There are more than 7,000 insurance companies making it a huge industry. These companies collect over $1 trillion in premiums annually, a significant amount of money. The mere size and the amount of money that changes hands in the insurance industry provides more opportunities and bigger payoffs for those committing illegal activities.
It is estimated that insurance fraud is responsible for more than $40 billion per year, and this doesn’t even include medical insurance. Everyone ends up paying for insurance fraud. For the average U.S. family between $400 and $700 per year in increased premiums can be directly associated with insurance fraud.
Fake claims are what most people think about as being insurance fraud. 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.
The FBI warns that some common forms of insurance fraud are less obvious to most people.
One 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. There are also other forms premium diversion including one in which a person without a license poses as an insurance agent, sells insurance and collects premiums and then doesn’t pay claims.
In the time following a disaster event fraud increases. 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
Unscrupulous individuals are always looking for ways to take advantage of insurance services that are supposed to help all of us.