Costs of FraudThe insurance industry consists of more than 7,000 companies that collect over $1 trillion in premiums each year. The massive size of the industry contributes significantly to the cost of insurance fraud by providing more opportunities and bigger incentives for committing illegal activities.
Common SchemesThe total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year. That means Insurance Fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums.
Premium Diversion
- Premium diversion is the embezzlement of insurance premiums.
- It is the most common type of insurance fraud.
- Generally, an insurance agent fails to send premiums to the underwriter and instead keeps the money for personal use.
- Another common premium diversion scheme involves selling insurance without a license, collecting premiums and then not paying claims.
- In fee churning, a series of intermediaries take commissions through reinsurance agreements.
- The initial premium is reduced by repeated commissions until there is no longer money to pay claims.
- The company left to pay the claims is often a business the conspirators have set up to fail.
- When viewed alone, each transaction appears to be legitimate—only after the cumulative effect is considered does fraud emerge.
- Asset diversion is the theft of insurance company assets.
- It occurs almost exclusively in the context of an acquisition or merger of an existing insurance company.
- Asset diversion often involves acquiring control of an insurance company with borrowed funds. After making the purchase, the subject uses the assets of the acquired company to pay off the debt. The remaining assets can then be diverted to the subject.
Insurance Fraud Resources
For more information about Insurance Fraud or where to report it, contact the following organizations.
Fraud Bureaus
Check to see if your state sponsors a fraud bureau that investigates insurance fraud—most states do. You may even be eligible for a reward if you report a scam.
Insurance Companies
Go directly to the insurer you think is being defrauded. Some companies have systems in place for reporting fraud. If the company doesn’t have a reporting system or fraud hotline, call or write the company headquarters.
National Insurance Crime Bureau (NICB)
(800) 835-6422
The NICB is a non-profit organization that partners with insurance companies and law enforcement to help identify, detect, and prosecute insurance criminals. The NICB web site is an excellent source of information.
Coalition Against Insurance Fraud (CAIF)
www.insurancefraud.org
The CAIF is a national alliance of consumer groups, public interest organizations, government agencies, and insurers dedicated to preventing insurance fraud. The CAIF website offers a wealth of information for consumers.
National Association of Insurance Commissioners (NAIC)
www.naic.org
The NAIC assists state insurance regulators in serving the public interest and achieving regulatory goals. You can find numerous fraud resources on the NAIC website.
Individuals are always encouraged to report Insurance Frauds to their local FBI offices.