Insurance Fraud Increases Everyone's Rates

Rampant insurance fraud is a major expense factor -- and it is one that is mostly preventable. Moreover, insurance fraud is a crime. Yet, too many of consumers believe submitting fraudulent claims is a harmless act. Each year, fraud costs insurance companies and consumers tens of billions of dollars. It is everyone's responsibility -- insurance agents, company representatives, regulators, law enforcement and consumers -- to identify and prevent fraud.

There are numerous types of fraudulent activities. In addition to consumer insurance fraud, fraud can occur when bogus insurance companies or agents collect premium for worthless policies. It can also occur when adjusters submit phoney claims.

Consumers should perform their due diligence before buying from a company. Insurance department web sites will list carriers and agents licensed to transact business in their state.

Some deceptive individuals within the insurance industry have also duped consumers for personal gain. For example, an unscrupulous insurance agent might collect premiums from a customer without passing the premium payments along to the company. The consumer believes their premiums have been processed by the insurance company, unaware the insurer has cancelled or not even issued the policy due to nonpayment. Oftentimes these schemes do not come to light until the policyholders try to file a claim on a policy that does not exist. Be aware -- all insurers will provide an ID card and a copy of your policy. If you do not receive these items promptly, it is a red flag that needs to be investigated.

If you question whether a company or agent are legitimate you should contact your state insurance department. You may also visit www.naic.org -- the website for the National Association of Insurance Commissioners. This site includes a form provided by the Online Fraud Reporting System (OFRS).

As we mentioned, consumers can also be guilty of committing insurance fraud. There have been many instances of giant fraud rings throughout the nation whose sole objective is to collect payments from bogus claims. Some examples of consumer insurance fraud include staged auto accidents, phony injuries/workers' compensation claims, ficticious theft, staged arson, etc. It is also illegal to exaggerate legitimate claims and to knowingly omit or provide misinformation on the insurance application.

Most state regulators have a fraud bureau that investigates suspected violatons. These divisions often work hand-in-hand with law enforcement and insurers to crack down on fraudulent activities.

Needless to say, any consumer contemplating a fraudulent act must reconsider and understand the toll these acts take on companies and consumers. Everyone pays more in their premiums because of the massive expenses incurred as a result of insurance fraud. If you know anyone who is planning to or who has committed insurance fraud, we urge you to contact your state insurance department's fraud bureau.