Insurance fraud
Insurance fraud is any intentional act committed to deceive or mislead an insurance company during the application or claims process, or the wrongful denial of a legitimate claim by an insurance company. It occurs when a claimant knowingly attempts to obtain a benefit or advantage they are not entitled to receive, or when an insurer knowingly denies a benefit or advantage that is due to the insured. According to the United States Federal Bureau of Investigation, the most common schemes include premium diversion, fee churning, asset diversion, and workers compensation fraud. False insurance claims are insurance claims filed with the fraudulent intention towards an insurance provider.
Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Insurance fraud poses a significant problem, and governments and other organizations try to deter such activity.
Studies suggest that the greatest total dollar amount of fraud is committed by the health insurance companies themselves, intentionally not paying claims and deleting them from their systems, and denying and cancelling coverage.
History
Insurance fraud has existed since the beginning of insurance as a commercial enterprise.Long before the rise of the modern insurance industry, an epigram by the Roman poet Martial, set in the Roman Empire during the first century AD, illustrates how crimes such as arson might be motivated by profit:
Causes
The "chief motive in all insurance crimes is financial profit". Insurance contracts provide both the insured and the insurer with opportunities for exploitation.According to the American Coalition Against Insurance Fraud, the causes vary, but are usually centered on greed, and on holes in the protections against fraud. Those who commit insurance fraud may view it as a low-risk, lucrative enterprise as compared to other forms of criminal activity.
Financial impact
As insurance fraud may not be detected, it is difficult to accurately estimate its total cost to society. Among organizations that have estimated its cost, the Coalition Against Insurance Fraud estimates that in 2006 a total of about $80 billion was lost in the United States due to insurance fraud. The Insurance Information Institute, insurance fraud accounts for about 10 percent of the property/casualty insurance industry's incurred losses and loss adjustment expenses. The National Health Care Anti-Fraud Association estimates that 3% of the health care industry's expenditures in the United States are due to fraudulent activities, amounting to a cost of about $51 billion. According to the FBI, non-health insurance fraud costs an estimated $40 billion per year, which increases the premiums for the average U.S. family between $400 and $700 annually.Another study of all types of fraud committed in the United States insurance institutions estimates the cost at 33% to 38% of the total cash flow through the system. This study resulted in the book title The Trillion Dollar Insurance Crook by J.E. Smith. In the United Kingdom, the Insurance Fraud Bureau estimates that the loss due to insurance fraud in the United Kingdom is about £1.5 billion, causing a 5% increase in insurance premiums. The Insurance Bureau of Canada estimates that personal injury fraud in Canada costs about C$500 million annually. Indiaforensic Center of Studies estimates that Insurance frauds in India costs about $6.25 billion annually.
Types of insurance fraud
Insurance fraud can be classified as either hard fraud or soft fraud.Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to claim payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.
Soft fraud, which is more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in an automotive collision an insured person might claim more damage than actually occurred. Soft fraud can also occur when, while obtaining a new health insurance policy, an individual misreports previous or existing conditions to obtain a lower premium on the insurance policy.
Automobile insurance
Automobile insurance fraud occurs when somebody intentionally seeks benefits from an insurance company that they know that they are not legitimately entitled to receive.The UK Insurance Research Council estimated that in 1996, 21 to 36 percent of auto-insurance claims contained elements of suspected fraud.
Schemes used to defraud automobile insurance providers differ greatly in complexity and severity, and include both individual and organized efforts.
Staged collisions
Fraud rings or groups may fake traffic deaths or stage collisions to make false insurance or exaggerated claims and collect insurance money. The fraud may involve the engineering of a deliberate collision with the innocent driver of another vehicle. Some fraud rings involve insurance claims adjusters who authorize payment on the claims. In the UK, the Association of Chief Police Officers estimated that 30,000 auto accidents were staged in 2009. Insurance fraud may also include such actions as a pedestrian jumping in front of a car, then seeking compensation for claimed injuries.Staged collision schemes may involve fraud at three different levels. At the top, there are lawyers who file fraudulent claims, supported by doctors who fabricate or exaggerate diagnoses and treatment records. Next are the "cappers" or "runners", the middlemen who obtain the cars to crash, farm out the claims to the professionals at the top, and recruit participants. At the bottom are the participants recruited to risk injury in the staged accidents. These rings may involve organized crime.
Exaggerated claims
After a motor vehicle collision, a vehicle owner may attempt to make a claim for coverage beyond the scope of what was caused by the accident, for example by seeking coverage for preexisting damage. Physical injuries may also be exaggerated by a driver or other person claiming injury in a collision.False reports of theft
Insurance fraud occurs when an insured party falsely report their vehicle as stolen.Rate evasion
In rate evasion, a vehicle owner registers a vehicle to a location where the insurer offers lower rates as compared to where they actually reside.Another form of fraud, known as "fronting", involves registering someone other than the real primary driver of a car as the primary driver of the car in order to obtain a lower rate, such as a young driver having an insurance policy in the name of a parent.
Health insurance
Health insurance fraud involves an intentional act of deceiving, concealing, or misrepresenting information that results in health care benefits being paid to an individual or group, or being wrongfully denied to a person entitled to receive benefits. Fraud can be committed either by an insured person or by a provider.Member fraud consists of such acts as the making of claims on behalf of ineligible members or their dependents, making false statements on enrollment forms, concealing preexisting conditions that could affect the scope of coverage or cost of the policy, and failure to disclose claims that were a result of a work-related injury in violation of the terms of a health insurance policy.
Provider fraud consists of claims submitted by medical care providers, and may include billing for services not rendered, billing for higher level of services than those provided, making false statements on claims submissions, double-billing by doctors who charge more than once for the same service, performance of unnecessary medical treatments or surgery, and billing for services other than those actually rendered. Providers may also bill for care actually provided to their patients, but which is not medically necessary. Practices that may be used to perpetrate fraud include "up-coding" or "upgrading", which involve billing for more expensive treatments than those actually provided; "phantom billing", billing for services not rendered; and "ganging", billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.
Health insurance fraud depletes the resources of taxpayer-funded programs like Medicare. Public healthcare programs such as Medicare and Medicaid are especially conducive to fraudulent activities, as they are often run on a fee-for-service structure.
It is estimated that in the U.S., as of 2017, $262 billion in healthcare claims are initially denied, and health systems spend approximately $20 billion each year trying to secure payment for valid health insurance claims that were wrongly denied, including some claims that were preapproved by the insurance company. Forms of fraud by health insurance companies include the wrongful denial of claims, wrongful cancellation of coverage, and underpayment of hospitals and physicians.
When detected, health insurance fraud can result in civil liability as well as criminal penalties, and potential action against a healthcare provider's license.
Life insurance
The majority of life insurance fraud occurs at the application stage, involving applicants misrepresenting their health, their income, and other personal information in order to get a cheaper premium. As more and more insurance amendments can be performed online or over the telephone, identity theft has become an enabling crime that can lead to the amendment of life insurance terms to benefit a fraudster; for example, by adding a second stolen identity as a new beneficiary.Life insurance fraud may involve faking death to claim life insurance. Fraudsters may sometimes turn up a few years after disappearing, claiming a loss of memory. For example, in the case of John Darwin, a former teacher and prison officer turned up alive five years after he was purported to have died in a canoeing accident, after his family had made a successful claim on his life insurance. Similarly, former British Government minister John Stonehouse reportedly missing in 1974 from a beach in Miami after the acquisition of multiple life insurance policies, but was discovered living under an assumed name in Australia.