Before I got into the insurance industry, I was involved in a car accident. I had driven too fast around a corner, took the ditch and did some serious damage to the frame on my truck. Unsure how to start, I went to a body shop and asked for a rough estimate. The body shop employee looked at the damage and asked how it happened. I told the story and the employee asked if I had filed an insurance claim yet. I had not and the employee responded “you could tell the insurance company that a rock fell on the road and you could not avoid hitting it.”
We have all had a conversation similar to this, where somebody plots a scheme to collect an insurance payment. Brad Paisley even sings about insurance fraud in “The Cigar Song.” First and foremost, committing insurance fraud is a crime and if you are found guilty, punishments can be severe. Below are common insurance fraud situations, information about consequences and how to report potential insurance fraud.
- Cars sold and reported as stolen: A car owner sells their car to a chop shop or another person and claims the car was stolen.
- Staged Accidents: A few people gather together to stage an accident. People behind the scheme can include individuals, businesses and even law enforcement and insurance adjusters.
- Making a claim but not repairing the damaged property: Say you are in a small fender-bender and the other driver is at fault. You receive payment to repair your car but never make the repair.
- Staged Building Fires: You purposely light your building on fire to collect an insurance payment.
- Storm claims: A property owner creates more damage than actually caused by the storm, hoping to get more repairs.
- Renters insurance: You sell your new television then report it as stolen to collect from the insurance company.
- Faked Death: You take a life insurance policy out on yourself with your spouse as the beneficiary. The death is faked months later, the policy pays out and the spouse suddenly disappears!
- Premium dodging: You tell the insurance company that you garage the car in one place, when it is really garaged in another place. Or you tell the company that you only use your car for personal use, when you actually use it to make deliveries for a business.
- Workers’ Compensation fraud: An employee fakes an injury at work for a non-work related injury.
- Stealing your Premiums: An insurance agent or broker pockets your insurance premium instead of sending it to the insurance carrier.
If you get caught committing insurance fraud, you will definitely be in trouble. The severity of the punishment depends on the extent of the fraud. It could be as little as a misdemeanor and fines, up to life in prison with no parole. No matter where you fall in between, good luck finding an insurance policy after being found guilt!
How does Insurance Fraud affect me?
Even if you are an honest insurance customer, you are paying a price for insurance fraud. It is estimated that insurance fraud accounts for $80 billion dollars in fraudulent claims annually. These costs are passed down to all policy holders.
What can I do after witnessing insurance fraud?
There are options to make people aware of potential insurance fraud. A good starting point is the Coalition Against Insurance Fraud. The Nevada Attorney General has the Insurance Fraud Unit that is dedicated to prosecuting insurance fraud. The California Department of Insurance has a Fraud Division that investigates insurance fraud. In most states you can file a confidential report to the insurance fraud department.