What Is Insurance Fraud? How To Identify It And Avoid It

There are two big misconceptions about making false insurance claims:

It’s a victimless crime, after all it’s just some big rich insurance company and they have plenty of money to pay claims. True, to a point, but we all pay insurance premiums to spread the financial risk of certain activities. And if someone makes a fraudulent claim, we all pay for it. And guess who is on the jury? Premium paying citizens who don’t want to pay more for fraudulent activity. So, it’s not a victimless crime.

Insurance companies won’t figure it out. They will and they do.

There’s a name for a certain kind of insurance fraud that I just love: Crash and Buy. Here’s what happens, the defendant has no insurance but is driving anyway. He or she gets into an accident at 10 AM. At 10:30 he calls the insurance company and buys insurance. At 11:30 AM he calls in his claim and says that the accident happened after he bought the insurance. As you might imagine, the insurance company rather quickly decides that this may be fraudulent and starts to investigate. They find a 911 call made before the insurance was purchased, a time stamped photo or video of the incident, and or a witness who noted the time. They will also get the District Attorney to charge Felony Insurance Fraud.

Here’s another one: Worker’s Comp Insurance Fraud. The defendant says he’s injured at work and can’t work. His or her leg, arm, back hurts and therefore should get Worker’s Comp. Not wanting to get sued for bad faith, the insurance company starts paying out. The defendant, of course, is home sitting around and getting bored. So, the defendant starts doing things, cleaning up the house, packing boxes, moving the boxes onto a truck, gardening, taking the day off to play golf or go water skiing. I’ve seen actual cases with all of these activities. And guess what, the insurance company has an investigator with a camera documenting all of it.

Here’s a simple one: phony-up medical receipts and submit them. The insurance company makes a routine call to the doctor’s office just to confirm, and the doctor’s office knows nothing about it.

Welfare Fraud: The defendant is getting public assistance, food stamps and a monthly stipend, but then gets work and still collects the public assistance.

If you’re charged with an Insurance / Consumer Fraud type case, here’s some good news. A money case can be solved with money. Lots of criminal cases cannot be solved with money. An assault, a sex offense, a burglary, a drug deal – these things cannot be solved with money, but a money case, can be solved with money. Usually the “victim” agency is primarily looking to get their money back, so paying them back will take much of the sting out of the sentencing agreement. If you have the money, or can get the money, you’re probably not going to jail.

Louis J Goodman

Insurance fraud is the purposeful misrepresentation of facts to either receive benefits from an insurance provider or to avoid having to pay for an insurance policy. It can involve submitting false documents to make a claim, altering policies and other records, or providing false information when applying for a policy. Insurance fraud also includes activities such as staging incidents for profit and taking advantage of loopholes in insurance contracts.

If you have been charged with making false claims to an insurance company, manipulating facts, or other instances of insurance fraud, contact criminal defense attorney Louis J. Goodman.

Consult a Lawyer Who Truly Understands the Insurance Industry

With more than 25 years as a criminal defense attorney and former prosecutor, Louis understands the intricacies of the system better than most. You deserve competent counsel. With Mr. Goodman, you receive the client-centered, aggressive legal support you need. Regain confidence in your life with the best representation possible.

If you’re going up against the insurance industry and facing serious insurance fraud charges, you should understand the basics. Let’s cover what insurance fraud is and how you can avoid it, or defend against it, in 2023 – 2024.

Understanding Insurance Fraud – The Basics

Generally speaking, insurance fraud may be any commission or omission that seeks to receive a fraudulent payout from an insurance company. It is the intentional deceiving of an insurance company, and usually includes either providing the insurance company false information, making exaggerated or outright falsified claims for losses or damages, or staging incidents, accidents, or other events as part of a fraudulent claim.

Insurance fraud occurs in a variety of forms and may be investigated by insurance agents and other fraud bureaus and investigators. Insurance frauds are generally separate from fraud involving money management, such as asset diversion and fee churning.

Nonetheless, insurance fraud cases can result in serious criminal consequences, so any person, business, or entity accused of breaking the law, should seek competent legal counsel immediately.

In What Ways May an Insurance Company Be Defrauded?

Insurance fraud may appear in various forms and for various reasons. If claims filed are not filed properly, they may trigger certain suspicions of suspected fraud. This is why you should always be sure you do your due diligence before submitting claims.

Even if you did not intend deliberate deception, your claims may be viewed as suspicious claims. Insurance companies take paying claims very seriously, so if they have reason to doubt your claim is a legitimate claim, it’s necessary to proceed with caution.

Insurance companies, bureaus, and investigators combat fraud on many levels, including:

Application fraud – Oftentimes, applicants may strive for an insurance policy with a lower premium. In doing so, they may give false information or overstate and understate other information to avoid higher insurance costs.

Sometimes people may inadvertently commit insurance fraud simply because their information is inaccurate.

Premium fraud – Similar to application fraud, this particular fraud is the failure to disclose relevant information or the act of giving false information to companies collecting premiums. Again, the intent of this fraud is financial gain through paying lower insurance premiums.

False claims – This type of claims fraud usually involves submitting false claims for injuries or damages that didn’t happen. A claimant may also make exaggerated claims about the severity of losses or injuries.

Faking theft – When a claimant fakes theft or robbery, that individual is asserting something that never actually happened. This deliberate act may involve either reporting incidents that didn’t occur or exaggerating the number or value of items stolen.

Staged events – These may include accidents or incidents such as carcrashes or personal injuries. Arson can also be staged but is typically categorized separately from staged fraud.

Because fraudulent claims can contribute to both losses and higher insurance premiums, they are taken very seriously. Depending upon the nature of the fraudulent claims, claimants may face severe criminal charges and consequences such as fines and imprisonment.

What Are the Different Types of Insurance Fraud?

From a fake work-related injury to manipulating health plans or staging property damages, there are many types of insurance fraud. If the insurance company believes the claimant seeks to collect insurance money unlawfully or immorally, they can face very stringent penalties.

Whether a policyholder exaggerates a claim or completely makes it up, there are many ways to commit fraud. Insurance company employees are trained in detecting insurance fraud and may be able to differentiate legitimate claims from illegitimate claims immediately.

The following types of insurance fraud are the most common.

Auto Insurance Fraud

Insurance frauds involving auto insurance may include faking or staging accidents, claiming nonexistent injuries, or reporting faked auto theft. An insurance company will only pay claims that are formally and substantially supported by documentation. If a person claims serious injury, he or she will need to thoroughly prove it.

In some cases, people may even have their vehicles ‘stolen’ or crash a vehicle to cash in. These fraudulent practices are not as uncommon as one may think, which is why auto insurance companies have become quite focused on combatting fraud.

Health Insurance Fraud

Although most forms of fraud are non-health insurance fraud, healthcare fraud can be very problematic. Health insurance fraud typically involves the filing of false claims for medical interventions, procedures, or surgeries that never occurred, billing more for services or prescription drugs than is required, or billing for completely unnecessary services.

Health care fraud may be perpetrated by patients, doctors, surgeons, and other healthcare providers. Defrauders may receive significant financial gain from such fraud if not caught. Fortunately, measures such as those in the Affordable Care Act may help in combating fraud of this nature.

Identity Theft Fraud

To commit fraud through identity theft, a defrauder will falsely claim to be the victim of identity theft. A person who falsely files claims related to a stolen identity may be mispresenting or fabricating legal fees, lost wages, or bank card statements.

Normally, an insurance payout for identity theft helps a claimant recover from loss and damages caused by credit monitoring, resolution services, and court-related expenses. Defrauders are considered to have manipulated the system if they claim they’ve had their identity stolen when they have not.

Life Insurance Fraud

Those who commit insurance fraud in this context, typically either stage a death, misrepresent medical information on documentation, or submit falsified claims to receive death benefits.

To obtain insurance money, a life insurance fraudster may take out a policy on a fake individual, pretend to be an insurance agent, or even outright kill someone to collect when insurers pay claims.

Property Insurance Fraud

Property damage fraud is a type of fraud in which the fraudster files falsified claims about lost or damaged property, exaggerates the value of damages or losses, or reports property theft that never occurred. Property owners, tenants, or third-party claimants may all commit property insurance fraud in various ways.

For instance, a defrauder may claim that a roof was shattered when it was not. A claimant may state that certain items were stolen from a residence when they were not. Or someone may claim that a building has undergone catastrophic damage when the damage is minimal.

Workers’ Compensation Fraud

People can get seriously injured at work, especially on job sites where heavy equipment and machinery are operated. However, sometimes workers’ compensation claims may appear to be far from honest. Workers’ compensation fraud includes filing falsified claims for injuries and illnesses, lying about their severity, and continuing to receive benefits even after going back to work.

Make sure you understand your workers’ compensation laws, business rules, and rights as an employee. Be sure to contact a local expert attorney if you’re unsure.

Disability Insurance Fraud

Similar to workers’ compensation fraud, disability insurance fraud relates to false or exaggerated claims concerning health issues. These include falsifying claims for disabilities, exaggerating the extent of disabilities, and receiving an insurance payout even after returning to the workplace.

Clearly, there are many ways that fraudsters can make claims to receive payouts that they don’t deserve. Insurance companies scrutinize every case when a claim is made, and may decide to charge for insurance fraud, whether the case is truly fraudulet or not. Although these various types of claims differ based on severity and classification, there are two general categories insurance companies use. Those categories are: hard fraud and soft fraud.

Hard Fraud vs. Soft Fraud: Know the Key Differences

Not all fraud is created equally. When it comes to insurance claims, there are soft fraud claims and hard fraud claims. Although both are considered deliberate acts to defraud, they are qualitatively different. Generally, hard fraud occurs when a party intentionally makes a false claim, while soft fraud refers to exaggerating or misrepresenting a legitimate claim.

Because hard fraud typically involves severe acts like arson, theft, and staged events, it incurs more serious penalties and criminal charges. Soft fraud, by comparison, typically occurs among everyday individuals and may include inflating the severity of damages and failing to disclose previous claim information.

Fraudsters will usually try to deceive insurance commissioners, government agencies, and regulatory bodies through two classes of fraud intent: premeditation and opportunism. Opportunistic fraud is usually an impulsive decision occurring when a window of opportunity opens. Premeditated fraud is planned and may be carefully executed to avoid detection.

When reporting fraud, claims adjusters may relay the type and class of fraud to the relevant authorities.

Is It Possible to Accidentally Commit Insurance Fraud?

Yes, it is certainly possible to accidentally commit insurance fraud. Insurance frauds that occur unintentionally usually stem from a claimant’s mistake or lack of knowledge. Nonetheless, claimants are responsible for ensuring all information and documentation is provided accurately and completely.

Claims fraud is taken very seriously, even if you did not intend it. When you become aware of potential fraud, the best thing to do is to contact the insurance company. Reporting fraud, even if it’s your own exaggerated claims, is a good way to get ahead of potential penalties.

You should also contact a seasoned fraud attorney if you are at all unsure about the applicable laws, rules, and regulations. Although most fraud is handled at the state level, a federal bureau or national association may get involved, especially if the fraud affects interstate commerce or federal law.

Who Investigates Insurance Fraud?

From fee churning to asset diversion of borrowed funds, healthcare fraud, property fraud, and other fraudulent activities, there are many types and forms of fraud. Insurance fraud is but one subset of fraud, albeit an important and pervasive one.

When it comes to investigating this fraud, insurers fight fraud first and foremost. In fact, most major insurers have their own units dedicated to detecting and investigating suspicious and illegitimate activities. Insurance companies may surveil, interview and analyze data to uncover potential fraud. They may also utilize a fraud hotline for reports and tips.

Which Entities Detect, Investigate and Prosecute Insurance Fraud?

Law enforcement agencies also play a critical role in investigating and prosecuting fraud, especially in cases of major insurance schemes, fee-churning practices, and the manipulation of borrowed funds. If the fraud violates criminal laws, as in theft, you can expect law enforcement agencies to get involved.

The Federal Bureau of Investigation (FBI) may even step in if the cases warrants the agency’s involvement. The FBI typically investigates serious matters of insurance fraud, securities fraud, and investment fraud, such as asset diversion, pump-and-dumps, and Ponzi schemes.

There are Numerous Ways Fraudsters Get Caught

Non-profit organizations like The National Insurance Crime Bureau (NICB) and The Insurance Fraud Bureau (IFB) bring together regulatory agencies, law enforcement, major insurers, and other stakeholders to fight insurance fraud at all levels.

Similar to the fraud bureau and crime bureau, The Coalition Against Insurance Fraud is also a powerful player in fighting fraud. This national organization coalesces all kinds of entities, businesses, and stakeholders to combat fraud and fight for more stringent fraud laws and penalties. The Coalition Against Insurance Fraud continues to affect public policy on a national scale.

If you’ve been charged with insurance fraud, it’s best not to waste time. Contact a criminal defense attorney in your area who understands the system and can get to work on your case right away.

FAQs on Insurance Fraud

What are the penalties for committing insurance fraud?

The penalties for committing insurance fraud depend on jurisdictional laws and fraud severity. Both civil and criminal penalties may apply, including fines, repayments, loss of professional certifications, probation, community service, restitution, and incarceration.

Are there any warning signs of potential insurance fraud?

There are many warning signs and red flags for potential fraud. These include suspicious timing of claims (i.e., right after a policy purchase), changing information, inflated or excessive claims, inflated damage amounts, and failure to cooperate with authorities.

Is it possible to report someone engaging in insurance fraud?

The first step in reporting someone involves contacting the insurer about suspicious activity. Be sure to provide detailed and extensive information about the individual and case in question. You may also report to law enforcement agencies or a fraud hotline. Accurate fraud reporting may help to prevent significant losses and premiums.

How can I protect myself against becoming a victim of insurance fraud?

There are various simple steps you can take to protect against fraud. Firstly, do the research and learn about fraud with articles like this one. Secondly, only purchase insurance from reputable companies. Thirdly, ensure you understand all the details of your policy and keep detailed records.

Finally, have a good lawyer on speed dial. In some cases, you may be the one accused of fraud. If this happens, contact The Law Office of Louis Goodman in Alameda for a no-obligation consultation. If you have been falsely accused of fraud, you deserve the best counsel around to protect your rights.