Consumer Alert: How to Avoid Insurance Fraud

If you think that insurance fraud is relatively uncommon, or that it doesn’t affect you, think again.

In fact, according to The Coalition Against Insurance Fraud, insurance-related fraud schemes are estimated to cost American consumers at least $80 billion each year, which can directly result in higher insurance premiums.

In other words, the high prevalence of insurance fraud ultimately costs you more of your hard-earned money.

Clearly, insurance fraud is big business, and doesn’t appear to be slowing down anytime soon.

Because of the wide-reaching impact of insurance fraud, we here at HighYa felt it would be a good idea to help you become a more informed consumer by arming you with the information you need to avoid falling victim in the first place.

However, the reality is that insurance fraud represents an enormous topic. As a result, for the purposes of this article, we’ll focus on the 3 most common types of insurance fraud that could potentially affect our readers: Auto, homeowner’s, and medical/health care.

We’ll discuss what insurance fraud is, how you can identify it, and how you can avoid falling victim in the first place.

Before we begin though, let’s define what we’re talking about.

What is Insurance Fraud? Why is it Such a Big Problem?

Insurance fraud is defined as “any act that is committed with the intent to fraudulently obtain some benefit or advantage to which they are not otherwise entitled.” With this in mind, according to the Coalition Against Insurance Fraud, there are 2 primary types of insurance fraud: soft and hard.

Soft Insurance Fraud

Soft crimes could be thought of as the “little white lies” of insurance fraud, and might entail something such as falsely inflating damages related to a claim. An example of this could be claiming that several items were in your car at the time it was stolen, when these items weren’t present—or in some instances—never existed in the first place.

Hard Insurance Fraud

On the other hand, “hard” fraud represents a much more serious problem, and involves deliberately faking or causing an accident, injury, or theft. This type of crime typically involves one or two individual, although it’s become increasingly common for hard insurance fraud to be perpetrated by organized crime rings. But why are these types of fraud so prevalent in the first place?

The Current Climate of Insurance Fraud

According to the Coalition Against Insurance Fraud, insurance fraud is typically thought of as a low-risk crime, and thus is more attractive. This is because the vast majority of individuals who perpetrate insurance fraud will likely never be caught, and if they are, they’ll often be subject to lenient jail terms and fines. On top of this, the insurance industry as a whole admittedly has a poor reputation among consumers, so the public often tolerates insurance fraud, or may even view it as justifiable.

Now that you know more about what insurance fraud is and why it’s so prevalent, let’s take a look at the most common type: auto insurance fraud.

Auto Insurance Fraud

Have you ever been involved in a minor fender bender, only to find out a year or more after the accident that the other party filed an injury-related claim totaling thousands of dollars? You’re not alone. In fact, according to at least one source, “More than one third of people hurt in auto accidents exaggerate their injuries.”

But why are auto-related injury claims so profitable for fraudsters? Continuing with the example above, let’s say one of the individuals involved in the accident claims they’re suffering from whiplash, for which they’ve incurred $2,500 worth of medical bills. It’s no secret that less-than-reputable physicians can easily create false paperwork to back up the claim, and insurance companies recognize that it often costs more money to fight these claims than it is to simply pay the requested amount. In other words, many insurance companies pay these types of claims as a form of “go away” money.

Another method that criminals use to defraud auto insurance companies is to create staged auto accidents. For example, someone may signal for you to merge into traffic, but as soon as you do they hit the gas and cause you to collide with their vehicle. Once this occurs, several other participants in the scheme will arrive on the scene and attempt to complicate the situation and confuse you into making a mistake.

With this in mind, what can you do to avoid falling victim to auto insurance fraud? Let’s take a look.

Useful Tips for Avoiding Auto Insurance Fraud

First, it’s important that you know your policy well. In other words, you need to recognize exactly what your auto policy covers, and what it doesn’t. Admittedly, auto insurance can be confusing, so a good infographic that outlines the different coverages under your policy can be found here. If you’re confused or need clarification, it’s always a good idea to contact your agent or the insurance company directly.

In addition to understanding your policy inside and out, here are some more tips you can immediately put to use:

1. If a car suddenly pulls in front of you and forces you to follow dangerously close, you may be set up for a staged accident. Instead, always follow safe driving skills and leave plenty of room between you and the vehicle in front of you.

2. As soon as you’re involved in an accident, immediately contact the police, whose report will act as another form of documentation outlining exactly what occurred.

3. Do not admit fault. Instead, contact your insurance company. Based on the information you provide, they will be the ones who ultimately determine fault.

4. Keep your insurance card to yourself, and only hand it over when exchanging information with other drivers involved in the accident.

5. Always carry a disposable camera in your glove compartment (a smartphone with a built-in camera will work just as well). If you are in an accident, take pictures of the damage, the people involved, and any surrounding road signs and scenery. Also, ask for names, telephone numbers, and driver's license information for all those involved, as well as those of any witnesses.

6. After an auto accident, be careful of strangers who offer you quick cash or urge you to see a specific medical clinic, doctor, or attorney, or even those who recommend a specific towing company or auto body shop. They could be part of a fraud ring.

7. Unless you already have a working relationship with an auto body shop in your area, it may be best to use one recommended by your insurance company. Regardless of who you use though, make sure you receive written estimates before any work begins, as well as an itemized list of all work the body shop completes.

Homeowner’s Insurance Fraud

When compared to automobile insurance, homeowner’s insurance fraud is more often committed by policyholders than it is by a third parties. This can include everything from intentionally damaging property in order to obtain insurance money (e.g. deliberately setting fire to a property), to conspiring with other individuals with the intent of submitting a fraudulent liability claim (e.g. someone claims to have had a slip and fall accident on your property).

However, outside of these types of claims, by far the biggest perpetrators of homeowner’s insurance fraud are storm chasers, which we’ll discuss next.

Useful Tips for Avoiding Homeowner’s Insurance Fraud

As with auto insurance, it’s vitally important that you have a relatively complete understanding of what your homeowner’s insurance covers before a claim occurs. As such, be sure to contact your insurance agent or carrier if you have any questions after reading through your policy paperwork.

Storm Chasers & Homeowner’s Insurance Fraud

The most common source of homeowner’s insurance fraud is related to storm chasers, who travel around the country and visit areas recently damaged by natural disasters, such as strong storms, tornadoes, earthquakes, and the like. While the term “storm chaser” often has a negative connotation, the reality is that many of these individuals and businesses are legitimately attempting to help communities in need. In fact, most insurance companies even employ “disaster relief teams” who visit recently stricken areas in order to help speed up the claim and repair processes.

However, many storm chasers are simply out to make as much money as possible, while doing little to no work on your home (or if they do, it may be shoddy and cause even more money to correct). These fraudsters will typically go door-to-door and present themselves as industry professionals in order to gain your trust. Then, they’ll use high-pressure sales tactics to convince you to sign paperwork that allows them to work directly with your insurance company. Finally, after cashing your insurance check, these storm chasers will often exit the scene, never to be heard from again.

With this in mind, if someone approaches you about doing work on your home, here are some tips that can help you avoid becoming a fraud victim:

  • Avoid discussion of any methods that might help you avoid paying your homeowner’s insurance deductible.
  • Ask to see their driver’s license and the license plate on their vehicles. If you see that they’re out of state, ask them for recent, local references.
  • Ask for a roofing license and a valid certificate of insurance.
  • Ask for a copy of their business card, and look them up online using consumer organizations such as the Better Business Bureau.

Finally, whether your homeowner’s insurance claim is related to a natural disaster or something else altogether, it’s always a good idea to keep detailed documentation throughout the process, including contracts, materials lists, purchase orders, and receipts.

Medical/Health Care Insurance Fraud

From a consumer perspective, health care insurance fraud occurs when someone files a claim for services not received, forges or alters medical bills and/or receipts, or files a claim using someone else’s coverage or insurance card. While medical insurance fraud is less common than it is for auto and homeowner’s, according to this article, “At least 3 percent of the money spent on health care each year in the U.S. involves some type of fraud. And while that may not sound like much, the total is a staggering $68 billion a year.”

With this in mind, although there is some significant overlap with auto and homeowner’s insurance, here are some real-world recommendations you can immediately put to use in order to avoid falling victim to medical fraud.

Useful Tips for Avoiding Medical Insurance Fraud

  • Always keep your medical insurance card hidden from prying eyes, unless you’re absolutely sure it needs to be handed over.
  • Ask your insurance carrier which services are covered, and which physicians you can visit (often known as “in-network”).
  • Avoid visiting physicians who advertise “free” tests or other services, but require a copy of your insurance card in order to be eligible.
  • Be sure to ask questions about any services your physician orders, such as: Why are they needed? How much do they cost? Then, only agree to the services you feel you legitimately need.
  • Avoid purchasing your prescriptions from online pharmacies, especially those located outside the US.

Also, another tried and true method of having your health care insurance information compromised is to never enter it into any online form, unless you’re on your physician’s or insurance company’s website. We’ll talk about this more in the next section.

Online Insurance Fraud

Increasingly, insurance companies are moving online in an effort to reduce expenses and to provide easier access for their customers. And while these goals can certainly have an impact on your insurance premiums, there are some common sense methods you can employ in order to avoid fraud. These include:

  • First and foremost, you should always check that your internet connection is secure. In order to accomplish this, simply look for the “lock” icon in the upper left-hand corner of your internet browser. Also, look for a URL that begins with "https." If you have any reservations about a site, close it immediately and never provide any of your personal information.
  • Never open any emails from individuals or companies that you don’t know. And if you do, never click on any links or attachments they contain.
  • Avoid logging into your insurance company’s website after clicking on a link contained in an email. Instead, visit the company’s site directly and then proceed to log in from there.

What Can You Do if You Suspect You’re the Victim of Insurance Fraud?

If you realize that you’ve fallen victim to insurance fraud, the most important thing you can do is to immediately take action. Otherwise, you’ll basically be giving criminals free reign to pull their frauds on other unsuspecting consumers.

First, you should immediately contact your insurance company’s fraud hotline, and give them a detailed overview of what’s occurred. This can help prevent the fraudsters from obtaining any more funds from your insurance policy. Next, be sure to file a report with your state insurance fraud bureau, as well as with the National Insurance Crime Bureau.

Finally, share your experience. Informing others of your ordeal can help consumers avoid the same fate.

Have You Fallen Victim to Insurance Fraud?

If so, tell us about your experience. Do you have any tips or tricks that other consumers can use to avoid being defrauded in the first place, or what they can do once they are? Tell the world about it by leaving a comment below!

Image credit: IM FREE

Derek Lakin

With more than a decade of experience as a copywriter, Derek takes a detail-oriented, step-by-step approach to help you shop smarter. Whether it’s nutritional supplements or new scams, he believes an informed consumer is a happy customer.

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