Introduction
Insurance is an important money tool that offers security and peace of mind. Fraudsters, though, take advantage of the system and mislead insurance companies and policyholders. Insurance fraud can result in financial losses, legal issues, and rising premium payments for all. Knowing common insurance cons and how to guard yourself helps prevent you from being a victim of these conspiracies.
In this article, we’ll explore the most common types of insurance scams, how they work, and the best strategies to prevent them.
1. Fake Insurance Policies
How the Scam Works:
Impersonators who claim to be genuine insurance agents or organizations sell phony insurance policies to unsuspecting consumers. The policy appears genuine, usually with the use of counterfeit documents and authentic-looking forms. Victims become aware of the scam when they attempt to file a claim and realize that they do not have a policy.
Red Flags to Watch Out For:
- The company or agent does not have a listing on any government or regulatory website.
- The premium is much lower than other genuine providers.
- The seller demands cash payments or wire transfers.
- You do not get any acknowledgment from the insurer upon buying the policy.
How to Avoid It:
- Always confirm the credentials of the insurance company and agent prior to buying a policy.
- Confirm the insurer’s license through regulatory bodies like the Insurance Regulatory and Development Authority (IRDAI) or the National Association of Insurance Commissioners (NAIC).
- Buy policies from reputed insurers or authorized agents directly.
- Ask for official paperwork and confirmation of your policy from the insurance company.
2. Premium Diversion Fraud
How the Scam Works:
Here, an agent receives insurance premiums from customers but fails to remit the funds to the insurance company. They simply keep the money for themselves, leaving the policyholder without cover, unaware. Victims usually become aware of this when they submit a claim and discover their policy was never taken out or has expired.
Red Flags to Watch Out For:
- You never get an official policy document from the insurer.
- The agent demands cash payments or personal checks instead of payments made directly to the company.
- You no longer receive premium payment receipts or confirmations from the insurance company.
How to Avoid It:
- Pay premiums directly to the insurer, preferably by bank transfers, cheques, or internet transactions.
- Periodically confirm with the insurer that your policy is in force and premiums are paid.
- Ask for a formal receipt for each payment and maintain a record of all transactions.
- If you have any suspicion of fraud, immediately report it to the insurer and regulatory bodies.
3. Staged Accidents and Fraudulent Claims
How the Scam Works:
Other criminals stage accidents in order to make fraudulent claims and receive insurance claims. The scam is also rampant in automobile insurance, where fraudsters will intentionally cause an accident or simulate injuries and damage in order to claim for compensation.
Some of the common methods are:
- Brake Slam: A scammer suddenly slams on their brakes, making the car behind them crash. They then accuse the other driver and make an exaggerated insurance claim.
- Swoop and Squat: There are multiple scam cars involved. One cuts off the victim, and another behind them squats and makes them crash.
- Phantom Victims: Following a small accident, scammers make false claims of having passengers who were hurt and make bogus medical claims.
Red Flags to Look Out For:
- The other party demands an immediate cash payment rather than going through the insurance firm.
- Witnesses or doctors appear to overstate injuries.
- You are forced to sign documents of fault or pay for damages at the spot.
How to Avoid It:
- Drive carefully and maintain a safe distance from other cars.
- Fit a dashcam in your vehicle to capture accidents as evidence.
- If there is an accident, click pictures of the spot, damages to the vehicle, and number plates.
- Report the accident to the police immediately and do not make any direct cash payments to the other party.
- Call your insurance company prior to settling with the other party.
4. Health Insurance Fraud
How the Scam Works:
Health insurance fraud can be perpetrated by both healthcare providers and policyholders. In this fraud, medical practitioners, hospitals, or policyholders overstate medical bills, bill for treatments that were never received, or use someone else’s insurance to access healthcare services.
Common health insurance frauds are:
- Upcoding: Physicians or hospitals charge for a more costly procedure than what was actually done.
- Phantom Billing: Billing for medical services that were never rendered.
- Bogus Prescription Claims: An individual uses fake prescriptions to get costly drugs and sell them on the black market.
Red Flags to Be Aware Of:
- Your medical bill contains treatments or procedures you never had.
- You get an insurance claim statement for medical appointments you never attended.
- A physician performs unwarranted tests or treatments.
How to Avoid It:
- Scrutinize all medical bills and insurance statements meticulously to ensure they agree with the care you have received.
- See only registered and credible medical practitioners.
- Never provide anyone with your insurance information who is not a trusted medical practitioner or insurer.
- Notify your insurance company at once about any suspicious charges or discrepancies.
5. Identity Theft and Policy Manipulation
How the Scam Works:
Identity thieves steal personal data to fraudulently manipulate insurance policies, either by opening policies in another person’s name or changing beneficiary information on an existing policy. This can lead to unauthorized claims or policy cancellations without the owner’s awareness.
Red Flags to Watch Out For:
- You are being informed of policy modifications or claims that you have not made.
- There is a discrepancy on your insurance reports.
- Premium payment reminders or policy notifications are no longer coming in.
How to Avoid It:
- Secure your personal and insurance data. Do not disclose sensitive information on the internet or on the phone.
- Check your policy statements and reports on a regular basis for any suspicious activity.
- Inform your insurer at once of any suspicious policy changes.
- Employ strong passwords for your internet insurance accounts to avoid hacking attempts.
6. Contractor and Home Insurance Fraud
How the Scam Works:
Following natural disasters, scam contractors target homeowners with swift repairs and assurance that they will assist in handling insurance claims. They usually require payment upfront but never finish the job, and victims are left with no repairs and less money.
Red Flags to Watch Out For:
- Unsolicited contact from contractors after a storm or disaster.
- Contractors request total payment in advance before they start working.
- They refuse to provide a written contract or proper licensing information.
How to Avoid It:
- Work with contractors who are licensed, insured, and have verifiable references.
- Avoid making full payments before the job is completed.
- Contact your insurance company before hiring a contractor to ensure their legitimacy.
7. Auto Repair and Towing Scams
How the Scam Works:
Following an accident, crooked auto repair shops or towing operations may scam policyholders by charging excessive prices for repairs, doing unnecessary repairs, or taking cars hostage until high rates are paid. In other instances, crooked repair shops partner with scam artists who create staged accidents to create false insurance claims.
Frequent Methods Adopted:
- Towing Scam: Tow truck operators show up at accident sites without invitation and transport vehicles to unfriendly repair shops, charging exorbitant amounts for towing and storage.
- Excessive Charges for Repairs: Repair centers overestimate the cost of labor and materials, even charging for work not completed.
- Mock Repairs: Repair shops advertise that they repair a problem but fail to carry out the work, compromising the safety of drivers.
Red Flags to Be Aware of:
- Tow trucks unexpectedly show up quickly at the site of an accident without having been called.
- The repair shop will not offer a detailed written estimate.
- The repair shop insists on receiving full payment before work begins.
- You are coerced into signing documents that direct your insurance claim payment to the shop.
How to Avoid It:
- Utilize only towing and repair services that have been approved by your insurance provider.
- In case you require a tow, call your insurer or roadside assistance company for referrals.
- Obtain several repair estimates prior to authorizing repairs.
- Ensure all work is documented with invoices and receipts.
- Never sign blank or incomplete documents at a repair shop.
8. Disability and Workers’ Compensation Fraud
How the Scam Works:
This form of fraud is committed by individuals who receive disability benefits or workers’ compensation while being completely able to work. Employers or medical providers in some instances may also be involved in fraudulent claims.
Fraud schemes commonly used include:
- Simulating or Dramatizing Injuries: An employee simulates an injury to receive disability benefits.
- Work While Receiving Benefits: Someone claims they can’t work but is working under the table elsewhere.
- Phony Employers: Spammers open false businesses and name fictitious workers to obtain workers’ compensation falsely.
Red Flags to Be Aware of:
- A hurt worker is found to be engaging in physical tasks at odds with what they reported they were hurt from.
- A physician or medical practitioner appears to be overly invested in disability claims.
- An abrupt influx of disability claims from one workplace.
How to Prevent It:
- Employers need to carry out thorough background checks on disability claimants.
- Employers and insurers must ask for independent medical exams when required.
- Employers must have workplace safety measures to avoid fraudulent claims.
- File reports of suspicious activity to the authorities or insurance investigators.
9. Insurer Life Insurance Fraud
How the Scam Works:
Not everyone who commits insurance fraud is an individual—insurance companies sometimes also practice fraud to earn the most profit. Certain companies postpone or reject genuine life insurance claims through loopholes, anticipating that policyholders or beneficiaries abandon their claims.
Typical strategies include:
- Intentional Policy Lapses: Insurers can allege that a policyholder has missed a payment, leading to an unfair lapse of the policy.
- Unfair Denial of Claims: Minor technicalities are used by companies to deny rightful claims.
- Policy Churning: Agents persuade policyholders to unnecessarily swap their existing policies with new ones, earning extra commissions without any actual benefit.
Red Flags to Look Out For:
- Unexpected unexplained gaps in your policy.
- Delayed or denied payments without justification.
- An agent frequently pressures you to switch policies.
How to Avoid It:
- Always keep records of premium payments and policy documents.
- Contact the insurer directly if you receive unexpected lapse notifications.
- Report unethical practices to regulatory authorities.
- Consult with a financial advisor before replacing an existing life insurance policy.
