Insurance Essay
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Insurance fraud - whether committed by sophisticated criminals, otherwise honest consumers, or by insurance company employees and owners - is an increasingly expensive burden on the U.S. economy, taking money out of the pockets of all citizens. This illegal activity diverts vital resources away from businesses, law enforcement, the civil justice system, regulatory agencies and local emergency services.
There are no easy solutions to the problems of insurance fraud. Consumers, legislators, regulators and insurers must work together over the long term to create an environment that either prevents insurance fraud or detects it easily when it occurs. The first step in this process is creating a baseline understanding of the problem and potential solutions. That is the purpose of this document.
What is insurance fraud?
Insurance fraud is any deliberate deception perpetrated against or by an insurance company or agent for the purpose of unwarranted financial gain. It occurs during the process of buying, using, selling and underwriting insurance.
Insurance fraud is often classified as being either "hard" or "soft." Hard fraud is usually a deliberate attempt either to stage or invent an accident, injury, theft, arson or other type of loss that would be covered under an insurance policy.
Sophisticated conspiracies involving medical doctors, lawyers and their patients/clients are widespread and one of the most costly forms of insurance fraud in the United States. A single crime ring can cost the insurance system millions of dollars a year.
Executives and employees within the insurance industry also commit hard fraud. An employee may defraud an insurance company by accepting bribes or kickbacks from body shops or doctors to verify false claims. Another example is an insurance agent who fails to remit policyholder premiums to the insurance company. The agent pockets the premiums and hopes the policyholder does not file a claim.
This internal fraud also includes con artists who set up phony insurance companies and collect premiums from unsuspecting consumers, but never or infrequently pay claims. When too many claims are filed or when regulators start investigating, the con artists disappear with the company assets.
Soft fraud, which sometimes is called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim. One example is the car owner involved in a "fender bender" who inflates the claim to cover the policy deductible or the cost of insurance premiums.
Soft fraud also occurs during the underwriting process when people apply for new or renewal coverage. Some people provide false information to lower insurance premiums or increase the likelihood that the application for insurance will be accepted.
Examples include:
+ Underreporting the number of miles driven,
+ Giving a false location where a car is garaged,
+ Failing to report an accurate medical history when applying for health insurance,
+ Exaggerating the amount and value of items stolen from a home or business.
What is the scope of insurance fraud?
The extent of insurance fraud is difficult to quantify because much of it goes undetected. Comprehensive research to estimate the total cost of fraud has yet to be undertaken. However, studies focusing on specific aspects of insurance fraud suggest that the cost is enormous. The Coalition Against Insurance Fraud estimates the annual cost to be more than $79 billion per year. The amount is a hidden tax of more than $900 per family each year on the costs of goods and services. These estimates of the costs of external insurance fraud suggest that it is the second largest economic crime in America, exceeded only by tax evasion....
MLA Style
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