Who doesn’t complain about the high price of insurance? Your health insurance, home insurance, car insurance – the premiums just go up, up, up every month.
The insurance industry is comprised of more than 7,000 companies that collect over $1 trillion in premiums each year. The total cost of insurance fraud (excluding health insurance) is estimated to be more than $40 billion per year. Insurance fraud costs the average U.S. family between $400 and $700 a year in the form of increased premiums. Here are some common types of insurance fraud:
1) Stolen Cars. The FBI reports that $7.4 billion was lost to car theft in 2020. 810,400 vehicles were stolen that year, the highest number of vehicles stolen since 2008 when 959,059 vehicles were stolen. The #1 stolen car is the Honda Civic. The #1 city where cars are stolen is Bakersfield, California.
But what if the car was never stolen and it was a pre-meditated theft by the owner? This is called an “Owner Give-Up.” The owner lies about the theft, hides, or dumps the car and collects insurance money. This costs insurance companies millions, and you can spend years in prison if you get caught.
2) Fake Accidents. Fake accidents are a huge problem mostly in urban areas. Staged car accidents are usually committed by gangs who prey on drivers in a number of ways, like drive downs, swoop and squats, and “jump-ins”: www.nicb.org/prevent-fraud-theft/staged-auto-accident-fraud. Sometimes it’s called a “Cash Crash.” The #1 city for fake car accidents in Miami.
Additionally, more than one-third of people hurt in auto accidents exaggerate their injuries. This can add $13-$15 billion to America’s annual insurance bill. Other fake accidents are “slip and fall” where people slip in stores like Walmart and lie about an injury. This is big business for personal injury lawyers and is estimated to cost insurance companies $2 billion a year.
3) Premium Diversion Fraud. This type of insurance fraud is committed by insurance agents who divert premiums to the underwriter and keep the money for personal use. According to the FBI, it is a very common type of fraud and can have disastrous effects on policyholders.
4) Worker’s Compensation Fraud. There are three types of workers
comp frauds that cost insurance companies billions. Policy-Related Fraud is when a company manipulates or withholds information in order to lower its insurance payment. Claim-related Fraud is when an employee falsely claims a work-related injury or illness in order to get workers’ comp. And Medical Provider Fraud is when a medical provider profits with unnecessary services on a claimant. Medical Provider Fraud includes billing and kickback schemes with pharmacies and doctors.
5) Application fraud is another common type of fraud, also called “soft fraud.” It occurs when an applicant intentionally provides false information on an insurance application like fictitious beneficiaries, or when a policyholder exaggerates the number and value of items stolen from a business or home.
Add it up and you see why your insurance premium is so high. And until insurance fraud comes down, don’t expect your premium to come down either.