So what is insurance? Insurance is a contract between the customer and the company providing the insurance contract. It guarantees an instant payment of funds when the customer faces any discrepancies such as damage to property.
What is insurance fraud?
Insurance is any step taken by a company or the customer that goes against the contract signed between the customer and the insurance company. Insurance fraud is a common crime. It is committed in every state of the United States by either the insurance company or the customer.
But why does it happen even though a legal contract is signed?
It happens because the customer wants extra benefit or advantage from the company. Or the company refuses to provide the customer with his or her deserving claim. The US carried out research and, they stated that the most common types of fraud are:
- Premium diversion fraud
- Fee churning fraud
- Asset diversion fraud
- Workers compensation fraud
Insurance fraud has existed since the making of the first insurance company. These insurance frauds can result in losses of up to billions of dollars. These insurance frauds vary in several organizations. Insurance frauds can be very mild or very extreme and life-threatening. Life-threatening insurance frauds include purposely causing harm to yourself to apply for a health claim or damaging your property to file for a property claim. Mostly the middle class or poor people are involved in insurance fraud as they require money. Not only the public but the full-house insurance companies are also part of this insurance fraud. The government of the United States is currently working to reduce insurance fraud. It is harming the economy as well as the reputation of the country. Moreover, the insurance companies are toying with the lives of their users.
Buyers of specific products app text to illegally obtain funds from the insurance agencies in several ways. It is provable by using the example in the case of insurance for automobiles. Buys purchase automobiles and apply for their insurance. Once the vehicle is insured, the buyers intentionally dispose of the cars and strike a claim to the insurance company that it is missing. As the vehicles are insured, the insurance agency is liable to pay for the loss of the insured vehicle.
However, this is not as easy as it sounds. The insurance agencies have every intention to make a profit where it is possible. As it is a profit-making entity, it will carry out every measure to prevent any such loss. When such cases in which the insured are claiming that their insured vehicle is stolen, the insurance company with external support perform a complete investigation to find out if the claims of the customers are valid or not.
In many such situations, the insurance companies can prove that the. Although it’s a rare case where a buyer succeeds in pulling it off without the insurance company finding out. Over the years, people have come to realize that it is not as easy as it sounds. Otherwise, every other person who has insurance would attempt it.
Causes of insurance fraud:
There are multiple reasons why people indulge in such unlawful activities. Most people do it because they are facing financial issues. Such people find no other way but; to somehow intentionally harm themselves or their property that is insured. Some people think it to be legal and not against the law to take out insurance claims using unethical means. Some people do it in a step by step by step mechanism and, they are in the hope to generate money at the expense of other policyholders.
Insurance fraud also has to do with the psychology of the people. Experts took out a much counteractive approach to understand the psychological reasons behind insurance fraud. This mechanism is called the fraud cycle. This fraud cycle is categorized into three parts that are motivation, opportunity, and rationalization. The following three factors convince the persons’ minds to go for insurance fraud.
- Motivation: motivation consists of a large part in committing insurance fraud. This motivation may be from people having evil intentions or other reasons. These other reasons may include greed, addiction, financial constraints, or a sense of achievement.
- Opportunity: sometimes, the customers look for opportunities to receive their claims from the company. If a person has a car with slight damage, he deliberately damages the vehicle more and so that the insurance company can pay him more. It is also called low risk and higher claim insurance theft.
- Rationalization: it is also a part of insurance fraud. It is related to the mindset of a person and the types of the decision he made due to this mindset. A person might say that insurance companies are rich and have not financial problems and, it won’t even affect them if I take out a claim of more than what I deserve.
Consequences of insurance fraud:
Most people are caught by the authorities if he or she has committed a fraud. Some of them are also caught red-handed by a camera recording. If the insurance company senses something suspicious about the incident, they investigate to ensure whether the reason for claiming the insurance is true or false. Most dishonest customers are caught and dealt with according to the law.
If people are caught committing fraud, their insurance policy is instantly canceled. Along with this, their insurance claim is also rejected and not given to the customer. If the customer has other insurance policies with the company, they are also canceled. Moreover, the insurance company keeps you on their flagged list, so if after some time you apply for insurance, they will reject it. You might not be able to sign up for insurance in the future. Moreover, if you have house insurance with an insurance company, the bank will cancel your mortgage. The insurance company may also file a lawsuit against you and, the police can be involved.
Insurance scams that companies carry out:
The first most common scam that insurance companies carry out is identity theft. While registering yourself with an insurance company or applying for an insurance policy, the company provides you a form. The form has to be filled and, it consists of very sensitive data such as date of birth, account number, address, etc. mostly, people start an illegal franchise of an insurance company. These unethical companies tend to leak such insensitive data or carry out illegal activities such as purchasing banned items on the black market. Therefore, it is extremely important for people to carefully scrutinize an insurance company before they invest in it.
Some scams initiate on social media or other online shopping websites.
The companies advertise themselves and lure in customers to use them for unlawful practices.
Hacking and cybercrime are also related to insurance scams.
Different types of life insurance frauds:
Relatively common insurance fraud is that of life insurance. Life insurance fraud is categorized by the way they are carried out and their impacts. They are also named accordingly:
Fraud of application:
An application fraud that is also known as misrepresentation or concealment fraud is when an individual who is applying for a life insurance plan intentionally provides incorrect information. He provides incorrect information to get additional benefits. It is a common practice in several forms of life insurances.
When applying for life insurance, the agency takes several details including past health records. In addition to that, a phone interview is conducted with a broker or agent and finally, a medical exam is taken. In this way, the insurance agency or agent compares the details provided in the application with that of the medical reports and the results of the medical exam conducted.
People tend to lie about their health to receive insurance premiums at an affordable rate. The laying and misrepresentation of details are known as insurance fraud. A person may write in his application that he is engaged in smoking but, the medical reports and the medical exam may state otherwise.
The consequences of this type of fraud are not harsh as the fraud does not succeed and, there is no loss to the company. The agency will decide to provide the insurance and place a higher premium than before or, it may conclude not to provide insurance and blacklist the applicant.
Even if a person succeeds to deceive the insurance company, in the future he will face problems. If an insured person dies within a couple of years after getting insurance, he will face problems when filing for an insurance claim. The agency will conclude it as insurance fraud and not provide the amount as medical reports state that the person died due to cancer. The people did not mention any signs of cancer in their application.
As a result, they would end up paying premiums with nothing in return if they hide the correct information. People who unintentionally forget to mention they are correct weight or forget to mention a medical procedure that they had many years ago are not categorized as insurance fraud. The mistakes are corrected by the underwriter. One may receive a premium higher than before.
Fraud of life insurance claims:
Claims fraud is also another commonly found life insurance fraud even today. A claims fraud is one a person who has insurance fakes his death or intentionally fakes the death of his relative or loved one to file an insurance claim and perceive benefits. There is little chance of success as the insurance agency eventually finds out.
In addition to that, another form of claims fraud is when a person intentionally murders a beneficiary to get a payout. Such cases are a rare sight and fraud and murder charges are imposed on the defendant for killing the beneficiary. Additional charges are imposed for trying to gain profit by carrying out the murder. If a beneficiary is murdered, the payout goes to his family or the beneficiary’s estate. The case is a rare one and has not seen success by all those who have committed it. All were caught and punished according to law.
Forgery of life insurance:
Forgery in life insurance occurs when an individual’s close one gains illegal access to the policy and attempts to alter the terms and conditions of the insurance policy. One can also change the ownership of the policy and the named beneficiary. The only person that has access to the policy is the policyholder. The only other way to gain access to the policy is by changing the documents and misrepresentation of identity. Such forgery results in denial of claims and prosecution.
Fraud of phone policy:
The phone policy fraud involved an unidentified scammer who calls random customers to sell fake insurance plans and gain premiums from them. It is similar to other telecommunicate scams in which the scammers portray their brands to earn the customer’s trust and it results in the customer paying them via the online payment for the so-called insurance policy.
One should avoid accepting such deals as it is likely that it is a scam. Payment for life insurance plans or policies should be made once it is ensured that the insurance agent or broker is legit and certified. It makes it easier to avoid getting trapped in such insurance frauds.
Why is insurance referred to as a legal scam?
Insurance is often regarded as a legal scam and, there is a lot of hatred revolving around the industry of insurance. In some cases, it would not be incorrect to regard the insurance as a legal scam. There are ways in which the insurance agencies enforce their users to pay insurance premiums where there is no need. In some areas, it is illegal to drive a vehicle on road without paying the road tax annually to the country. But before one can deposit the road tax, he has to pay his insurance premium.
It is total extortion. One cannot even drive a car without having insurance and, there is no alternative around it. However, this is only for vehicle insurance and is only in some areas. The insurance policies are different in different regions. The terms and conditions are different for each type of insurances. In the United States, health insurance such as ATHENA SIGNA and HUMANA is praised by its users.
These are the three leading insurance companies and are in use by the majority of the population. The basic idea of these insurance is that they charge the people premiums and those premiums all the medical expenses for its users. The premiums are higher and lower depending upon the health risks to its users and the maximum amount to pay when one files a death claim.
One major complaint is the expenses that were levied on the insurance users as administrative expenses of running the insurance agencies. The insurance companies are inefficient in their working and, to cover the expense of running, additional costs come on its users. It is regarded as wrong. It is because the insured are not responsible for the inefficiency of the insurance agencies and are not liable to pay for their expenses.
Other people are of the view that insurance is a lifesaver in the long term. Most people have not problem paying $500 every month in insurance. That money is otherwise spent on other less important subjects like food etc. Say a person has car insurance and gets involved in a car accident. Now instead of paying $30,000 for repairs, the person will only apply for a claim. The costs of repairing are covered by the broker. It would otherwise be difficult to pay $30,000 for repairs without the help of insurances.
It can therefore be concluded that, whether the insurance companies are regarded as a legal scam depends upon how one looks at it. Like everything, insurance users have advantages and disadvantages. Moreover, it also is based upon the type of insurance agencies and the region. Lastly, different insurance plans and policies have their benefits and flaws. It benefits some people and creates problems for others