Insurance fraud occurs when a claimant attempts to obtain some benefit or advantage to which they are not otherwise entitled, or when an insurer knowingly denies some benefit that is due.
False insurance claims are insurance claims filed with the intent to defraud an insurance provider. It can be a small, seemingly harmless exaggeration, or it can be a deliberate attempt to falsely claim damages. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Since companies divide the costs of claims among policyholders, fraudulent insurance claims drive premium costs up. Each year, insurance fraud costs consumers an estimated $150 billion, an average of almost $700 per family in additional insurance premiums.
Insurance fraud is a crime for which everyone pays.
Types of Insurance Fraud
Types of insurance fraud are diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents, injuries, or damage. Fraudulent activities affect the lives of innocent people, both directly through accidental or intentional injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a significant problem, and governments and other organizations make efforts to deter such activities. According to the FBI, the most common schemes include:
- Premium Diversion
Premium diversion is the embezzlement of insurance premiums. It is the most common type of insurance fraud. Generally, an insurance agent fails to send premiums to the underwriter and instead keeps the money for personal use.
- Fee Churning
Fee churning is when intermediaries, or middlemen, take commission from several different companies during a reinsurance agreement. This scam is one of the hardest for bureaus to detect because at first each payout to the intermediary seems legitimate. It is after the funds to pay claims are extinguished that the fraud can be identified.
- Asset Diversion
Asset diversion is unlawfully taking assets for an insurance company. This typically occurs if and when one insurance company acquires or merges with another and often involves using the acquired company assets to settle debts.
- Workers Compensation Fraud
Workers’ compensation fraud is a crime commonly committed by both businesses and employees. As exemplified by the four men convicted of fraud in Ohio, workers compensation fraud can be committed when an individual claims to be injured on the job in order to receive monetary and health benefits from the company. On the other hand, a business can claim to provide workers’ compensation insurance at a reduced cost to the employee, but instead of actually providing insurance the company will use the funds for other purposes.
Additional examples of insurance fraud include:
- Staged auto accidents
- Phony vehicle or property theft claims, including exaggerating the value of items that are stolen or damaged.
- Arson of a home or business to collect an insurance settlement
- Falsely billing for healthcare related services
- Faking a death, or attempting to make a homicide look accidental, to collect life insurance benefits
- Agents who charge for additional coverages without approval
How to Protect Yourself
Insurance fraud is everywhere, and can be devastating to its victims. Although insurance fraud is not completely preventable, there are several measures you can take to make yourself less likely in becoming a victim.
- Be wary of exceptionally low premiums
- Verify that the agent and company are licensed
- Make sure you receive your policy within a timely manner
- Keep your insurance policy numbers secret; otherwise, insurance crooks can steal them and involve you in scams
- Beware of unsolicited offers or offers to upgrade your coverage as well as door-to-door and telephone salesmen
- Watch out for investments that seem too good to be true
- Look out for cars that pull out in front of you; they may be setting you up for a staged accident
Fighting Insurance Fraud
If you know or suspect that someone has committed insurance fraud, Texas law requires you to report it within 30 days. The law protects you from any retribution or liability for reporting fraud.
If you suspect fraud, or think you've been a victim of insurance fraud, report it to the TDI Fraud Unit. You can report fraud online or by calling TDI’s toll-free Consumer Help Line at 1-800-252-3439.
You can help fight back against insurance fraud:
Make sure the information you provide to your insurer is accurate
Become knowledgeable of fraud schemes, and be on the lookout for fraudulent acts
Report all suspected fraud crimes to the Texas Department of Insurance Fraud Unit. Call 1-888-327-8818 or e-mail TDI at FraudUnit@tdi.state.tx.us
Report fraud involving Medicare, Medicaid, or drug or health care discount programs to the Texas Attorney General's Consumer Protection Hot Line at 1-800-621-0508.
Texas Committee on Insurance Fraud
The Texas Department of Insurance's fraud unit and the Insurance Council of Texas teamed up with local and national organizations to form a committee to fight insurance fraud. The Texas Committee on Insurance Fraud was specifically formed in 2005 to create a more effective means for prosecuting insurance fraud criminals to help reduce premiums. It is a coordinated effort by the Texas insurance industry with numerous state agencies, county agencies and national organizations to combat insurance fraud. The goal of the Texas Committee on Insurance Fraud is to reduce fraudulent claims as a way to alleviate higher premiums for Texas consumers.
DWC Ramping Up Anti-Fraud and Fraud Prosecution Efforts
TDI’s Division of Workers’ Compensation (DWC) established a dedicated Fraud Unit in 2016. The responsibility for investigating workers’ compensation fraud was transferred from the Texas Department of Insurance to DWC. The transfer allows experienced DWC staff to better monitor and investigate fraud specific to the workers' compensation system.