Insurance Fraud

Put simply, insurance fraud in a nutshell is when you commit any act with the intention of obtaining payment from the insurer fraudulently. It has been a problem since the introduction of insurance products many hundreds of years ago. Independent studies have suggested that fraudulent claims amount to a very large sum of claims and costs insurers billions of dollars every year.

Obviously the main motive for insurance fraud is for financial profit although it may not be the sole reason. There is an inherent risk that comes with insurance contracts and policies that opens up doors to fraud. The primary reason that the opportunity arises is the over valuation of the insured product or item (this is different to life insurance), which is also indirectly promoted by insurance companies in order to attain greater profits. The second most prevalent reason for insurance fraud is because of false claims where fraudsters claim for damages that might not actually exist.

Insurance fraud is generally classified under two categories, namely hard or soft fraud. Hard fraud is when a policy holder deliberately plans to defraud the insurance company. These acts can range from the invention of a loss such as a deliberate accident, pre-arranged auto theft, fires etc. All these acts are done with the sole purpose of obtaining payment from the policy that they signed up with earlier. Studies have indicated that many criminal rings have stolen many millions of dollars through intricate schemes like this. Soft fraud or opportunistic fraud happens when policy holders exaggerate legitimate claims such as reporting your TV stolen when in-fact the burglar only took the radio. Soft fraud which although may sound less serious is viewed equally by the law. This can also happen on the reverse side where when obtaining an insurance policy the policy holder intentionally under or over represents the truth in order to obtain higher levels of protection.

Of interest to is how insurance fraud plays into healthcare and life insurance. Of all the different forms of insurance fraud, medical or healthcare fraud is the most prevalent. This is because of the “turn a blind eye” attitude with many healthcare providers and patience when it comes to the welfare of the patient. This is because healthcare providers always have the belief that the welfare of the patients is of primary concern above all the rest. Public healthcare programs like Medicare and Medicaid are particularly susceptible to insurance fraud as their fee-for-service structure is designed to be easily claimable thus is particularly easy to game.

When it comes to the detection of insurance fraud it occurs in two steps. The first of the steps is in the detection process is when the initial claim papers are submitted and they are run through a complex computer model to determine the validity of claims and to decide which ones should be manually reviewed for authenticity. The computer will flag potentially fraudulent claims which is where the second step which calls for human review come in.