Insurance Fraud: What It Costs You and Extreme Cases With Examples
Should You Worry About Insurance Fraud?
According to the FBI, insurance fraud costs the average American family between $400 and $700 more a year on their insurance premiums. When we think about insurance fraud many things come to mind:
- Individuals scamming their own insurance for personal gains
- People collaborating to defraud insurance together
- Elaborate schemes set up to scam people and make money off your insurance without you even realizing it.
Here are examples of extreme insurance fraud, common insurance scams as well as the information you need to know about insurance fraud with facts.
Some Facts About Insurance Fraud
- According to the RGA 2017 Global Claims Fraud Survey 1 in 30 claims are reported as fraudulent globally.
- 10% of incurred losses and expenses are estimated by the Insurance Industry to be attributed to fraud. In personal insurance or property and casualty insurance, this amounts to about $30 billion each year from 2013-2015. That's 150 billion dollars in fraud in 5 years.
- The Coalition Against Insurance Fraud estimates $80 billion in fraud a year for all the different types of insurance.
Examples of Different Types of Insurance Fraud
According to Lexus Nexus, here are some "high concern" fraud schemes:
Extreme Fraud Case Examples
In 2018, one medical supply scam had scammers contacting people on Medicare to get their social insurance number and personal information. Then the scammers would use the information to order medical equipment, costing taxpayers and Medicare millions of dollars.
The Insurance Fraud Hall of Shame is one resource where you can look through the archives of fraud and see the most extreme cases of insurance fraud from 2018. Here are some extreme and terrible fraud examples:
- A woman stole identities of addicts to bill over $175 million in health insurance claims
- A parent poisoned their 15-month-old son to get the $50,000 life insurance, lied about his medical conditions, and then continued to collect the disability checks after he died.
- A salon owner torched their salon to get the $40,000 of insurance money; the fire claimed the lives of two firefighters.
Health Insurance Fraud Common Examples
Health insurance provides scammers with many opportunities to fraud people and insurance companies. Some common scams include:
- Medical billing fraud. So many people have trouble understanding their medical bills that fraud might be harder to detect, especially if you are not paying attention.
- Medical Identity theft
- Medicare and Medicaid have huge fraud exposures, these fraudulent claims and activities end up costing the taxpayer money because they are government funded programs.
- Learn more about other medical scams here.
Car Insurance Fraud Examples
- Repair shops charging for extra work or time inaccurately
- Using used parts but charging for new parts
- Staged car crashes
- People selling their cars to chop shops to get the money for parts and then claiming the car was stolen
Learn more about avoiding car insurance repair scams from National Insurance Crime Bureau (NICB).
Examples of Home Insurance and Renter Insurance Fraud
Here are some typical examples of home insurance fraud:
- People inflating insurance claims to get more money than their actual loss
- People selling their belongings and then claiming they were robbed
- People claiming they have been robbed when the items or cash never existed.
- People burning their house down when they are in financial hardship
- People making false declarations or not disclosing full or truthful information. Learn more about examples and consequences of lying to the insurance company here.
Life Insurance Fraud Examples
Life insurance fraud happens in many ways, here are some examples:
- People who fake their death and use the money to live out their lives in luxury
- People trying to take insurance out on others when they know they have a short lifespan
- Buying insurance under false circumstances
- Questionable life insurance agents or people pretending they are agents trying to scam you.
Examples of Fraud By Insurance Agents and Insurance Company Employees
Believe it or not, insurance fraud happens inside the industry as well. Many times we think insurance companies are being so vigilant examining claims closely and trying not to pay out too much in claims that we don't even think about the fraud in the industry itself. Insurance fraud happens with underwriters, adjusters, and unfortunately with dishonest agents too. Here's one example from the Insurance Hall of Shame where an Insurance Adjuster planned out damages on homes, burning and flooding dozens of homes for $14 million in insurance claims.
Beware of Fraud By Contractors Repairing Your Home
Unfortunately, at times of disaster, there are often scammers looking for ways to make some money. People pretending they are contractors may approach you and give you a "great deal" on repairs, there is major fraud that happens like that. Learn more about Disaster Fraud from the NCIB.
Contractors may also commit fraud by not doing proper repairs, or not using the time or materials they are charging for.
Always ask for references, and make sure the contractor you hire is licensed and in good standing. You have a right to have things in writing and work with formal contracts. Cash deals and handshakes should be a warning sign of potential fraud.
Insurance Claims and Fraud
The list of fraud cases that happen with insurance will always be growing since there will always be criminals who will look for ways to profit for themselves without any regard for the cost of fraud on society or others.
Always be cautious with your medical bills, protect your identity and never be afraid to check references or call the insurance company with questions if you suspect something is wrong with a claim.