Insurance fraud is a big business, costing consumers billions of dollars in premium hikes and the cost of law enforcement. For a consumer facing fraudulent activity due to agent or broker diversion schemes, policies sold by unlicensed or unregulated companies, or companies that collect premiums without paying out claims, it can be difficult to spot a scam.
According to the National Association of Insurance Commissioners (NAIC), non-medical insurance fraud is a $40 billion industry, impacting not only insurance companies but consumers, with the annual cost to the average family of $400 to $700. The most common insurance categories affected are:
- Automobile insurance, costing the industry as much as $29 billion annually
- Worker’s compensation by both employers and employees, costing $6 billion annually
- Health insurance, in which fraud has increased in the past year.
Some areas of insurance fraud are crimes in every state, and state-level fraud bureaus such as in Nevada have a task force of criminal investigators who work with federal, state and local law enforcement in the process of investigating fraud claims.
Common insurance fraud schemes
Insurance companies must be licensed in the state where they do business and follow state laws and regulations, which address the actions of their employees, agents and brokers as well as how policies are sold and underwritten and the claims paid out. Although a denial does not in itself mean fraud has been committed, there are some other ways in which consumers may be scammed:
- Premium diversion, in which the agent collects premiums and then does not send them to the underwriter
- Fee churning, in which the premium passes through several intermediaries, each of whom takes a commission
- False representation of worker’s compensation insurance
- Charity fraud schemes misappropriating funds for disaster relief
Avoiding insurance fraud scams
Sometimes red flags are tough to spot, but there are common-sense steps a savvy consumer can take to avoid falling into an insurance fraud trap. Consumers can check to see if the company is licensed in the state, and if it feels like an agent is unusually aggressive or targeting you, seek the advice of other family members or get other quotes. Above all, make sure to send payments directly to the insurance company, not the agent.
If you have been a victim of fraud by an insurance company or agent, it is important to seek experienced insurance law attorneys in the Reno and Las Vegas areas to effectively represent your interests.
