Insurance fraud is a billion-dollar business and it harms insurance companies, independent agencies and everyone they are trying to insure. Fraud creates a more expensive bottom line for everyone. The best way to protect against fraud is to know what it looks like and how to best guard your business against it.
While there are many different ways that people may try to defraud an insurance company there are some common themes and types of insurance fraud. Being familiar with these schemes can help you protect your business and your bottom line.
Common Insurance Fraud Schemes
- Exaggerating a real situation
People who have home or auto insurance may find themselves tempted to take advantage of their insurance by exaggerating a claimable incident. This can happen in a number of ways. If a home is damaged in a storm, the homeowner may include preexisting damage in the claim, inflating the amount the insurance company pays out. The homeowner could also claim additional damage that simply doesn’t exist in order to inflate the claim.
Similar shenanigans can be done with auto insurance involving damage to a vehicle after an accident. Unscrupulous repair shops may charge for work or parts that are not needed and then simply pocket the extra money from the insurance company. The repair shop purposely overstates the cost and makes money at the expense of the insurer.
- Stolen car scams
Some people find themselves underwater on their vehicles, owing more than the vehicle is worth. Others simply find that their situation has changed and they can no longer afford their payments. Unfortunately, some people turn to fraud to remedy their financial strain. An insured owner may abandon or dump a vehicle and then claim that it’s been stolen. This is a common type of fraud that can create a whole host of other problems for the person perpetrating the fraud including legal consequences for filing a false police report.
- Claiming items have been damaged or stolen in order to claim insurance funds
Similar to the stolen car scam, a person facing financial difficulties may fraudulently claim that expensive jewelry or electronics have been stolen in order to receive insurance money.
- Staged car accidents
The driver of one or both vehicles will purposely set up an accident that damages both vehicles and requires insurance payouts to cover the damage. Injuries from the staged accident can be made up or exaggerated in an effort to further defraud the insurance company. These types of staged accidents are dangerous and run the risk of actually harming the participants as well as innocent third party bystanders.
- Staged home or business fires
People in extreme financial difficulties have sometimes turned to arson. A common insurance fraud strategy is to set a home or business on fire and then recoup the insurance money that is intended to rebuild or repair the structure. The home or business owner may hire someone to set the fire so that he or she can make sure to have an alibi in place. This type of fraud is so dangerous because fires can spread to other neighboring homes or businesses and could harm innocent people nearby.
How fraud impacts an independent agency
Fraud claims are expensive and time consuming. Insurance underwriters are all too familiar with all of the fraud strategies above as well as many others. Successful fraud can lead to huge financial losses for your agency. Insurance providers will try to recoup their losses by increasing premiums making it harder for you to find affordable insurance for your clients. Fraudulent claims also make it more challenging for legitimate claims to be paid, as insurance companies are scrutinizing every claim more and more closely.
As an independent insurance agency, how can you protect yourself?
- Have a thorough vetting process in place during the hiring stage.
It is important to exercise due diligence when hiring agents. An insurance agent can also participate in fraud. Clear and thorough screening during the hiring process can protect your business from people with bad intentions.
- Don’t chase bad business.
Just as you should vet your employees, you also need to carefully screen prospective clients.
- Get to know your insurers and their underwriters.
- Understanding the requirements of your insurers will help you better match your clients to the best possible company.
- Work with your clients to guide them in submitting claims.
Clients rely on you to help their get their legitimate claims processed so that they can recover from their losses. Mastering the underwriting and claims processes will help you be the best advocate possible for your clients.
If you need additional support to help review prospective clients or guide them through the claims process contact ASNOA. Our specialists can support you through establishing your business and connect you to a network of resources. You can rely on our specialists to give you the support you need so you can in turn give your clients the assistance they are counting on.