Commonly Occuring Insurance Frauds

A Insurance Article Contributed by Deepak Cutting

Insurance Fraud Defined

As we know, an insurance policy provides means to recover damages from the insurance company in respect of the item that was insured, in the event of that item becoming damaged or lost in the circumstances laid down in the insurance policy. An insurance fraud is the deliberate misrepresentation of facts in order to derive financial benefit from the insurance company in circumstances where such benefit is not due or attempt to recover beyond the extent permitted.

The applicant for insurance, the policyholder, the (actually or supposedly) aggrieved third party or the professional providing remedial service in respect of the (actually or supposedly) damaged insured object could commit such fraud. There are estimates that fraud adds $300 annually to insurance premiums for the average household. It is estimated that property and casualty insurance fraud cost insurers $31 billion in 2002.

Commonly Occurring Insurance Frauds

Such frauds can be in the form of 'inflating' or 'padding up' the actual claim by manipulating the facts stated on the insurance claim application. Another way to fraudulently benefit from insurance is by 'staging' the event that gives rise to the insurance claim, when such event did not take place at all.

*The 'hard' fraud: Hard fraud is a deliberate staging or inventing of an accident, injury, theft, arson or other type of loss that would be covered under an insurance policy, in order to gain financially from such invented happening.

*The 'soft' fraud: When a policyholder inflates a legitimate claim. Examples of this type of fraud are when a car involved in a minor accident exaggerates the expenses to cover the 'deductible' in his policy. Such soft fraud could be with the connivance of the workshop where repairs were carried out. Another example is the homeowner reporting exaggerated list and value of items stolen from the car.

Yet another example of soft fraud is providing false information in your application for insurance cover to entitle you to some benefit in the policy that would otherwise not be available (such as misrepresenting the location where your car is garaged to lower the insurance premium).

Legislation Enacted to Prevent Insurance Fraud

Insurance fraud is considered a serious offense in most states across America.

. Most states protect a person or company reporting an insurance fraud from all civil and criminal prosecution.

. Most states have set up Fraud Bureaus to investigate insurance frauds. These are law enforcement agencies, mostly set up in the department of insurance, where investigators review fraud reports and begin the prosec utionprocess.Thestategovernmentsfundthese bureaus.

. Some states have enacted laws to ensure that Insurance Company formulates programs for detecting and fighting frauds. Mandatory insurer fraud plans require companies to formulate a program for fighting fraud and sometimes include special investigation units to identify fraud patterns.

. Some states have enacted laws to perform photo inspections of every car insured, so those non-existent cars where theft claims could be made later have not got insured in the first place.