A purposeful misrepresentation committed against or by an insurance business or agent is known as insurance fraud. Applicants, policyholders, third-party claimants, or professionals that offer services to claimants may all conduct fraud at various times. Insurance fraud can also be committed by insurance brokers and corporate personnel. The “padding” of claims, lying on an insurance application, submitting claims for damage or injuries that never happened, and faking accidents are all examples of common frauds.
Fraudulent insurance claimants include:
- organized thieves who commit large-scale financial crimes using false business practices,
- experts and technicians that charge for services that aren’t provided or exaggerate service rates, and
- People in the general public who want to pay their deductible or see making a claim as a chance to make a little money.
Fraud is more likely to occur in some insurance lines than others. The insurance industries that are most commonly impacted are typically thought to be healthcare, workers’ compensation, and auto.
CAR Auto insurance frauds:
According to a 2017 Verisk analysis, premium leakage—the “omitted or misstated underwriting information that leads to inaccurate rates—costs auto insurers at least $29 billion annually.” Unrecognized drivers ($10.3 billion), underestimated mileage ($5.4 billion), violations/accidents ($3.4 billion), and fake garaging to cut premiums ($2.9 billion) are just a few examples of information failures and fraudulent actions that increase expenses. Premium leakage causes issues for customers as well, even if it isn’t usually the consequence of willful or deliberate activities. As much as 14% of all personal car premiums go toward paying for premium leaking.
Regardless of who was at fault in a car accident, no-fault auto insurance allows policyholders to recoup financial damages from their own insurance provider. However, dishonest medical professionals, lawyers, and others inflate the expense of valid claims in many no-fault states, for instance by charging an insurer for a medical service that was never rendered.
Insurance fraud costs
Estimates of yearly insurance fraud charges may have been overestimated for years due to the absence of updates for inflation and other crucial data elements. According to a research conducted in 2022 by The Coalition Against Insurance Fraud (CAIF), insurance fraud can cost American consumers $308.6 billion annually. Estimated yearly fraud expenses for a variety of liability sectors are included in that sum, including life insurance ($74.7 billion), property and casualty ($45 billion), workers’ compensation ($34 billion), and auto theft ($7.4 billion).
Salvage fraud or Recovery fraud:
Vehicles damaged by storm floods that subsequently turn up in used car lots and auction sales are a typical example of auto fraud. Some states demand “salvage only” on the title of a flooded automobile, often if the damage exceeds 75% of the value of the vehicle. A car that has been flooded but restored may have the manufacturer’s serial number plates switched or copied by unscrupulous vendors. Or, they may sell a salvage-only title automobile in a state with laxer title requirements. This method is known as “title washing.”
To stop salvage fraud, state regulations for automobile titles must be uniformed. The phrase “flood vehicle” must appear on the titles of automobiles that have been water damaged and restored in recent years in various states in hurricane-prone areas of the United States. The buyer must be informed in writing of the car’s prior flood damage before such a vehicle may be sold. However, if a state in the area lacks such stringent regulations, it may end up being a storage area for unreported flooded automobiles.
The National Insurance Crime Bureau (NICB) developed a database to keep track of vehicle identification numbers (VINs) and boat hull identification numbers (HINs) from flooded cars and boats after the hurricane season of 2005. Law enforcement, state fraud bureaus, insurance companies, and state motor vehicle agencies have access to this data. The general public can use the internet lookup tool VINCheck® to find out if a car has ever been recorded as a “salvage.”
The National Motor Vehicle Title Information System (NMVTIS), a database that necessitates trash and salvage yard operators and insurance companies to submit monthly reports on automobiles deemed complete losses, is another attempt to address the issue of title washing. The American Association of Motor Vehicle Administrators oversees the program’s administration, which is carried out under the authority of the US Department of Justice. According to statistics from the Federal Highway Administration for 2019, this system has information on 99 percent of the country’s vehicles, and 49 states were contributing data to it.
False components, such airbags, are a different type of salvage fraud. According to industry watchers, fake airbags are made for almost every type of car. These less costly airbags are used by dishonest vehicle body repair firms, who then get paid by insurance providers for actual airbags.
Healthcare fraud impacts all kinds of property/casualty insurance coverage that contain a medical care component, such as medical payments for auto accident victims or employees hurt on the job, even though healthcare insurance is often outside the scope of property/casualty insurance.
There are several places in the healthcare system where fraud and abuse occur. In schemes to cheat the system, doctors, hospitals, nursing homes, diagnostic centers, providers of medical equipment, and lawyers have all been mentioned. According to the National Health Care Anti-Fraud Association (NHCAA), there might be up to $300 billion in financial damages as a result of health care fraud.
The FBI lists the following as typical examples of healthcare fraud:
- Providers that charge for services that are not provided;
- Submitting a bill with a code that results in a larger payment than the service or item that was actually given; upcoding services and medical goods;
- Submitting several claims;
- Unbundling (billing separately for tests or treatments that must be billed together at a discounted rate); providing superfluous or pointless services and maybe giving bribes; and abusing and selling prescription medicines and legal narcotics.
Medical identity theft, which is also on the FBI’s list of crimes, occurs when thieves take the names, health insurance cards, and other personal information of victims, or when someone allows another person to use their identity and insurance to receive care. In the end, these actions cheat insurers by submitting fictitious claims. Some medical facilities have restricted personnel access to data and demand picture IDs from patients in an effort to fight the issue.
The Affordable Care Act of 2010 contains measures to combat fraud, including the ability for the U.S. Department of Health and Human Services (HHS) to exclude healthcare providers that submit false information from receiving Medicare and Medicaid benefits. The Improper Payments Elimination and Recovery Act, which mandates agencies to carry out recovery audits for programs every three years and prepare corrective action plans for averting future fraud and waste, was passed by federal lawmakers in the same year.
Additional federal initiatives to combat healthcare fraud include:
Putting in place a mechanism for automatically screening providers to examine enrollment applications;
enabling HHS to impose, when required, a temporary ban on newly enrolled suppliers or providers in order to fight fraud;
Allowing the Office of the Inspector General and the Centers for Medicare and Medicaid Services to suspend payments to providers or suppliers while they look into a plausible fraud allegation; and preventing providers and suppliers found guilty of fraud in one of the Centers’ systems, such as Medicare, from being granted service privileges in another, such as Medicaid, or in state programs.
In order to prevent health care fraud, HHS and the Department of Justice established the National Fraud Prevention Partnership in 2012. Additionally, there are both corporate and public entities in the group, including healthcare businesses, bureaus, and associations like the National Association of Insurance Commissioners, National Insurance Crime Bureau, and National Health Care Anti-Fraud Association. Information on Medicare, Medicaid, and private insurance claims is shared by this partnership.
Disaster-related real estate And Property scams
Some people or organizations take use of calamities as a chance to make inflated or fraudulent claims. After a disaster, some claimants may even purposefully destroy property in order to get a bigger compensation. Contractor fraud is another instance of opportunistic fraud that occurs after natural disasters. A few states have sought to safeguard homeowners against contractor fraud by passing legislation that outline notice and contract cancellation rights as well as ban the use of incentives like rebates or other forms of payment to get homeowners to sign contracts.
How insurance firms combat fraud
An insurance firm that suspects fraud has few legal choices. An insurer has the power to report questionable claims to law authorities, delay payment, and gather proof for a legal case. Therefore, two factors are necessary for the fight against insurance fraud to be successful:
The importance given by policymakers, authorities, law enforcement, and society
the financial backing provided by the insurance sector
Insurance companies can, however, launch civil actions under the Racketeer Influenced and Corrupt Organizations Act (RICO), which has less stringent evidentiary standards than criminal procedures. Triple damages are also permitted under this statute. Some of the biggest insurers in the nation, particularly car insurers, have been suing people and organized groups for insurance fraud since the late 1990s and winning.
To assist detect and look into questionable claims, the majority of insurers have set up special investigative units (SIUs). Small teams that primarily instruct claim representatives on how to deal with common fraud activities are among these units, as are teams of skilled investigators made up of ex-law enforcement officials, lawyers, accountants, and claim specialists.
The NICB, which specializes in putting fraud cases through the court system and works as a liaison between the insurance sector and law enforcement agencies, may be given more complicated cases, such as those involving large-scale criminal enterprises or those who routinely fake accidents.
Some insurers have turned to forensic meteorologists as a result of the rise in multibillion dollar weather catastrophes and the tendency of claims to engage in opportunistic fraud in recent years. These specialists can precisely confirm the weather for a certain place and time, enabling claims adjusters to check claims and establish if more than one kind of weather factor is to blame for the damage. Their results are admissible in court since they rely on verifiable meteorological records.
The National Center for Disaster Fraud (NCDF) was established in response to Hurricane Katrina in 2005 to fight fraud associated with both natural and man-made catastrophes. The NCDF also fights identity theft, contract and procurement fraud, charity frauds, and insurance fraud.
There is now a nationwide fraud academy thanks to insurers.
This academy was created to combat insurance claims fraud by educating and training fraud investigators. It is a collaborative venture of the American Property Casualty Insurance Association (APCIA), the FBI, the NICB, and the International Association of Special Investigating Units. Under the direction of the NICB, this enterprise also provides online courses.
Utilizing technology to fight fraud
Adopting data solutions that reduce the time needed to detect fraud is one of the most effective ways to combat it. For the battle against fraud to stay up with sophisticated rings that consistently create new frauds, advances in analytical technology are essential. Insurance companies are combining techniques to enhance their fraud detection processes in an effort to get more precise.
Predictive modeling and link analysis, which look at the connections between things like people, locations, and events, have supplemented more conventional methods such employing automatic red flags and business rules. Among other technologies, artificial intelligence may be used to find fraud before a payment. When claims are first submitted, these more recent tactics are used. Claims with obvious problematic aspects are handled regularly, while those with suspicious elements are reported for additional assessment.
Federal and state antifraud laws
It wasn’t until the 1980s that efforts to adopt tougher anti-fraud laws gained traction due to the rising cost of insurance and the increased participation of organized criminal organizations in fraud. All states have been urged to pass these laws in some capacity by the insurance industry and other stakeholders, in part because it may be simpler to prosecute insurance fraud cases in states with criminal codes that:
- Declare fraud to be a crime
- Define fraud; list the consequences
By 2016, every state, as well as the District of Columbia, had passed legislation designating insurance fraud as a felony, at least for some lines of insurance, and establishing protection for those who report insurance fraud. Although some have restricted authority and other states have more than one bureau to investigate fraud in various insurance lines, the majority of states and the District of Columbia have established fraud bureaus or units. The creation and implementation of initiatives to lessen insurance fraud are mandated by over two dozen states, as well as the District of Columbia.
Federal fraud prevention regulations
Insurance fraud is now a federal offense when it interferes with interstate commerce under the Violent Crime Control and Law Enforcement Act of 1994. Employees of insurance companies, including agents, who embezzle or misappropriate any business funds and do so in a way that jeopardizes the viability of any insurance company, may face comparable sanctions.
The Health Insurance Portability and Accountability Act of 1996 established a comprehensive program to combat fraud perpetrated against all health plans, whether public and private, and made it a federal criminal to “knowingly and willfully” cheat any healthcare benefit program.