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Common Types of Insurance Fraud and How to Avoid Them

Dishonest insurance representative attempts to defraud property ownerIf you have ever made an insurance claim, you know that it is not an easy process. Even when a claim may seem fairly straightforward, insurance companies have many different strategies to deny or reduce the amount of a claim. In some cases, insurers and their agents even commit fraudulent acts to steal from policyholders, many of whom won’t realize they’ve been victimized until the day they file a claim. In order to make sure insurers keep to their obligations, attorney Bill Voss offers tips on detecting fraud as early as possible and ways to hold scammers accountable for their actions.

Common Types of Fraud Used to Steal Money from Policyholders

Policyholders often make the mistake of trusting their insurance agents to handle all of the paperwork and filing related to their policies. Unfortunately, complete trust in an insurer places the policyholder at a high risk of fraud, since the company and agent have total control over the policy and access to the policyholder’s accounts.

Common fraudulent practices that can occur when an agent or insurer is given free rein include:

  • Premium diversion. This is the most common type of insurance fraud. An insurance agent collects your payment for premiums and keeps the money for himself instead of paying the underwriter, allowing your policy to lapse. It may also involve an alleged insurance company that operates without a license, collects premiums, and fails to pay claims.
  • Fee churning. Disreputable insurance agents may convince customers to terminate their existing policies and instead purchase new ones that will give the agent a commission. The customer may be tricked into buying a policy that is more expensive and offers less coverage, but results in more money for the agent.
  • Fake policies. Agents are often under pressure to sign more clients, and may create fake policies as a way to boost numbers. Some crooked agents may hide the money they are stealing from other customers in premiums in these fake accounts, and convince the customers they are defrauding not to file claims because their costs will go up.
  • Workers’ compensation fraud. Insurance agents who claim to offer workers’ compensation insurance at a reduced cost may misappropriate the premiums paid without providing the promised insurance.
  • Asset diversion. This scheme involves the theft of an insurance company’s assets. It often happens when an insurer merges with another existing insurance company using borrowed funds. The borrowed amount will be paid using the insurance company’s assets, leaving the company with little or no assets to pay off its obligations to insured people.
  • Disaster fraud. There are many ways fraud may be committed after a tornado, hurricane, or other disaster. Customers may falsify insurance claims after a natural disaster, contractors may inflate the cost of repairs or fail to perform repairs after collecting money up front, organizations may embezzle money meant for disaster relief, and insurers may misclassify the damage suffered as something else.

Remedies for Victims of Insurance Fraud

Policyholders may not suspect fraud until they file a claim, allowing false insurance agents to continue to steal from them undetected for years. The best way to avoid scams is to do a regular and thorough analysis of every detail of your insurance coverage and your agent’s activities. Your agent should provide his copies of the paperwork you request, but otherwise be completely removed from the process.

If you suspect that you are being defrauded, you may report it to the following agencies:

  • Insurance companies. If you feel that someone from the insurance company (such as an agent) is committing the fraud, report it to the insurance company’s fraud hotline or headquarters.
  • State fraud bureau. Check if your state has a fraud bureau tasked with investigating an insurance fraud.
  • Federal Bureau of Investigation (FBI). In the absence of a state fraud bureau, you may report the fraud to your local FBI office.
  • National Insurance Crime Bureau. This is a non-profit organization that works together with the government and insurance companies in detecting, identifying, and prosecuting insurance criminals.
  • Coalition Against Insurance Fraud. This is a national alliance of government agencies, insurers, consumer groups, and public interest organizations dedicated to preventing insurance fraud.
  • National Association of Insurance Commissioners. This group assists state insurance regulators in achieving regulatory goals and serving the public interest.

When making an analysis of your coverage, you should contact your insurance company directly to request a full report of your policy, transaction history, product types, and premium payments recorded on your account. Hallmarks of fraud often include suspicious withdrawals, unauthorized coverage selections, changes to account numbers, and changes in contact information (typically to the agent rather than the insured). Take special care of your agent’s permissions—if you agree that your agent should be contacted instead of you, he may easily avoid detection by explaining his actions to the insurer, and you will continue to be kept in the dark.

If your insurer has committed fraud or bad faith dealings, we can help. Simply fill out the form on this page today to speak to an attorney at the Voss Law Firm, P.C. about your claim, or order our free report on commercial insurance claims.


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The Voss Law Firm, P.C. represents clients on a local, national and international basis. We proudly serve companies and individuals along the Gulf Coast and around the globe on a contingency fee basis. Our law firm collects nothing unless we recover on our client's behalf.

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