end. These can include "up-coding" or "upgrading", which involve billing for more expensive treatments than those actually provided; providing, and subsequently billing for, treatments that are not medically necessary; scheduling extra visits for patients; referring patients to other physicians when no further treatment is actually necessary; "phantom billing", billing for services not rendered; and "ganging", billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services. Perhaps the greatest total dollar amount of fraud is committed by the health insurance companies themselves. There are numerous studies and articles detailing examples of insurance companies intentionally not paying claims and deleting them from their systems, denying and cancelling coverage, and the blatant underpayment to hospitals and physicians beneath what are normal fees for care they provide. Although difficult to obtain the information, this fraud by insurance companies can be estimated by comparing revenues from premium payments and expenditures on health claims. In response to the increased amount of health care fraud in the United States,
Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...
, through the
Health Insurance Portability and Accountability Act The Health Insurance Portability and Accountability Act of 1996 (HIPAA or the Kennedy– Kassebaum Act) is a United States Act of Congress enacted by the 104th United States Congress and signed into law by President Bill Clinton on August 21, 1 ...
of 1996 (HIPAA), has specifically established health care fraud as a federal
criminal offense In ordinary language, a crime is an unlawful act punishable by a state or other authority. The term ''crime'' does not, in modern criminal law, have any simple and universally accepted definition,Farmer, Lindsay: "Crime, definitions of", in Can ...
with punishment of up to ten years of prison in addition to significant financial penalties.


Automobile insurance

Fraud rings or groups may fake traffic deaths or stage collisions to make false insurance or exaggerated claims and collect insurance money. The ring may involve insurance claims adjusters and other people who create phony police reports to process claims. The
Insurance Fraud Bureau Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
in the UK estimated there were more than 20,000 staged collisions and false insurance claims across the UK from 1999 to 2006. One tactic fraudsters use is to drive to a busy junction or roundabout and brake sharply causing a motorist to drive into the back of them. They claim the other motorist was at fault because they were driving too fast or too close behind them, and make a false and inflated claim to the motorist's insurer for whiplash and damage, which can pay the fraudsters up to £30,000. In the Insurance Fraud Bureau's first year or operation, the usage of data mining initiatives exposed insurance fraud networks and led to 74 arrests and a five-to-one return on investment. The Insurance Research Council estimated that in 1996, 21 to 36 percent of auto-insurance claims contained elements of suspected fraud. Tennyson, Sharon et al. "Claims Auditing" p. 289. There is a wide variety of schemes used to defraud automobile insurance providers. These ploys can differ greatly in complexity and severity. Richard A. Derrig, vice president of research for the Insurance Fraud Bureau of Massachusetts, lists several ways that auto-insurance fraud can occur, such as:


Staged collisions

In staged collision fraud, fraudsters use a motor vehicle to stage an accident with the innocent party. Typically, the fraudsters' vehicle carries four or five passengers. Its driver makes an unexpected manoeuvre, forcing an innocent party to collide with the fraudster's vehicle. Each of the fraudsters then files claims for injuries sustained in the vehicle. A "recruited" doctor diagnoses whiplash or other soft-tissue injuries that are hard to dispute later. Other examples include jumping in front of cars as done in Russia. The driving conditions and roads are dangerous with many people trying to scam drivers by jumping in front of expensive-looking cars or crashing into them. Hit and runs are very common and insurance companies notoriously specialize in denying claims. Two-way insurance coverage is very expensive and almost completely unavailable for vehicles over ten years old–the drivers can only obtain basic liability. Because Russian courts do not like using verbal claims, most people have dashboard cameras installed to warn would-be perpetrators or provide evidence for/against claims.


Exaggerated claims

A real accident may occur, but the dishonest owner may take the opportunity to incorporate a whole range of previous minor damage to the vehicle into the garage bill associated with the real accident. Personal injuries may also be exaggerated, particularly
whiplash Whiplash may refer to: * The long flexible part of a whip * Whiplash (medicine), a neck injury ** Whiplash Injury Protection System (WHIPS), in automobiles Film and television * ''Whiplash'' (1948 film), a US film noir about a boxer * ''Whiplas ...
. Insurance fraud cases of exaggerated claims can also include claiming damage to the car that is not from the accident reported in the claim.


Examples

Examples of soft auto-insurance fraud include filing more than one claim for a single injury, filing claims for injuries not related to an automobile accident, misreporting wage losses due to injuries, and reporting higher costs for
car repair A vehicle breakdown is a mechanical or electrical failure of a motor vehicle in such a way that the underlying problem prevents the vehicle from being operated or impedes the vehicle's operation so significantly that it is very difficult, nearly ...
s than those that were actually paid. Hard auto-insurance fraud can include activities such as staging automobile collisions, filing claims when the claimant was not actually involved in the accident, submitting claims for medical treatments that were not received, or inventing injuries.
Hard fraud Hard may refer to: * Hardness, resistance of physical materials to deformation or fracture * Hard water, water with high mineral content Arts and entertainment * ''Hard'' (TV series), a French TV series * Hard (band), a Hungarian hard rock supe ...
can also occur when claimants falsely report their vehicle as stolen.
Soft fraud Soft may refer to: * Softness, or hardness, a property of physical materials Arts and entertainment * ''Soft!'', a 1988 novel by Rupert Thomson * Soft (band), an American music group * ''Soft'' (album), by Dan Bodan, 2014 * Softs (album), by Sof ...
accounts for the majority of fraudulent auto-insurance claims. Another example is that a person may illegally register their car to a location that would net them cheaper insurance rates than where they actually live, sometimes called ''rate evasion''. For example, some drivers in
Brooklyn Brooklyn () is a borough of New York City, coextensive with Kings County, in the U.S. state of New York. Kings County is the most populous county in the State of New York, and the second-most densely populated county in the United States, be ...
have Pennsylvania license plates, because insurance rates for a car registered to an address in rural
Pennsylvania Pennsylvania (; ( Pennsylvania Dutch: )), officially the Commonwealth of Pennsylvania, is a state spanning the Mid-Atlantic, Northeastern, Appalachian, and Great Lakes regions of the United States. It borders Delaware to its southeast, ...
are much less than they are in Brooklyn. Another form of
automobile insurance fraud A car or automobile is a motor vehicle with wheels. Most definitions of ''cars'' say that they run primarily on roads, seat one to eight people, have four wheels, and mainly transport people instead of goods. The year 1886 is regarded as t ...
, known as "fronting", involves registering someone other than the real primary driver of a car as the primary driver of the car. For example, parents might list themselves as the primary driver of their children's vehicles to avoid young driver premiums. "
Crash for cash Insurance fraud is any act committed to defraud an insurance process. It occurs when a claimant attempts to obtain some benefit or advantage they are not entitled to, or when an insurer knowingly denies some benefit that is due. According to the ...
" scams may involve random unaware strangers, set to appear as the perpetrators of the orchestrated crashes. Such techniques are the ''classic rear-end shunt'' (the driver in front suddenly slams on the brakes, possibly with brake lights disabled), the ''decoy rear-end shunt'' (when following one car, another one pulls in front of it, causing it to brake sharply, then the first car drives off) or the ''helpful wave shunt'' (the driver is waved into a line of queuing traffic by the scammer who promptly crashes, then denies waving).
Organized crime Organized crime (or organised crime) is a category of transnational, national, or local groupings of highly centralized enterprises run by criminals to engage in illegal activity, most commonly for profit. While organized crime is generally th ...
rings can also be involved in auto-insurance fraud, sometimes carrying out schemes that are very complex. An example of one such ploy is given by Ken Dornstein, author of '' Accidentally, on Purpose: The Making of a Personal Injury Underworld in America''. In this scheme, known as a "swoop-and-squat", one or more drivers in "swoop" cars force an unsuspecting driver into position behind a "squat" car. This squat car, which is usually filled with several passengers, then slows abruptly, forcing the driver of the chosen car to collide with the squat car. The passengers in the squat car then file a claim with the other driver's insurance company. This claim often includes bills for medical treatments that were not necessary or not received. An incident that took place on
Golden State Freeway Interstate 5 (I-5) is a major north–south route of the Interstate Highway System in the United States, stretching from the Mexican border at the San Ysidro crossing to the Canadian border near Blaine, Washington. The segment of I-5 in ...
June 17, 1992, brought public attention to the existence of organized crime rings that stage auto accidents for insurance fraud. These schemes generally consist of three different levels. At the top, there are the professionals—doctors or lawyers who diagnose false injuries and/or file fraudulent claims and these earn the bulk of the profits from the fraud. Next are the " cappers" or "runners", the middlemen who obtain the cars to crash, farm out the claims to the professionals at the top, and recruit participants. These participants at the bottom-rung of the scheme are desperate people (poor immigrants or others in need of quick cash) who are paid around US$1000 to place their bodies in the paths of cars and trucks, playing a kind of Russian roulette with their lives and those of unsuspecting motorists around them. According to investigators, cappers usually hire within their own ethnic groups. What makes busting these
staged-accident crime ring Organized crime (or organised crime) is a category of transnational, national, or local groupings of highly centralized enterprises run by criminals to engage in illegal activity, most commonly for profit. While organized crime is generally th ...
s difficult is how quickly they move into jurisdictions with lesser enforcement, after a crackdown in a particular region. As a result, in the US several levels of police and the
insurance industry Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
have cooperated in forming task forces and sharing databases to track claim histories. In the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
, there is an increasing incidence of false
whiplash Whiplash may refer to: * The long flexible part of a whip * Whiplash (medicine), a neck injury ** Whiplash Injury Protection System (WHIPS), in automobiles Film and television * ''Whiplash'' (1948 film), a US film noir about a boxer * ''Whiplas ...
claims to
car insurance Vehicle insurance (also known as car insurance, motor insurance, or auto insurance) is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury r ...
companies from
motorist Driving is the controlled operation and movement of a vehicle, including cars, motorcycles, trucks, buses, and bicycles. Permission to drive on public highways is granted based on a set of conditions being met and drivers are required to fo ...
s involved in minor car accidents (for instance; a shunt). Because the mechanism of injury is not fully understood, A&E doctors have to rely on a patient's external symptoms (which are easy to fake). Resultingly, "no win no fee"
personal injury Personal injury is a legal term for an injury to the body, mind or emotions, as opposed to an injury to property. In common law jurisdictions the term is most commonly used to refer to a type of tort lawsuit in which the person bringing the suit (t ...
solicitors A solicitor is a legal practitioner who traditionally deals with most of the legal matters in some jurisdictions. A person must have legally-defined qualifications, which vary from one jurisdiction to another, to be described as a solicitor and ...
exploit this "
loophole A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the purpose, implied or explicitly stated, of the system. Originally, the word meant an arrowslit, a narrow ver ...
" for easy compensation money (often a £2500 payout). Ultimately this has resulted in increased
motor insurance Vehicle insurance (also known as car insurance, motor insurance, or auto insurance) is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury r ...
premiums, which has had the
knock-on effect In the social sciences, unintended consequences (sometimes unanticipated consequences or unforeseen consequences) are outcomes of a purposeful action that are not intended or foreseen. The term was popularised in the twentieth century by Ameri ...
of pricing younger drivers off the road.


Property insurance

Possible motivations for this can include obtaining payment that is worth more than the value of the property destroyed, or to destroy and subsequently receive payment for goods that could not otherwise be sold. According to Alfred Manes, the majority of property insurance crimes involve
arson Arson is the crime of willfully and deliberately setting fire to or charring property. Although the act of arson typically involves buildings, the term can also refer to the intentional burning of other things, such as motor vehicles, wate ...
. One reason for this is that any evidence that a fire was started by arson is often destroyed by the fire itself. According to the United States Fire Administration, in the United States there were approximately 31,000 fires caused by arson in 2006, resulting in losses of $755 million.


Unemployment insurance

Unemployment insurance fraud can occur when someone who is not unemployed or who steals the identity of another individual obtains unemployment benefits to which he or she is not entitled. During 2020, there was a significant spike of unemployment fraud in the United States.


Premium fraud

In addition to fraudulent claims, insurers can lose premium because customers inaccurately describe the risk, causing less premium to be charged. This can happen for any type of insurable risk and is most noteworthy in workers compensation insurance, where insureds report fewer employees, less payroll, and less risky employees than is actually intended to be covered by the policy.


Council compensation claims

The fraud involving claims from the
councils A council is a group of people who come together to consult, deliberate, or make decisions. A council may function as a legislature, especially at a town, city or county/ shire level, but most legislative bodies at the state/provincial or ...
' insurers suppose staging damages blamable on the local authorities (mostly falls and trips on council owned land) or inflating the value of existing damages.


Detecting insurance fraud

The detection of insurance fraud generally occurs in two steps. The first step is to identify suspicious claims that have a higher possibility of being fraudulent. This can be done by
computer A computer is a machine that can be programmed to carry out sequences of arithmetic or logical operations ( computation) automatically. Modern digital electronic computers can perform generic sets of operations known as programs. These prog ...
ized
statistical Statistics (from German: '' Statistik'', "description of a state, a country") is the discipline that concerns the collection, organization, analysis, interpretation, and presentation of data. In applying statistics to a scientific, industr ...
analysis or by referrals from
claims adjuster A claims adjuster, desk adjuster, field adjuster, or general adjuster (claim adjuster, claims handler, claim handler or loss adjuster in the United Kingdom, Ireland, Australia, South Africa, the Caribbean and New Zealand) investigates insurance cla ...
s or insurance agents. Additionally, the public can provide tips to insurance companies, law enforcement and other organizations regarding suspected, observed, or admitted insurance fraud perpetrated by other individuals. Regardless of the source, the next step is to refer these claims to investigators for further analysis. Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud. Bolton, Richard J. "Statistical Fraud Detection." p. 236. Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived. In a supervised method, expected values are obtained by analyzing records of both fraudulent and non-fraudulent claims. According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it requires absolute certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect types of fraud that have been committed and identified before. Unsupervised methods of statistical detection, on the other hand, involve detecting claims that are abnormal. Both claims adjusters and computers can also be trained to identify "red flags", or symptoms that in the past have often been associated with fraudulent claims. Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious claims that must be investigated further. Fraudulent claims can be one of two types: * they can be otherwise legitimate claims that are exaggerated or "built up", or * they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted to "special investigative units", or SIUs, for further investigation. These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims. These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough. When an insurance company's fraud department investigates a fraud claim, they frequently proceed in two stages: pre-contact and post-contact. In the pre-contact stage they analyze all available evidence before they contact the suspect. They may review submitted paperwork, reach out to third parties, and gather evidence from available sources. Then, in the "post-contact" stage, they interview the suspect to gather more information and, ideally, obtain an incriminating statement. Insurance fraud investigators are trained to question the suspect in a way that precludes the suspect raising a valid defense at a later time. For example, questions about access to claim forms preclude the defense of another individual filling out the fraudulent documents. Common defenses that the suspect interview may preclude include the suspect lacking either the knowledge that their statement was false or the intention to defraud, or the suspect making an ambiguous statement that was later misinterpreted. Full disclosure may add credibility to a suspect's account of events, but omissions from disclosure or false statements may detract from the suspect's credibility in later interviews or proceedings. Within the context of health insurance, fraud by health insurance companies is sometimes found by comparing revenues from premiums paid against the expenditure by the health insurance companies on claims. For example, in 2006 the Harris County Medical Society, in Texas, had a health insurance rate increase of 22 percent for "consumer-driven" health plans from Blue Cross and Blue Shield of Texas. This was despite the fact that during the previous year, Blue Cross had paid out only 9 percent of the collected premium dollars for claims.


Legislation

National and local governments, especially in the last half of the twentieth century, have recognized insurance fraud as a serious crime, and have made efforts to punish and prevent this practice. Some major developments are listed below:


United States

*Insurance Fraud is specifically classified as a crime in all states, though a minority of states only criminalize certain types (e.g. Oregon only outlaws Worker Compensation and Property Claim fraud). *The
Coalition Against Insurance Fraud The Coalition Against Insurance Fraud is a coalition of insurance organizations, consumers, government agencies and legislative bodies working to enact anti-fraud legislation, educate the public, and provide anti-fraud advice.Brostoff, Steven. “Ne ...
was founded in 1993 to help fight insurance fraud. This organization collects information on insurance fraud, and is the only anti-fraud alliance speaking for consumers, insurance companies, government agencies and others. Through its unique work, the Coalition empowers consumers to fight back, helps fraud fighters better detect this crime and deters more people from committing fraud. The Coalition supports this mission with a large and continually expanding armory of practical tools: Information, research & data, services and insight as a leading voice of the anti-fraud community. *Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim. 8*19 states require mandatory insurer fraud plans. This requires companies to form programs to combat fraud and in some cases to develop investigation units to detect fraud. *41 states have fraud bureaus. These are law enforcement agencies where "investigators review fraud reports and begin the prosecution process." *Section 1347 of Title 18 of the
United States Code In the law of the United States, the Code of Laws of the United States of America (variously abbreviated to Code of Laws of the United States, United States Code, U.S. Code, U.S.C., or USC) is the official compilation and codification of the ...
states that whoever attempts or carries out a "scheme or artifice" to "defraud a health care benefit program" will be "fined under this title or imprisoned not more than 10 years, or both." If this scheme results in bodily injury, the violator may be imprisoned up to 20 years, and if the scheme results in death the violator may be imprisoned for life. Besides making laws more severe,
Legislation Legislation is the process or result of enrolling, enacting, or promulgating laws by a legislature, parliament, or analogous governing body. Before an item of legislation becomes law it may be known as a bill, and may be broadly referred to ...
has also come up with a list for management that should be implemented so that companies are better suited to combat the possibility of being scammed. That list includes: *Understanding that fraud does exist and that there is a high possibility for it happening. *Being fully aware of the dangers and severity of the problem. *Understanding the importance of the hiring process and how important it is to hire honest individuals. *Learn to deal with the economic side of business. That means putting procedures and policies in place to catch and deal with individuals trying to commit fraud.


Canada

*The Insurance Crime Prevention Bureau was founded in 1973 to help fight insurance fraud. This organization collects information on insurance fraud, and also carries out investigations. Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim. *
British Columbia British Columbia (commonly abbreviated as BC) is the westernmost province of Canada, situated between the Pacific Ocean and the Rocky Mountains. It has a diverse geography, with rugged landscapes that include rocky coastlines, sandy beaches, for ...
's Traffic Safety Statutes Amendment Act of 1997 states that any person who submits a motor vehicle insurance claim that contains false or misleading information may on the first offence be fined C$25,000, imprisoned for two years, or both. On the second offense, that person may be fined C$50,000, imprisoned for two years, or both.


United Kingdom

*A major portion of the
Financial Services Act 1986 The Financial Services Act 1986 (1986 c.60) was an Act of the Parliament of the United Kingdom passed by the government of Margaret Thatcher to regulate the financial services industry. The Act used a mixture of governmental regulation and sel ...
was intended to help prevent fraud. Staple, George. "Serious and Complex Fraud." p. 127. *The Serious Fraud Office, set up under the
Criminal Justice Act 1987 In ordinary language, a crime is an unlawful act punishable by a state or other authority. The term ''crime'' does not, in modern criminal law, have any simple and universally accepted definition,Farmer, Lindsay: "Crime, definitions of", in Can ...
, was established to "improve the investigation and prosecution of serious and complex fraud." *The
Fraud Act 2006 The Fraud Act 2006 (c 35) is an Act of the Parliament of the United Kingdom which affects England and Wales and Northern Ireland. It was given royal assent on 8 November 2006, and came into effect on 15 January 2007. Purpose The Act gives a sta ...
specifically defines fraud as a crime. This act defines fraud as being committed when a person "makes a false representation", "fails to disclose to another person information which he is under a legal duty to disclose", or abuses a position in which a person is "expected to safeguard, or not to act against, the financial interests of another person". This act also defines the penalties for fraud as imprisonment up to ten years, a fine, or both. *A task force that specializes in tracking criminals who knowingly commit fraud.


See also

*
Federal Bureau of Investigation The Federal Bureau of Investigation (FBI) is the domestic intelligence and security service of the United States and its principal federal law enforcement agency. Operating under the jurisdiction of the United States Department of Justice ...
* Florida Division of Insurance Fraud *
Horse murders The show jumping horse killings scandal refers to cases of insurance fraud in the United States in which expensive horses, many of them show jumpers, were insured against death, accident, or disease, and then killed to collect the insurance money. ...
* Split billing *
United States Postal Inspection Service The United States Postal Inspection Service (USPIS), or the Postal Inspectors, is the law enforcement arm of the United States Postal Service. It supports and protects the U.S. Postal Service, its employees, infrastructure, and customers by enf ...
*
Anti-fraud Fraud deterrence has gained public recognition and spotlight since the 2002 inception of the Sarbanes-Oxley Act. Of the many reforms enacted through Sarbanes-Oxley, one major goal was to regain public confidence in the reliability of financial mark ...


References


External links


Insurance Information Institute
Insurance Information Institute The Insurance Information Institute (I.I.I.) is a U.S. industry association which exists "to improve public understanding of insurance – what it does and how it works." Founded in 1959, the organization is based in New York City. Since ...
.
Coalition Against Insurance Fraud
Coalition Against Insurance Fraud The Coalition Against Insurance Fraud is a coalition of insurance organizations, consumers, government agencies and legislative bodies working to enact anti-fraud legislation, educate the public, and provide anti-fraud advice.Brostoff, Steven. “Ne ...
.
National Health Care Anti-Fraud AssociationNational Insurance Crime Bureau
National Insurance Crime Bureau The National Insurance Crime Bureau (NICB) is a U.S. insurance industry trade association focused on preventing, detecting and defeating insurance fraud and vehicle theft through information analysis, investigations, training, legislative advoc ...
.
Insurance Bureau of CanadaUK Insurance Fraud BureauInsurance Research CouncilU.S. Fire Administration
United States Fire Administration.
2009 Florida report: Impacts of the Economy and Insurance FraudCalifornia: Department of Insurance; Fraud: What is Insurance Fraud?UK Insurance Fraud Register
{{DEFAULTSORT:Insurance Fraud Crimes Fraud Insurance law Property crimes Organized crime activity