Insurance fraud adds an extra $400 to $700 to your premiums every year and costs about $80 billion overall.
Which is better — more than a decade’s worth federally funded cancer research, or a year worth fraudulent insurance claims? It turns out that the price tags are identical: $80 billion.
According to David Glawe (president and CEO of National Insurance Crime Bureau), insurance fraud is a serious problem in America. He and other industry experts say fraud is a factor in about 10% of property and casualty claims, a category that includes auto and home insurance.
What does insurance fraud mean for premiums?
You are wrong to think that insurance companies will pay $80 billion annually for fraud from their own pockets. Glawe states that the huge fraud deficit “directly translated into increased premiums for [you] and [me].”
According to the FBI, an average American family pays $400-$700 more annually for premiums due to insurance fraud.
What is insurance fraud?
Fraud can take many forms, and it’s not limited to obvious and serious acts of deceit. These are all examples of insurance fraud.
- You may set your home on fire intentionally and file an insurance claim to cover the damage.
- Claim that your stolen television was larger and newer than it was.
- Registering your car at a friend’s address to get lower auto insurance rates.
Bottom line: Insurance fraud is when you intentionally mislead an insurance company in order to make money.
Even worse, you might be involved in insurance fraud even though you don’t know it. Here are some examples.
- Your repair shop will replace your air bags with new ones after an accident but bill your insurance company as though they were brand-new.
- An agent collects insurance premiums from you but then keeps the money for himself.
Glawe states that in general, you would not be held responsible if someone else has committed fraud.
Insurance fraud can be stopped
Digital technology is being used by insurance companies to combat fraud. Matthew Smith, executive director at the Coalition Against Insurance Fraud (CAIF), says that 95% of insurance companies use anti-fraud technology, and almost 60% use artificial intelligence.
This technology can detect insurance fraud in a variety of ways. Artificial intelligence scans hundreds of thousands of claims in order to identify duplicates. It can also alert the insurer if someone who claims to be injured posts a selfie of themselves playing beach volleyball online.
Smith states that while automating fraud investigations can help insurers save a lot of money it won’t reduce your premiums. Smith is concerned that insurers may rely too heavily upon fraud-detection technology, seeing it as a cheaper substitute for human investigators and taking the savings.
Smith states that this is insurance fraud and organizations like CAIF are closely monitoring it. He says, “In our opinion, if a company is deliberately and knowingly passing on the cost of insurance fraudulent and not doing all reasonably possible to investigate it, this too constitutes insurance fraud.”
How to avoid insurance fraud
So how can consumers help prevent insurance fraud?
After you file an insurance claim, it is a good idea to keep in touch with your insurer. Many insurance companies will recommend home contractors, auto repair shops and other service providers.
You can also avoid fraud by being vigilant. Don’t answer any calls from anyone asking for sensitive information, or using a number that you have never seen. To ensure that you don’t fall for a fraud scheme, do your research.
You can report a suspected scam to your insurance company, to consumer-focused organizations like CAIF or NICB, and law enforcement organizations such the FBI or insurance industry organizations, such as National Association of Insurance Commissioners.