Insurance fraud is the term used for explaining the misrepresentation that the individuals or a group of people make so that they can avail more benefits from the insurance companies to which they are actually not entitled too. The transparency in the representation is important for securing the rights and overburdening the company from the claims which have actually not taken place. The insurance companies take different measures for protecting the rights and ensuring that they are protected from the insurance fraud. For this the rules and regulations are implemented using which they sometimes protect themselves from such frauds.
The insurance companies hire the agent who inspects the location and the circumstances which have occurred for ensuring that the claims that have been made are legitimate. In some of the cases the insurance companies fail in discovering the false claims and pass the claim made. The appropriate implementation requires that the internal systems are efficiently managed and regulations are formed through which the claims must be approved. This report is a compilation of different forms of frauds that take place within the system and the remedial measures such as the regulations and penalties that have been taken for protecting the insurance companies from the insurance frauds. The details of the frauds which take place along with different kinds of insurances along with the elements of fraud have been discussed in this report. The analysis based on the responses of the individuals and what they think about the burden imposed on the insurance companies due to the fraud has also been discussed elaborately in all the segments of this compilation.
Insurance fraud is a terminology used to explain an event when someone knowingly tries to obtain the benefits or advantage to which they are not entitled. The fraud arises in the special situations in which the fraud may be handled as a discrepancy of the administrative action. The fraud division of the organizations often handles such issues as a criminal matter. The entitlement handling and transparency of the happenings depend heavily on the managing of the system. The different form of codes and penalties associated with the insurance fraud explains the application of the policies (California Department of Insurance).
This report explains the insurance fraud and presents the laws and regulations on the basis of which the system is formed. The claims of the fraud are handled using a specific protocol within the organization. These policies and compliance are seen by the fraud division. The role of the fraud division is to enforce the code and analyze whether the Insurance Frauds Prevention Act is appropriately implemented. The laws and regulations of the system investigate different forms of Fraud and penal codes which are applicable as a remedial source. The claims made by the claimers are in most of the cases investigated through surveys for finding any sort of fraudulent claim if any. The case investigated by the Fraud division involves the criminal acts of the claimants in the case of automobile property, personal injury, workers compensation, health insurance and property claims. This report also includes a discussion of the fraud cases along with the application of the relevant laws and penalties.
Insurance fraud is the dubious act which is performed by the individuals with the sole intention of receiving the payments from the insurer. These act of actions rise up the costs for the consumers because the insurance industry has to spend billions of dollars in the industry each year for benefiting the individuals (MacDonald). Detecting the frauds in the insurance is difficult and these criminal actions perpetrate the payments which are offered to the insured party by the insurance companies (MacDonald).
The term referred by the police or the prosecutors in the industry is referred to as “the hard fraud” and “the soft fraud”. Hard fraud is the rare term in which the parties deliberately come to the insurance companies informing about damage or destruction to their property just for the purpose of collecting the amount of the insurance policy from the insurer. Soft fraud is the term in which the individual party exaggerates the damage received for a legitimate claim. The individual applies an insurance claim and lies about certain of the conditions and circumstances so that the policy premium can be lowered down. This also makes availing a few of the claims for more benefits easier.
One of the most common forms of claim arises when the insurance policy of the individual is of a higher amount of the value of the property of the insured. In this policy the party has an objective for committing a fraud. In this, the action of the property is stopped from destroying in such a way that the operations looks like an accident. In 2006, the authority found that such cases cost the companies an estimated $766 million. This swindling of the insured parties damages the financial holdings of the insurance company very badly. For the recovery of the damage the individuals even register the occurrence of the accidents with the authorities but the truth is that such accidents never have happened. In the most adverse cases the individuals in the certain cases have also forged about their own death so that their families and other parties can collect the policy. In the health care industry, the doctors forge the representation of the treatment in order to alter the receiving of the claims and acquiring additional expenses.
The frequently recorded fraud in the automobile insurance occurs when the policy holders submit the claims of the accident and file for more damages than for those which occurred. With this, the insured parties file for the higher claims as compared to the claims which actually occurred.
INSURANCE FRAUD LAWS AND PENALTIES
Insurance fraud arises when the people deceive the insurance companies and collect the money they are not entitled to. This kind of crime is very common and most of the claimants some way or the other are exercising such claims. In some of the cases the agents are required to investigate the claim and ascertain that whether the claims applied for are legitimate or not. These types of felonies arise in various kinds of cases and through this the entire structure is acknowledged. The fraud in some of the cases also arises from the insurance companies when they reject to cover the claims of the party applying for the insurance. The cost of the fraudulent claims on the society is also high. The insurance companies charge higher premiums from the party seeking insurance which increases the cost of getting insured (Taylor).
ELEMENTS OF INSURANCE FRAUD
When the defendant or the claimant is found to be committing insurance fraud then the prosecutors must initiate the actions which led to this action. This can be done in the following cases which happen.
- Knowingly making false or misleading statement: Falling in the category of fraud it is required that the claimant deliberately commits to a misleading statement. The falsification of the statement must be deliberate so that the statements presented appear to be misleading.
- The statement and its relevance with the upcoming claim: The false made must be in connection to the claim which the claimant has made. This requires the falsification of the claims and availing additional benefits to which the claimant is not entitled.
- Material statement: For the existence of the fraud the false statement must be related to the financial benefits or additional benefits of the policy must be availed by the claimants. The outcome of the fraud must have the potential benefit associated so that other benefits can be realized (Taylor).
All these factors which have been described above show the instance that the situation must have all the above factors for the accomplishment of the laws. All the elements discussed above show the application through which the fraud claims can be made.
COMMON EXAMPLES OF INSURANCE FRAUD
Insurance fraud can occur in any form of insurances. The common fields in which the fraud occurs is mentioned below. The classification below is done on the basis of identifying that how the claimants misrepresent the happening of events and avail the benefits to which they are not entitled too. The drawbacks of such events have to be faced by other individuals who have to pay a higher premium to the company so that they can avail the benefits of insurance.
Health care insurance: In the field of health care the patients and the doctors collaborate with each other and forge the insurance companies. The reason for this is to secure the patients and provide them with the facilities of insurance if the illness does not fall under the cover age category. In some of the cases the doctors also forge the insurances so that they get higher remunerations for the treatment they have provided to the patients. In some of the cases the misrepresentation is done so that the patient can avail the benefits of the health insurance which he possesses (Taylor).
Automobile insurance: In the case of the automobile insurance the claimants claim for the higher claims to which they are not entitled to. This is because the claimant in most of the cases misrepresents the activities and along with this they exaggerate the damage faced by the claimant. In the case of the automobile insurance the parties claiming to the fraud base most of the studies on the basis of the common lies. All this depends on the falsification of the documents, criminal rings; the insurance fraud affects all the drivers as the insurance premium ultimately increases. These are some of the common lies through which the insurance parties and the claimant parties lie and realize benefits they are not entitled to through misrepresentation (Taylor).
Life insurance: The fraud in these cases when the individuals misrepresent the death of themselves or others so that the claims can be generated from the insurance companies. This is a high category of fraud because the claim is made on the basis of happening of an event which never took place. The intentions of the parties which exercise such claims are solely intending to cheat the insurance company and acquire claims in the form of money (Taylor).
Property insurance: Undue damages are placed on the properties in this case so that the damages can be recovered. In some of the cases, the damage is exercised on the property so that the recovery can be done from the fraud which is exercised. False claims are made with the damage to the property providing the false proof which is entitled to be paid by the insurance company. The benefits of such claims are realized by the claimants to recover more of the damage which has actually occurred (Taylor).
The above mentioned are the examples of the fraud which are exercised so that the damages can be recovered and additional benefits can be realized by the claimants from the insurance companies to which they are not actually entitled too. The understanding of the fraud which the insurance companies have to face is very important. For this purpose, the insurance companies form a team of agents who inspect whether the fraud has arisen actually or not. They monitor the claims and its legitimacy before clearing the claims of the claimants.
INSURANCE FRAUD CASES ELABORATED AND EXPLAINED
In a report presented by Ernst and Young in the year 2010 the amount of fraud is increasing. 40% of the respondents answered that the theft in the insurance industry is increasing. The chart which is shown below represents the answers of the respondents that the cases have been affected within the industry. The increasing fraud cases have enforced the policies and penalties regarding the insurance fraud.
(Ernst & Young, 3)
This report also presents the descriptions of the broad categories through which the fraud have been exercised. The most common form of fraud is of the policy holders and claims of frauds. The parties and executers operating within the industry see to it that the policies are appropriately applied. Intermediary fraud and internal fraud are also the forms for which the businesses must ensure about the violation and coalition of the firms (Ernst & Young, 3).
(Ernst & Young, 4)
The details of the fraud are that 13.6% of the insurance fraud which arose within the industry was vendor related. 27.3% were the claims made through the surrender process. 21.2% of the fraud was on the claims, 20.5% claims were employee related and 17.4% were based on applications. These are the statistics acquired in 2010 so in the present the number of frauds within the industry can be expected (Ernst & Young, 4).
(Ernst & Young, 4)
The description of the claims and the insurance related frauds which arise in the industry are shown in the chart above. This shows the relatedness of the application process in different insurance related segments. This includes the travel insurance, vehicle insurance and shop keeper insurance. All these claims show the relevance of the businesses with the insurance industry (Ernst & Young, 4). Some of the claims made on the general insurance businesses have been bogus and undeclared. Refund processes and the managing of acquiring fake death certificates in order to avail the insurance policy money are the common practices within the industry.
(Ernst & Young, 5)
In the chart shown above, the fraud in the field of insurance in relation to the premium related issues has been shown. The rebating of commissions, anti-money laundering issues and insuring the vehicles which have undergone accidents are the common forms of the general insurance businesses. In the life insurance segment, the companies have to face the frauds with the commission rebating, managing the BMI and converting the cash in the form of premium payments are the common forms of frauds observed in this genre of business.
(Ernst & Young, 8)
Different kinds of frauds which are affecting the insurance companies and the denotation of which take place frequently expressed in percentage are shown in the graph above. 16% of the fraud are commission rebating, 24% are dependent on the fake documentation, 29% on collusion between parties and 31% on the basis of misspelling. All these are related to the reasons that why the organizations have to face so much damage due to the insurance fraud within the industry (Ernst & Young, 8).
(Ernst & Young, 10)
The insurance frauds exercised within the industry increase the cost for the parties which seek to get insured. The increase in the cost increases the premium that the individuals have to pay to get insured. The response of the individuals on the basis of a survey which was asked to develop an understanding about increase in the premium prices due to the insurance fraud is shown above. The analysis of the responses shows that what the individuals think about the hike in the cost within the industry.
Understanding and relating all these factors elaborate the reasons which lead to the increase in the premium prices. More the frauds within the system which is to be borne by the insurance companies results in the rising cost. The kinds of the frauds and the penalties associated with the progress and development of the insurance company’s shows the measure which must be taken. Insurance frauds must be avoided and the assessment measures must be taken so that all these are rectified.
The assessment of the insurance fraud is related to the understanding that when the insured party tries to cheat the insurance company or try to avail the benefits to which they are not entitled through misrepresentation of the facts is called Insurance Fraud. Within the industry the individuals must be aware of the characteristics of frauds which include the soft fraud and hard fraud. In this report an understanding of the different fields in which the fraud can be exercised is studied. Besides this the penalties and charges which can be faced by the individuals involved in the process will also be analyzed.
Different elements of the insurance fraud along with different examples also need to be assessed. In the application of the concept and assessing the impact of the insurance fraud the factors which result in the outcomes will also be required to be assessed. Different scenarios in which the claims are made are assessed along with the factors through which the cost for the parties also increases. The cost that the company faces is later burdened on the individuals who seek getting insured in the future. They have to pay heavy premium just to get insured. The false claims for acquiring more entitlement of the benefits to which the party is not entitled to are the factors which contribute in the increase of the premium charges. The internal control, regulations and penalties are essential for the business so that the claims can be realized.
California Department of Insurance. Fraud: What Is Insurance Fraud?. 1 Feb. 2014. http://www.insurance.ca.gov/0300-fraud/0100-fraud-division-overview/0100-what-is-insurance-fraud/
Ernst & Young. Fraud in insurance on rise. 2011. 1 Feb. 2014. http://www.ey.com/Publication/vwLUAssets/Fraud_in_insurance_on_rise/$FILE/Fraud_in_insurance.pdf
MacDonald, Jay. Insurance Fraud on the Increase. Fox Business, May. 2013. 1 Feb. 2014. http://www.foxbusiness.com/personal-finance/2013/05/20/insurance-fraud-on-increase/
Taylor, Avalyn. Insurance Fraud Laws and Penalties. Criminal defense lawyer, 1 Feb. 2014. http://www.criminaldefenselawyer.com/crime-penalties/federal/Insurance-Fraud.htm