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Insurance Frauds Examples by Insurers, Agents and Insured

Insurance fraud is a double two-sided menace. Both insurers and the insured do it, which can cause harm and danger. Below is an extensive list of insurance frauds examples committed by insurance companies (insurers), their agents, and their customers (insured).

Insurance Frauds Examples by Insurer and Agents

1. Defrauding workers

This happens within insurance companies. Insurance companies try to prey on their workers and staff by purporting to offer them insurance at lower rates than the market rates. Insurance companies know their staff are also consumers of insurance services.

Employees are offered an opportunity to get their property of life insurance with their employer’s insurance company. They pay the “lower” premium when they accept, knowing insurance covers have been established for their property or life. Little do these employees know that the money they paid as a “lower” premium was misappropriations, and no insurance cover was established for them.

2. Premium diversion

Premium diversion is done by agents and insurers. An agent can divert premium when dealing with a client on the underwriter’s behalf. Here, an agent collects premiums from the insured and fails to remit them to the underwriter. An agent will keep doing this in disguise, hoping the insured will never make a claim.

Insurance companies can also divert premiums. This majorly happens when the insurer is not licensed to offer insurance services. Therefore, they collect premiums from clients and do not compensate for any claims filed. Becoming a victim of either premium diversion by an agent or an illegitimate insurer is real if you are not careful when shopping for an insurance policy.

3. Insurance churning

This is an insurance fraud committed by rogue agents. These rogue agents target the high commissions they get when selling a new policy to a new client.

Churning is where an agent switches your policy between insurers. When an agent has switched your policy to a new underwriter, they get a commission for this “new” policy sale. After a while, they cancel your policy with the current insurer and buy another one from a new insurer.

Captive agents might not be active so much in insurance churning because they work on behalf of a single insurance company. However, independent agents can be highly active in insurance churning because they work with multiple insurance companies.

Insurance Frauds Examples by Insured

1. Staged accident

A staged accident happens when the culprit maneuvers another party, with or without the knowledge, into some sort of collision. The car could be “damaged” from this collision, and some “injuries” could be sustained by the rogue insured.

On collision, the insured then files a claim that the car was involved in an “accident,” and they demand compensation. In major cases, these rogue clients will inflate the value of car damage or exaggerate the injuries they sustained from these staged accidents. They only intend to get a substantial payout from their insured without suspecting that the incident was pre-meditated.

2. Arson

Arson happens when one has deliberately and willfully set their property on fire eye for insurance compensation. Arson does not necessarily apply to houses and is commonly conceptualized. It can even be burning a car one owns and has insurance coverage for.

Arson is not a common type of insurance fraud because it takes ignorance and negligence for a person to destroy their place of residence. However, it is motivated by some financial challenges they have been unable to overcome.

For instance, one could be haunted by debt and piling interest, they are running into bankruptcy, or their property is waiting for foreclosure. The only way to escape reality and improve their financial status is through payout from insurance compensation. One ends up setting their property on fire and disguise their heinous acts while filing for claims.

3. Upcoding and unbundling

Upcoding and unbundling are insurance frauds committed in the health sector. Healthcare providers commit them, and they are quite often than you may think.

Upcoding happens when a healthcare provider submits a more expensive code to the patient’s insurer during billing. Without auditing medical procedures and their costs, an insurer may continually pay these rogue healthcare providers’ exaggerated bills.

Bundling differs slightly from upcoding, even though its result exaggerates the billing code. Just like upcoding, it is executed a little bit differently.

Some medical procedures are bundled together during costing. Bundling happens when a single medical procedure prompts another.

For example, if a person is diagnosed with MRI and then medical procedures follow the MRI diagnosis, these two should be bundled in billing.

However, rogue healthcare providers unbundle these two, billing them as separate medical procedures. The target is to get compensated twice and potentially increase their profits.

4. Disability insurance fraud

This fraud happens by providing false information when applying for insurance coverage or a claim. The falsified information is intended to disguise the truth and get one payout certain payout concerning their disability.

In other cases, it is in the form of exaggerated injuries one sustained from an accident. Besides, disability insurance fraud is experienced when the insured fails to report on their improvement to continue receiving a certain payout from the insurer.

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