Ever since insurance was invented, so was insurance fraud. There are many types of fraud, from life insurance fraud to auto fraud. This article will provide a general overview, while discussing the impact of fraud on society.
Most of the time, when someone commits fraud, it is for financial gain. Because of the nature of insurance policies, they are rife with potentials for exploitation. Commonly, insurance policies are exploited by individuals claiming more loss than actually occurred, or inflating the value of the item lost.
Insurance fraud is generally divided into two classifications - soft fraud or hard fraud. Soft fraud is the more common of the two, and is also called opportunistic fraud. This type of fraud occurs when an insured party inflates an already legitimate claim. Soft fraud, for example, happens when an insured individual is involved in a car accident and claims that more damage was done to the vehicle than is true. Soft fraud can happen at the start of a new insurance policy, when an individual purchasing a policy misrepresents their actually situation in order to get a lower premium. An example of this is if someone is buying a car insurance policy but lies about the number of miles on the vehicle to obtain a lower premium
Hard fraud is when someone plans a loss to receive an insurance payout. This type of fraud is usually executed with a fire, "stolen" automobile, or similar that the individual plans themselves. Sometimes entire crime rings are devoted to hard insurance fraud.
An example of life insurance fraud occurred in 2002 when a man named John Darwin disappeared during a canoe trip. His family collected on his life insurance, and he reappeared in 2007 with reported memory loss.
Auto insurance fraud is one of the most common types of fraud. It is estimated that in 1996 as much as 36 percent of auto-insurance claims were fraudulent in some way. Soft fraud in auto insurance fraud includes what was mentioned above, but also situations where a person claims an injury that did not actually occur during the accident in question, or if someone registers their automobile in a location that the insurance is less expensive. For instance, if a person lives in a major city, it is more expensive to insure the car, so they will register it with a suburban address in order to obtain a lower premium.
Hard insurance fraud is usually executed in a "crash for cash" scenario, which has several different varieties of staged crashes. One is the "classic rear-end shunt" where a driver will slam on their brakes, causing the car behind them to crash into them. Many times, the brake lights are disabled, but reconnected before an investigation is conducted. Another common "crash for cash" scenario is one called the "helpful wave shunt," where a driver waves another car ahead of them in a line of traffic, then crashes into them and denies ever waving.
Insurance fraud is a very real problem in the US, with 2006 losses estimated to be near $80 billion. It is estimated that 3-10% of all medical claims contain some element of fraud, resulting in billions of dollars in loss.
Most of the time, when someone commits fraud, it is for financial gain. Because of the nature of insurance policies, they are rife with potentials for exploitation. Commonly, insurance policies are exploited by individuals claiming more loss than actually occurred, or inflating the value of the item lost.
Insurance fraud is generally divided into two classifications - soft fraud or hard fraud. Soft fraud is the more common of the two, and is also called opportunistic fraud. This type of fraud occurs when an insured party inflates an already legitimate claim. Soft fraud, for example, happens when an insured individual is involved in a car accident and claims that more damage was done to the vehicle than is true. Soft fraud can happen at the start of a new insurance policy, when an individual purchasing a policy misrepresents their actually situation in order to get a lower premium. An example of this is if someone is buying a car insurance policy but lies about the number of miles on the vehicle to obtain a lower premium
Hard fraud is when someone plans a loss to receive an insurance payout. This type of fraud is usually executed with a fire, "stolen" automobile, or similar that the individual plans themselves. Sometimes entire crime rings are devoted to hard insurance fraud.
An example of life insurance fraud occurred in 2002 when a man named John Darwin disappeared during a canoe trip. His family collected on his life insurance, and he reappeared in 2007 with reported memory loss.
Auto insurance fraud is one of the most common types of fraud. It is estimated that in 1996 as much as 36 percent of auto-insurance claims were fraudulent in some way. Soft fraud in auto insurance fraud includes what was mentioned above, but also situations where a person claims an injury that did not actually occur during the accident in question, or if someone registers their automobile in a location that the insurance is less expensive. For instance, if a person lives in a major city, it is more expensive to insure the car, so they will register it with a suburban address in order to obtain a lower premium.
Hard insurance fraud is usually executed in a "crash for cash" scenario, which has several different varieties of staged crashes. One is the "classic rear-end shunt" where a driver will slam on their brakes, causing the car behind them to crash into them. Many times, the brake lights are disabled, but reconnected before an investigation is conducted. Another common "crash for cash" scenario is one called the "helpful wave shunt," where a driver waves another car ahead of them in a line of traffic, then crashes into them and denies ever waving.
Insurance fraud is a very real problem in the US, with 2006 losses estimated to be near $80 billion. It is estimated that 3-10% of all medical claims contain some element of fraud, resulting in billions of dollars in loss.
John James is the president of Virginia Insurance Group, a leading broker of Richmond insurance policies such as Richmond homeowners insurance and Richmond commercial insurance. To learn more about Virginia Insurance Group visit them online at: VirginiaInsurance.com.
