Reviewed by Aug 27, 2020| Updated on
Insurance fraud is an illegal act by either the buyer or seller of an insurance contract. For example, a seller may sell policies from non-existent companies, fail to submit the premiums, and churn policies to earn more commissions. Similarly, a buyer may falsify medical history, exaggerate claims, fake death or kidnap, and murder.
What is Insurance Fraud?
Insurance fraud is an attempt to exploit an insurance contract. Insurance is meant to protect against risks, not to serve as a vehicle to enrich the insured. Although insurance fraud by the policy issuer does occur, the majority of cases have to do with the policyholder attempting to receive more money by exaggerating a claim. A drawback of insurance is that the increased cost of insurance is passed on by the insurer to the customers.
Types of Insurance Frauds
Insurance fraud with automobiles includes disposing of a vehicle and then claiming that it was stolen in order to receive a settlement payment or a replacement vehicle. The vehicle can be secretly sold, abandoned, intentionally destroyed, or pushed into a river or lake. Then, the owner of the vehicle may claim that the vehicle was stolen.
The owner of a vehicle may want to reduce premiums by using false registration. Consider that he lives in a locality that demands a higher premium; premiums are designated based on a higher theft rate in the neighbourhood or for some other reason. So, he may try to register his vehicle under a different locality in order to reduce the premiums.
In terms of healthcare, insurance frauds are described as an intentional act of deceiving, concealing, or misrepresenting information to get healthcare benefits paid to an individual or a group. Member frauds can be prescription drug fraud, concealing pre-existing conditions, claiming on behalf of ineligible members, failure to disclose that the cause of an injury is related to work.