What is Insurance Fraud?

Each year, insurance fraud costs consumers around $150 billion in additional insurance costs. Consumers pay the price of fraud due to the fact that insurance providers divide the cost of the claims among those policyholders insured. Insurance fraud can be committed by an insured person or company, or even by so-called insurance providers.

What is Insurance Fraud?

Simply put, insurance fraud occurs when the insured unfairly take advantage of their insurance company to obtain benefits that don’t belong to them. For instance, exaggerating the total costs of repairing a damaged car in order to trick the insurer into providing additional compensation.

On top of that, insurance companies that sell auto, home, life or business insurance products could commit fraud through the sale of a false policy to customers, or with the theft of insurance premiums by a dishonest agent.

What Effect Does Insurance Fraud Have?

Insurance fraud is one of the reasons why insurance rates rise every year. In terms of fraud committed by those insured, even though fraudulent claims make up about only 1% of total insurance claims, other insured policyholders have to pay for the dishonesty of guilty consumers.

The insurance industry measures the number of fraudulent claims made by customers by tracking the amount of 'questionable claims' each year. A questionable claim is one which is referred to a nonprofit bureau, where each case is reviewed more thoroughly, based on the most common fraud indicators.

On the other hand, fraud committed by the insurance companies by selling fake policies or with the theft of insurance premiums logically also affects customers in a negative way. Consequently, this means that fraud is not only a problem for insurance companies to deal with but for insured policyholders as well.

Typically, there are two types of fraud committed by insured clients. They’re classified as "hard fraud" or "soft fraud".

Hard Fraud

Hard fraud involves gaining money from an insurance company by falsifying or completely inventing a theft, fire, accident, or injury. Sometimes, this could even involve using the help of an employee as an accomplice within the insurance company.

An extreme example of hard fraud would be the deliberate burning of one's home to get compensation from the insurance company. In many cases, not only is insurance fraud illegal but the act that is committed to obtaining the gain from a claim also usually involves committing an additional criminal act, such as burning down a house.

Soft Fraud (Material Misrepresentation)

On the other hand, soft fraud involves intentionally exaggerating or lying on your policy application to get a lower rate. In other words, the claim for the incident itself can be legitimate, but the policyholder could be denied coverage if he or she materially misrepresented facts on their policy.

Legal Issues

Due to the serious consequences that can result from both types of insurance fraud, all states in the US classify insurance fraud as a crime. This type of wrongdoing is a preferred tactic by those in organized crime, and the sector with the most common cases of insurance fraud is the car insurance niche. At the federal level, legislators have enacted laws that extend fraud sentences in the event that a crime costs a life or an injury to an individual.

Protecting yourself from the costs of insurance fraud is a must, and Infinity Insurance is dedicated to offering the best service and value for your trust. Make sure you have a team of reliable people at your service when driving your vehicle. Call an Infinity agent at 1-800-INFINITY or get an online quote today.

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