Insurance Fraud: What Does It Mean for Consumers?
If someone lies while making an insurance claim or purposely causes damage in order to receive an insurance payout, that's insurance fraud—and it's a serious crime. When a person commits insurance fraud, the costs are passed on to all insurance customers, including the honest ones.
Here are some important facts everyone should know about insurance fraud and examples of bad actors who got caught trying to cheat the system.
Insurance Fraud Is a Problem for Everyone
According to the FBI, insurance fraud (not including health insurance fraud) is estimated at over $40 billion per year. The FBI estimates insurance fraud costs the average family in the U.S. between $400 and $700 per year through higher premiums.
The Coalition Against Insurance Fraud estimates total insurance fraud at more than $80 billion per year across all lines of insurance. This accounts for around 5 to 10 percent of all claim costs for insurance companies. Because claims are a major driver of overall insurance premiums across the industry, that means every person with insurance is a victim when someone commits fraud.
Real-World Examples of Insurance Fraud
Home Repair Scams
After a major storm, good Samaritans and nonprofits rush to aid displaced families. Meanwhile, contractors may show up ready to make repairs to damaged properties. While most contractors are honest, some will inflate bills to make the insurance claim larger or, even worse, might intentionally damage the home so they can bill the insurance company to fix it.
Only work with licensed, insured, bonded contractors. If a deal seems too good to be true, it very well could be a scam. If you're faced with a high-pressure sales situation or a demand for full payment upfront, you may want to keep shopping around for a more trustworthy contractor.
What you can do: Contact your insurance company, as they may have a list of recommended repair companies. Asking your insurer to approve repairs in advance will help you avoid unexpected expenses and keep your repairs in-line with your claim.
Health Insurance Scams
Any event as big as COVID-19 is sure to bring scammers out of the woodwork. Much of this insurance fraud is related to health insurance and COVID-19 testing. Some scammers try to sell you fake insurance policies, like COVID-19 health coverage that doesn't exist, and you wouldn't need anyway thanks to regular health insurance. Others try to sell fake testing kits.
Another common scam is getting a call saying that a loved one is in the hospital and payment is needed urgently to give them life-saving treatment, like a ventilator. Rest assured, legitimate insurance companies and hospitals in the U.S. won't be calling friends and relatives of someone sick with COVID-19 demanding payment for treatment.
What you can do: Stay alert to calls from unknown numbers. No legitimate insurer, healthcare provider, or government agency will demand this type of immediate payment. They will also never ask for payment using prepaid cards or gift cards. If you are approached with this type of scam, take the time to report it to law enforcement, as it may help protect others from falling victim.
COVID-19 and Fraud
The COVID-19 pandemic has led to an array of insurance scams and fraud. In addition to the fake COVID-19 insurance scam discussed above, criminals are trying to sell innocent victims other types of fraudulent insurance. After the IRS sent COVID relief payments to most Americans, scammers were ready to jump to action to steal as much of that money as they can.
There has also been an uptick in certain property crimes leading to more insurance claims. For example, Westfield has noticed an increase off questionable claims related to property theft and auto theft during the COVID-era. Bandit tow trucks may tow a parked car and demand impound lot fees, among other scams.
Staying safe: Organizations like AARP and the Consumer Financial Protection Bureau offer free resources to learn more about fraud and how to keep your identity and money as safe as possible from scammers around the world.
You Play an Important Role in Battling Fraud
If someone you've never met across your state falls victim to an insurance fraud scam, you are a victim, too. Every American pays more in insurance premiums due to fraudulent, criminal activity. Educating yourself and your loved ones on how to stay clear of insurance scams is an important job for everyone.
To report insurance fraud contact: