Insurance fraud costs Americans billions of dollars every year. Whether it involves workers’ compensation, health or auto insurance, the company may withhold hundreds of dollars in funds when a consumer needs them the most. This article will detail the basics of insurance fraud, some common types, and what consumers can do before and after it happens.
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What Is Insurance Fraud?
Insurance fraud occurs when an insurance agent or consumer abuses the system for financial gain. Both insurance agencies and consumers can commit insurance fraud. Insurance fraud costs the US over $40 billion every year, as reported by the Federal Bureau of Investigation. For the average American, that means anywhere from $400-$700 in extra premiums.
What Types of Insurance Fraud Are There?
(Important: This article mostly covers insurance fraud in which an agent withholds funds from a consumer. However, consumers can also make false insurance claims. Both are considered types of insurance fraud.)
There are many different types of insurance fraud. This section will cover some events that involve an insurance company withholding funds that would otherwise go to a consumer. Here are a few of the most common types, as per the FBI’s official website:
Premium Diversion
Premium diversion is the most common form of insurance fraud. It involves payment of insurance premiums never reaching the company.
To understand how this works, here is the general process for insurance payment. Most insurance is purchased through an agent. This agent does not give people insurance; that job goes to an underwriter. Premium diversion usually happens when the agent does not give their money to the underwriter, meaning the insurance company does not get the money.
Regardless of which party commits fraud, the money never reaches the consumer. Most people do not realize they are victims of premium diversion until they need insurance funds. These funds are intended to be used for personal gain, such as fueling one company’s congressional campaign.
