Insurance fraud is not readily visible, and it is not a victimless crime, despite what the vast majority of people think. It is the second most costly white-collar crime in the U.S. Tax evasion leads the parade as No. 1. This form of fraud costs consumers just about $150 billion a year. Despite that figure, two out of five Americans do not feel it is wrong to make a fraudulent insurance claim. Paying out money on fraudulent insurance claims means everyone will be paying higher insurance premiums to compensate.
There are more than 7,000 insurance companies, collecting over $7 trillion in premiums every year. There are ample opportunities to commit insurance fraud with an industry that size. Insurance fraud costs the industry over $40 billion a year.
There are a number of common schemes that may include, but are not limited to: premium diversion, asset diversion, workers’ compensation fraud and disaster related fraud.
Premium diversion: the embezzlement of insurance premiums, where the agent does not send premiums to the underwriter, keeping it for personal use instead. Other practices in this area involve collecting premiums and not paying out on claims and/or selling insurance without a license.
Asset diversion: stealing insurance company assets. Usually happens as the result of a merger or acquisition. Usually, someone buys an insurance company with borrowed money, and the assets of the company are used to pay the debt. What is left is diverted to the buyer.
Workers’ compensation fraud: companies that offer workers’ comp insurance for a low rate, but misappropriate the funds and do not provide insurance.
Disaster related fraud: policyholders submit exaggerated claims, misclassify flood damage as theft, wind or fire, people who file claims but live hundreds of miles out of the disaster area, bid rigging, contractors asking for money upfront to do work and vanishing and