Insurance companies offer financial protection to the policyholders. In spite of all the precautionary measures and underwriting rules, the insurers themselves fall prey to the insurance frauds and end up paying for the inflated claims. Reports suggest that insurance frauds cost the industry more than 10 billions of dollars per year. The Insurance Research Council has pointed out that just the auto insurance frauds amount to $5 billion to $7 billion in a year.
When frauds take place?
Fraudulent insurance claims have prompted the insurers to tighten their reigns, so that they can avoid being deceived. Frauds usually happen in two phases – i. During the application process, if the underwriters fail to recognize them ii. When the claims are filed, and the insurance adjusters, appraisers, examiners, or investigators fail to evaluate accurately.Familiar insurance frauds
The common insurance frauds that have been identified include: 1. Fictitious Mishaps – The insurance claims for losses, damages or injuries are made when the incident or accident didn’t even take place. 2. Staged Accidents – Insurance claims for the accidents or damages when they have been caused deliberately. A common example can be the arsons, i.e. intentionally setting fire to property and then claiming for the damages. 3. Material Misrepresentation – This is one of the commonest insurance frauds, which have been affecting the industry. Presenting false medical or claims history before buying a life or health insurance policy, exaggerating about the damages or injuries after a mishap, not doing the repairs even after receiving a claim check, claiming twice for the same damages are just some ways by which the fraudsters con their respective insurers. 4. Post-Dated Life Insurance – This type of insurance fraud usually involves the insurance agents. The life insurance policies are bought in the name of a person who has passed away before the policy is issued. However, it is arranged in a way that the insured seems to be alive at the time and later on claims are made for his death. 5. Murder for proceeds – The insured either commits suicide or is murdered for financial gain. Sometimes, the insured even doesn’t know that he or she has a policy protecting his or her life. However, this is one of the extreme forms of insurance fraud. 6. Lack of insurable interest – This is more or less like a gamble for those who buy the policy. The policy is bought by a third party, in order to gain from the death benefits (with the hope that the insured will die) and not as a mean for protection. One familiar way through which this form of insurance fraud is committed is with a viatical settlement, whereby a terminally ill patient is insured and thereafter the policy is sold off for the proceeds. If truth be told, insurance frauds can be blamed for the rise in insurance costs in the recent years. Apparently, the insurers raise the premiums to recover from their losses and consequently, the policyholders have to put up with the excess costs.Blog Category