The insurance industry is huge with more than 7,000 companies. All these companies collect over $1 trillion in premiums annually. Because of it’s size and the amount of money that changes hands, the insurance industry provides more opportunities and bigger payoffs for those committing illegal activities.
Insurance fraud is estimated to be more than $40 billion per year, and this doesn’t even include medical insurance. Insurance fraud ends up costing the average U.S. family between $400 and $700 per year in increased premiums.
When most people think about insurance fraud, they think of fake claims. Although fake claims do account for a lot of the fraud, there are other common forms of insurance fraud that we are less familiar with.
According to the FBI, some common forms of insurance fraud are less obvious to most people.
One common form of insurance fraud which is known as “premium diversion” is an embezzlement scheme in which an insurance agent fails to send premiums to the underwriter and instead keeps the money for personal use. In another form of premium diversion, a person without a license poses as an insurance agent, sells insurance and collects premiums and then doesn’t pay claims.
Another big opportunity for fraud occurs after a disaster event. During the 2005 Hurricane Katrina event, approximately $1.6 million insurance claims were filed, totaling $34.4 billion in insured losses. It is estimated that as much as $6 billion may have been due to insurance fraud.
Some of the insurance fraud after a disaster event comes in the form of:
- False or exaggerated claims by policy holders
- Claims filed by individuals residing hundreds of miles outside the disaster zone
- Bid rigging by contractors, falsely inflating the cost of repairs
- Charity fraud scams designed to misappropriate funds donated for disaster relief
These are just a few of the way unscrupulous individuals take advantage of insurance services that are supposed to help all of us.
