Insurance Inception Fraud
Insurance fraud is one of the most prevalent types of fraud in the marketplace. Experts believe that the nature of insurance business is conducive to fraud because insurance companies need to provide insurance for just about everything. These companies are under great pressure to accumulate liquid assets, which makes them vulnerable to accept clients that can pay them hefty premiums every month.
Policyholder fraud can be committed by individuals at the inception of the insurance contract, during the coverage period, and at the time of making claims. Insurance frauds can also be committed by a third-party such as a doctor who may claim to offer a service, which was not provided. In fact, the insurance company can also cheat individuals.
Insurance inception fraud is mostly related to the misinformation when a policyholder applies for an insurance policy. The motive behind such misinformation is to gain monetary advantages from the insurance policy.
Types of Insurance Inception Fraud
There are basically two types of insurance fraudsters who try to deceive the insurance company when applying for an insurance policy.
- The Opportunity Fraudster: This type of fraudster is usually a law-abiding individual who makes a false statement when filling an application thinking that there is no harm in misrepresenting certain facts. Another motive behind misrepresentation is the assumption that insurance companies have unlimited funds; therefore it does not matter to make exaggerated claims at the renewal of the policy to compensate for policy period when no claims are made.
- The Professional Fraudster: A professional fraudster mostly has a criminal background as the only motive to take an insurance policy is to commit fraud. These individuals continue to defraud insurance companies until they are indicted.
Some individuals continue to do insurance crime after a prison sentence. In this case, they stay in the background by managing resourced needed to commit such crimes. Professional fraudsters are also members of the criminal syndicate, who extort money from insurance companies to spend in other criminal activities.
Insurance fraud may consist of deliberately withholding important information to decrease insurance premium. Sometimes, clients provide incorrect information regarding their background, health, and property. Hiding details such as holding another insurance policy is also a common tactic used to defraud insurance companies.
Insurance Fraud Committed by Insurance Agents
It should be noted that insurance fraud is also committed by the insurance agency. For instance, a company agent may offer misguided information to the client about the resources of the company. When a company employee knowingly submits the false information to the client in order to gain benefit for the company, it is also considered a serious crime.
The type of internal fraud consists of misrepresented some of the following information:
- A representative may provide wrong information regarding the medical coverage and insured cost despite understanding the implications of wrong information.
- Write an improper date of birth to obtain a cheaper premium for the client.
- Provide the wrong home address to obtain cheaper insurance based on the geographical location.
Consumer Attitudes Towards Insurance
There are multiple types of deceitful tactics used by the client to misinform and hide important particulars about their data. According to various studies, insurance companies face an uphill task of protecting fraud due to the attitude of the public towards fraud.
Many prominent studies indicate that a large number of consumers in the U.S. think that there is no harm in providing false information to insurance companies.
For instance, a NerdWallet Poll found that nearly 10 percent of the consumers lie to insurance companies when buying auto insurance. Similarly, a Harris Poll suggested that nearly 40 percent of Americans report lower annual driving mileage and 20 percent lied about how they will use the vehicle.
Nearly 30 percent of consumers feel that it is acceptable to increase an insurance claim to compensate for the deductibles that they had to pay in the past.
These attitudes towards insurance claims negatively affect the bottom-line of an insurance provider. According to the Property Casualty Insurers Association of America, approximately one-third of the companies reported that the fraudulent claims made up more than 20 percent of the overall claims paid to the client.
A recent survey by CNBC revealed that nearly half of Americans don't tell the truth when applying for car insurance as information regarding tickets and accident on the insurance form is often false and misleading. Many individuals deliberately put wrong information because they don't care about checking the trim package of their vehicle or they aren't sure how many miles they drive their vehicles every year. It is also common to neglect speeding tickets and their respective issuance dates.
To stop a culture of mistrust and misrepresentation, experts suggest that insurance companies must educate their clients regarding negative repercussions of insurance inception fraud. They must educate their clients because lying on insurance forms can cost clients dearly
Insurance Inception Fraud
For consumers, such misleading information can void their insurance. In other circumstances, the insurance provider may not provide full benefits. In fact, the client can also get a jail sentence and fine. Usually, insurance companies have two years to evaluate and report misinformation otherwise the insurance remains intact.
Most insurance providers do not wait until the last minute. Instead, they have access to the database of the Medical Information Bureau and C.L.U.E. for health, home, and automobile claims. The access means that they can uncover such information easily, which can have negative repercussions for the consumer.
We should understand that lying on insurance form at the inception of an insurance policy is a crime that will come back to haunt us. While filling the insurance form, it is not recommended to rely solely on guesswork and assumptions because it can negatively impact the insurance policy in the future.
Instead of providing wrong information, it is practical to talk to an experienced insurance agent who can provide better choices suited to the client's individual requirements.
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