Separating Facts From Fiction in Insurance Fraud

From the Front Line

Jason Hamstra, Vice President, Smart Start Personal Lines

Insurance Fraud: Unethical or breaking the law? Both. And unfortunately it is becoming more prevalent in the insurance business each year. According to research, the cost of insurance fraud is estimated at 40 billion dollars annually, excluding health insurance fraud. The result is that honest and ethical consumers pay the price through increased premiums.

Fraud can take on many different hues and facades based on your role in the business. Fraud can be Premium Diversion, Fee Churning, Asset Diversion, or Falsifying Applications on the Producer side, to a wide-open field on the claims side of the business. Claims Fraud can be stolen cars, staged accidents, falsification of car damages, staged home fires, storm fraud, and renter’s insurance fraud, just to name a few.

As a former Commercial Claims Adjuster, it was my duty to not only protect the agent and the company, but also the insured- understating during the investigation phase of the claims process and separating facts from fiction. Having been on the broker side of the business now for five years, I have used my 14 years’ experience in claims to better understand the look of insurance fraud as I work with customers, agents, and carrier business partners. We have an obligation to separate facts from fiction.

There are a few common scenarios that stand out to me: 

The first involves agents’ business practices of accepting cash for premium and then transferring those funds into their personal or business accounts, and never paying the insurance premium for the client. 

The second scenario is falsifying insurance applications for clients in order to return a lower premium, thus leaving the client underinsured, or worse yet, not protected.

In a similar vein, is the case of agents making changes to policies after they are issued to reduce raised deductibles. In the short-term this reduces premiums, but it exposes the client to significantly more out-of-pocket expenses in the event of a loss.

Think about a prospect in your office that has a hobby of cliff diving…traveling to all edges of the Earth to dive from the best cliffs. Do you disclose that fact on the application, or just overlook it and justify not disclosing to the carrier as they had been doing this for years and were always very safe? Do you ever wonder why sometimes it may feel like an interrogation by an underwriter? Bad business practice, or protecting all parties involved? The answer is protecting all parties involved - it is amazing how much an open-ended question will reveal!

Underwriters can uncover a host of information, simply by asking “Help me understand…” or “Does your client have any hobbies?” or “I understand your client travels a lot, can you tell me a little more about their travels?”

Are these types of questions nosey or helpful in understanding how to properly protect and underwrite the risk? 
The bottom line is that whatever role we play in this industry, we are not just advisors and we aren’t simply selling a commodity – we are investigators, underwriters, and enigmatoglogists.

As trusted professionals, if we fail to uphold our legal and professional obligations, not only is this fraudulent activity, it’s a failure that can cost a number of parties involved.

For more on reporting insurance fraud, contact the National Insurance Crime Bureau (www.nicb.org) or your local authorities.