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How insurance claim fraud affects policyholders

Fraudulent claims inflate your premiums by hundreds of dollars each year.

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There’s a consensus among crime and fraud-fighting bureaus that insurance fraud happens all the time, draining the bank accounts of both insurance companies and consumers. But fraud also includes situations less obvious than staging damage or forging a doctor’s diagnosis.

What is insurance fraud?

Insurance fraud is the act of providing false information to an insurance company with the purposeful intent of gaining something you’re not entitled to. It’s also the deliberate withholding of a benefit the policyholder is entitled to based on the terms of the policy.

What situations count as insurance fraud?

Nearly any situation intending to gain undeserved reimbursement from an insurance company can be considered insurance fraud. Types of situations include:

Lying or misrepresenting facts on your application

If you leave out important details like previous injuries or straight-up say something untrue, your insurance company could deny your claim, even if it’s unrelated.

Padding an insurance claim

Policyholders or service providers may inflate the cost of repairs, medical bills or replacement items in hopes of receiving extra money.

Staged accidents

Some individuals or members of organized crime will damage their own or someone else’s property to receive an insurance payout. This type of fraud happens when someone runs their car into a tree or purposefully collides with another driver.

Claims for pre-existing damage

Some people try filing claims for medical conditions or damage that happened in a previous incident. Or they might add the pre-existing damage to a new claim along with legitimate damage.

Claims for damage that never happened

This deliberate act involves filing a claim for false damage like a stolen car or broken wrist. The perpetrator might hide the car from the police or claims adjuster, wear an old cast or convince a doctor to write a false diagnosis.

Cost of insurance claim fraud

Insurance fraud in the US costs the industry over $40 billion per year, not including medical fraud, according to FBI estimates. To make up for those extra claims payouts, insurance companies increase everyone’s premiums. This leads to an extra $400 to $700 charge to annual premiums for every family insured.

How people feel about insurance fraud

Americans show less extreme opinions about insurance fraud than they did in 1997, suggests a 2017 Coalition Against Insurance Fraud survey that asked over 2,700 Americans their views on claim fraud.

In the survey, 88% of Americans said they think it’s wrong to lie about damage to receive payment from an insurance company for something that’s not covered. That’s a 5% drop from ten years earlier, when 93% of Americans agreed it was wrong. This shows an increase in tolerance for insurance fraud.

On a positive note, the number of people who see no problem with insurance fraud dropped by 15% since 2007 and is now only 11% in 2017. Progress may be due to effective public awareness efforts that shed light on insurance claim ethics.

How do I avoid claim fraud?

As mentioned above, fraud costs each family hundreds of dollars extra each year in raised premiums. To avoid fraud, take these active steps for prevention:

  1. Disclose all important details when applying. Tell the company any information that could affect how your insurer determines your risk and ask questions if you’re not sure. Pre-existing medical conditions or damage that happened in a previous car accident are examples of important details.
  2. Take detailed photos of your property. Consider documenting your property and its condition before it gets damaged. That way you don’t add a previously damaged item to your claim by accident.
  3. Report the exact property value and purchase details. Note details about the damaged property, such as the purchase date or its manufacturer and model. This info helps your insurer identify the fair market value.
  4. Call attention to inflated repair estimates. Have a hunch that the contractor overcharged for repairs? Voice your concerns to keep your settlement cost down.
  5. Ask questions if you feel your claim settlement is too low. While you want to avoid misrepresenting details on your claim, you should get the payment you deserve. If you don’t feel you can pay for repairs with the settlement offered, ask your adjuster how they came to their estimated dollar amount.

How do I know if an insurance company is fraudulent?

Criminals may start fake insurance companies to steal money, or insurance agents may defraud customers while working for reputable companies. Avoid falling victim to insurance fraud by watching out for these red flags.

  • Premiums cost far less than well-known insurance companies
  • Few traces of the insurance company online or elsewhere
  • Pressure to sign up for a policy immediately or buy extra coverage
  • Not receiving your insurance card or policy documents
  • No evidence of payment on your account
  • Reported government actions listed on the Better Business Bureau or in the media, especially for the company’s failure to pay claims

How do I report insurance fraud?

If you suspect fraud is happening, report it to your state’s insurance fraud bureau. How to report your case:

  • Look up contact information for your state bureau using the National Insurance Crime Bureau (NICB) online directory.
  • Or call the NCIB at 800-835-6422 on Monday through Friday from 7 a.m. to 7 p.m., CT.

Bottom line

Insurance fraud comes in many forms and can involve small details, like avoiding relevant info on your application or padding property value. But reporting fraud can go a long way toward lowering future insurance costs.

Since businesses can commit fraud too, do your research to find legitimate insurance companies before buying a policy.

Common questions about insurance fraud

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