frauds in insurance 2

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1. INTRO TO INSURANCE

What Is Insurance?

Insurance is a form of risk management in which the insured transfers the

cost of potential loss to another entity in exchange for monetary

compensation known as the premium.

Insurance allows individuals, businesses and other entities to protectthemselves against significant potential losses and financial hardship at a

reasonably affordable rate. We say "significant" because if the potential

loss is small, then it doesn't make sense to pay a premium to protect

against the loss. After all, you would not pay a monthly premium to protect

against a $50 loss because this would not be considered a financial

hardship for most.

Insurance is appropriate when you want to protect against a significantmonetary loss. Take life insurance as an example. If you are the primary

breadwinner in your home, the loss of income that your family would

experience as a result of our premature death is considered a significant

loss and hardship that you should protect them against. It would be very

difficult for your family to replace your income, so the monthly premiums


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ensure that if you die, your income will be replaced by the insured amount.

The same principle applies to many other forms of insurance. If the

potential loss will have a detrimental effect on the person or entity,

insurance makes sense.

Everyone that wants to protect themselves or someone else against

financial hardship should consider insurance. This may include:

Protecting family after one's death from loss of income

Ensuring debt repayment after death

Covering contingent liability

Protecting against the death of a key employee or person in your

business

Buying out a partner or co-shareholder after his or her death Protecting your business from business interruption and loss of

income

Protecting yourself against unforeseeable health expenses

Protecting your home against theft, fire, flood and other hazards

Protecting yourself against lawsuits

Protecting yourself in the event of disability

Protecting your car against theft or losses incurred because of

accidents

And many more

Insurance works by pooling risk. What does this mean? It simply means that

a large group of people who want to insure against a particular loss pay

their premiums into what we will call the insurance bucket, or pool.

Because the number of insured individuals is so large, insurance companies

can use statistical analysis to project what their actual losses will be within

the given class. They know that not all insured individuals will suffer losses

at the same time or at all. This allows the insurance companies to operate

profitably and at the same time pay for claims that may arise. For instance,most people have auto insurance but only a few actually get into an

accident. You pay for the probability of the loss and for the protection that

you will be paid for losses in the event they occur.

Risks

Life is full of risks- some are preventable or can at least be minimized, some


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are avoidable and some are completely unforeseeable. What's important to

know about risk when thinking about insurance is the type of risk, the

effect of that risk, the cost of the risk and what you can do to mitigate the

risk. Let's take the example of driving a car.

Type of risk:Bodily injury, total loss of vehicle, having to fix your car.

The effect:Spending time in the hospital, having to rent a car and having to

make car payments for a car that no longer exists.

The costs:Can range from small to very large.

Mitigating risk:

Not driving at all (risk avoidance), becoming a safe driver (you still have to

contend with other drivers), or transferring the risk to someone else

(insurance).

Let's explore this concept of risk management (or mitigation) principles a

little deeper and look at how you may apply them. The basic risk

management tools indicate that risks that could bring financial losses and

whose severity cannot be reduced should be transferred. You should also

consider the relationship between the cost of risk transfer and the value of

transferring that risk.

Risk control:

There are two ways that risks can be controlled. You can avoid the risk

altogether, or you can choose to reduce your risk.

Risk Financing:

If you decide to retain your risk exposures, then you can either transfer that

risk (ie.to an insurance company), or you retain that risk either voluntarily(ie.you identify and accept the risk) or involuntarily (you identify the risk,

but no insurance is available).

Risk Sharing:

Finally, you may also decide to share risk. For example, a business owner


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may decide that while he is willing to assume the risk of a new venture, he

may want to share the risk with other owners by incorporating his business.

So back to our driving example. If you could get rid of the risk altogether,there would be no need for insurance. The only way this might happen in

this case would be to avoid driving altogether. Also, if the cost of the loss or

the effect of the loss is reasonable to you, then you may not need

insurance.

For risks that involve a high severity of loss and a low frequency of loss,

then risk transference (ie. insurance) is probably the most appropriate

protection technique. Insurance is appropriate if the loss will cause you or

your loved ones a significant financial loss or inconvenience. Do keep inmind that in some instances, you are required to purchase insurance (i.e. if

operating a motor vehicle). For risks that are of low loss severity but high

loss frequency, the most suitable method is either retention or reduction

because the cost to transfer (or insure) the risk might be costly. In other

words, some damages are so inexpensive that it's worth taking the risk of

having to pay for them yourself, rather than forking extra money over to

the insurance company each month.

The Risk Management ProcessAfter you have determined that you would like to insure against a loss, the

next step is to seek out insurance coverage. Here you have many options

available to you but it's always best to shop around. You can go directly to

the insurer through an agent, who can bind the policy. The process of

binding a policy is simply a written acknowledgement identifying the main

components of your insurance contract. It is intended to provide temporary

insurance protection to the consumer pending a formal policy being issued

by the insurance company. It should be noted that agents work exclusively

for the insurance company. There are two types of agents:

1. Captive Agents: Captive agents represent a single insurancecompany and are required to only do business with that one

company.


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2. Independent Agent: Independent agents represent multiplecompanies and work on behalf of the client (not the insurance

company) to find the most appropriate policy.

UnderwritingUnderwriting is the process of evaluating the risk to be insured. This is done

by the insurer when determining how likely it is that the loss will occur,

how much the loss could be and then using this information to determine

how much you should pay to insure against the risk. The underwriting

process will enable the insurer to determine what applicants meet their

approval standards. For example, an insurance company might only accept

applicants that they estimate will have actual loss experiences that are

comparable to the expected loss experience factored into the company's

premium fees. Depending on the type of insurance product you are buying,the underwriting process may examine your health records, driving history,

insurable interest etc.

The concept of "insurable interest" stems from the idea that insurance is

meant to protect and compensate for losses for an individual or individuals

who may be adversely affected by a specific loss. Insurance is not meant to

be a profit center for the policy's beneficiary. People are considered to have

an insurable interest on their lives, the life of their spouses (possibly

domestic partners) and dependents. Business partners may also have aninsurable interest on each other and businesses can have an insurable

interest in the lives of their employees, especially any key employees.

Insurance Contract

The insurance contract is a legal document that spells out the coverage,

features, conditions and limitations of an insurance policy. It is critical that

you read the contract and ask questions if you don't understand the

coverage. You don't want to pay for the insurance and then find out that

what you thought was covered isn't included.

Bound:Once the insurance has been accepted and is in place, it is called

"bound". The process of being bound is called the binding process.

Insurer: A person or company that accepts the risk of loss and

compensates the insured in the event of loss in exchange for a premium or


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payment. This is usually an insurance company.

Insured: The person or company transferring the risk of loss to a third

party through a contractual agreement (insurance policy). This is the person

or entity who will be compensated for loss by an insurer under the terms ofthe insurance contract.

InsuranceRider/Endorsement:An attachment to an insurance policy that

alters the policy's coverage or terms.

Insurance Umbrella Policy: When insurance coverage is insufficient, an

umbrella policy may be purchased to cover losses above the limit of an

underlying policy or policies, such as homeowners and auto insurance.

While it applies to losses over the dollar amount in the underlying policies,terms of coverage are sometimes broader than those of underlying policies.

Insurable Interest: In order to insure something or someone, the insured

must provide proof that the loss will have a genuine economic impact in

the event the loss occurs. Without an insurable interest, insurers will not

cover the loss. It is worth noting that for property insurance policies, an

insurable interest must exist during the underwriting process and at the

time of loss. However, unlike with property insurance, with life insurance

an insurable interest must exist at the time of purchase only.
http://www.investopedia.com/terms/r/rider.asphttp://www.investopedia.com/terms/r/rider.asphttp://www.investopedia.com/terms/r/rider.asp


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2. TYPES OF INSURANCE

Insurance is a way of protecting yourself from any costs that may arise from

damage to your property or your health.

Insurance works when you agree to transfer risk by paying specified

amounts of money, called premiums. A premium is the amount of money

you pay to an insurance company to have an insurance policy. These

premiums create a pool of money that guarantees the person holding the

policy will be compensated for losses caused by occurrences such as fire,

accident, illness, or death. Insurance companies decide what the risk is on a

particular policy and then charge the appropriate premium. You can pay a

premium monthly or annually.

Insurance policies are generally renewed annually so you should shop

around at this stage to see if you are getting the best value for your money.

Different policies have different terms and conditions so make sure you

know what the terms and conditions of your policy are. It is important to

understand exactly what your insurance policy covers when you buy it.

Home insurance

Home insurance will generally pay for any damage caused to your home by

accident or by bad weather.You are not obliged by law to insure your homebut if you have a mortgage, most lenders will insist that your house is

appropriately insured. In general your home should be insured for damage tocontents and for damage to the structure of your home

Mortgage protection insurance

When taking out a mortgage, you need to consider how it will be paid off in

the event of your death. You may also consider how to continue repaymentsif your income falls, due to illness, unemployment or other reasons.

Motor insurance

It is a criminal offence for drivers to drive uninsured on public roads in

Ireland


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Health insurance

Health insurance is used to pay for private care in hospital or from various

health professionals in hospitals or in their practices. There are a number of

health insurers in Ireland.

Travel insurance

Travel insurance can cover you if you become ill or have an accident while

you are on holidays or travelling. If you are travelling within the EU/EEA you

should have a European health insurance card which allows you to access

health care services. In general travel insurance should supplement the

services available to people with a European Health Insurance Card

Life insurance

A life insurance policy provides money for defendants if

you die. Life insurance policies are important if you have

dependents such as a partner or children.


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3. Principles of Insurance

The main objective of every insurance contract is to give financial security

and protection to the insured from any future uncertainties. Insured must

never ever try to misuse this safe financial cover.

Seeking profit opportunities by reporting false occurrences violates the

terms and conditions of an insurance contract. This breaks trust, results in

breaching of a contract and invites legal penalties.

An insurer must always investigate any doubtable insurance claims. It is

also a duty of the insurer to accept and approve all genuine insurance

claims made, as early as possible without any further delays and annoying

hindrances.


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1. Principle of Utmost Good Faith

Principle of Uberrimae fidei(a Latin phrase), or in simple english words, the

Principle of Utmost Good Faith, is a very basic and first primary principle of

insurance. According to this principle, the insurance contract must be

signed by both parties (i.e insurer and insured) in an absolute good faith or

belief or trust.

The person getting insured must willingly disclose and surrender to the

insurer his complete true information regarding the subject matter of

insurance. The insurer's liability gets void (i.e legally revoked or cancelled) if

any facts, about the subject matter of insurance are either omitted, hidden,

falsified or presented in a wrong manner by the insured.

2. Principle of Insurable Interest

The principle of insurable interest states that the person getting insured

must have insurable interest in the object of insurance. A person has aninsurable interest when the physical existence of the insured object gives

him some gain but its non-existence will give him a loss. In simple words,

the insured person must suffer some financial loss by the damage of the

insured object.


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For example:- The owner of a taxicab has insurable interest in the taxicab

because he is getting income from it. But, if he sells it, he will not have an

insurable interest left in that taxicab.

3. Principle of Indemnity

Indemnity means security, protection and compensation given against

damage, loss or injury.

According to the principle of indemnity, an insurance contract is signed only

for getting protection against unpredicted financial losses arising due to

future uncertainties. Insurance contract is not made for making profit else

its sole purpose is to give compensation in case of any damage or loss.

In an insurance contract, the amount of compensations paid is in

proportion to the incurred losses. The amount of compensations is limited

to the amount assured or the actual losses, whichever is less. The

compensation must not be less or more than the actual damage.

Compensation is not paid if the specified loss does not happen due to a

particular reason during a specific time period. Thus, insurance is only for

giving protection against losses and not for making profit.

However, in case of life insurance, the principle of indemnity does not

apply because the value of human life cannot be measured in terms of

money

4. Principle of Contribution

Principle of Contribution is a corollary of the principle of indemnity. It

applies to all contracts of indemnity, if the insured has taken out more than

one policy on the same subject matter. According to this principle, the

insured can claim the compensation only to the extent of actual loss either

from all insurers or from any one insurer. If one insurer pays fullcompensation then that insurer can claim proportionate claim from the

other insurers.

For example:- Mr. John insures his property worth $ 100,000 with two

insurers "AIG Ltd." for $ 90,000 and "MetLife Ltd." for $ 60,000. John's


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actual property destroyed is worth $ 60,000, then Mr. John can claim the

full loss of $ 60,000 either from AIG Ltd. or MetLife Ltd., or he can claim $

36,000 from AIG Ltd. and $ 24,000 from Metlife Ltd.

So, if the insured claims full amount of compensation from one insurer thenhe cannot claim the same compensation from other insurer and make a

profit. Secondly, if one insurance company pays the full compensation then

it can recover the proportionate contribution from the other insurance

company

5. Principle of Subrogation

Subrogation means substituting one creditor for another.

Principle of Subrogation is an extension and another corollary of the

principle of indemnity. It also applies to all contracts of indemnity.

According to the principle of subrogation, when the insured is compensated

for the losses due to damage to his insured property, then the ownership

right of such property shifts to the insurer.

This principle is applicable only when the damaged property has any value

after the event causing the damage. The insurer can benefit out of

subrogation rights only to the extent of the amount he has paid to theinsured as compensation.

For example:- Mr. John insures his house for $ 1 million. The house is

totally destroyed by the negligence of his neighbour Mr.Tom. The insurance

company shall settle the claim of Mr. John for $ 1 million. At the same time,

it can file a law suit against Mr.Tom for $ 1.2 million, the market value of

the house. If insurance company wins the case and collects $ 1.2 million

from Mr. Tom, then the insurance company will retain $ 1 million (which it

has already paid to Mr. John) plus other expenses such as court fees. Thebalance amount, if any will be given to Mr. John, the insured.

6. Principle of Loss Minimization

According to the Principle of Loss Minimization, insured must always try his

level best to minimize the loss of his insured property, in case of uncertain


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events like a fire outbreak or blast, etc. The insured must take all possible

measures and necessary steps to control and reduce the losses in such a

scenario. The insured must not neglect and behave irresponsibly during

such events just because the property is insured. Hence it is a responsibility

of the insured to protect his insured property and avoid further losses.

For example:- Assume, Mr. John's house is set on fire due to an electric

short-circuit. In this tragic scenario, Mr. John must try his level best to stop

fire by all possible means, like first calling nearest fire department office,

asking neighbours for emergency fire extinguishers, etc. He must not

remain inactive and watch his house burning hoping, "Why should I worry?

I've insured my house."

7. Principle of Causa Proxima (Nearest Cause)

Principle of Causa Proxima(a Latin phrase), or in simple english words, the

Principle of Proximate (i.e Nearest) Cause, means when a loss is caused by

more than one causes, the proximate or the nearest or the closest cause

should be taken into consideration to decide the liability of the insurer.

The principle states that to find out whether the insurer is liable for the loss

or not, the proximate (closest) and not the remote (farest) must be looked

into.

For example:- A cargo ship's base was punctured due to rats and so sea

water entered and cargo was damaged. Here there are two causes for the

damage of the cargo ship - (i) The cargo ship getting punctured beacuse of

rats, and (ii) The sea water entering ship through puncture. The risk of sea

water is insured but the first cause is not. The nearest cause of damage is

sea water which is insured and therefore the insurer must pay the

compensation.

However, in case of life insurance, the principle of Causa Proximadoes notapply. Whatever may be the reason of death (whether a natural death or

an unnatural death) the insurer is liable to pay the amount of insurance.


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4. INSURANCE FRAUDS

MEANING

Insurance fraud is any act committed with the intent to fraudulently obtain

payment from an insurer.

Insurance fraud has existed ever since the beginning of insurance as a

commercial enterprise. Fraudulent claims account for a significant portion

of all claims received by insurers and cost billions of dollars annually. Types

of insurance trades are very diverse and occur in all areas of insurance.

Insurance crimes also range severity, from slightly exaggerating claims to

deliberately causing accidents or damage. Fraudulent activities many times

affect the lives of innocent people, both directly through accidental or

purposeful injury or damage and indirectly as their crimes cause insurance

premium to be higher. Investment fraud pose a very significant problem

and government and other organization are making efforts to do defer such

activities.


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5. CAUSES OF INSURANCE FRAUDS

The chief motive in all insurance crimes is financial profit.

Many times it is observed that false insurance claims can be made to

appear like ordinary claims. This allows fraudster to file claims for

damages that never occurred and so obtain payment with little or no

initial cost.

To attract maximum customers towards the insurer than competitors.

With intention, of concealing true information w.r.t. age, disease, etc.


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6. TYPES OF INSURANCE FRAUDSMany times insurance frauds exist from scamming whether it is auto

insurance, life property. All types of insurance frauds divided into:

Hard Fraud

Soft Fraud

Automobile Insurance Fraud

Life Insurance Fraud

Health Insurance Fraud

Property Insurance Fraud

Internal Fraud

External Fraud

Hard Fraud:

Hard fraud includes someone staging a car accident, injury, arson, loss,

break-in or someone writing false bills to Medicare to illegally receive

money from their insurance company. This type of frauds often receives

more media attention and it is easier to detect. Hard fraud often involves

criminal activities of insurance company. But, an individual can also be

found guilty of hard fraud.

Soft Fraud:

It happens when a person pads their insurance claims by telling White

lies, such as, they are feeling, too ill to come to work, so they can receive

workers compensation benefits that they wouldnt have otherwise. This is

more difficult to detect.

Automobile Insurance Fraud:

Fraud rings or groups may fake traffic deaths or stage collisions to make

false insurance or exaggerated claims and collect insurance money. The ring


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may involve insurance claims adjusters and other people who create phony

police reports to process claims.

Life Insurance Fraud:

Life insurance fraud may involve faking death to claim life insurance.

Fraudsters may sometimes turn up a few years after disappearing, claiming

a loss of memory. Another example is former British Government minister

John Stonehouse who went missing in 1974 from a beach in Miami. He was

discovered living under an assumed name in Australia, extradited to Britain

and jailed for seven years for fraud, theft and forgery.

Health Insurance Fraud:

Health insurance fraud is described as an intentional act of deceiving,

concealing, or misrepresenting information that results in health care

benefits being paid to an individual or group. Fraud can be committed by

both a member and a provider. Member fraud consists of ineligible

members and/or dependents, alterations on enrollment forms, concealing

pre-existing conditions, failure to report other coverage, prescription drug

fraud, and failure to disclose claims that were a result of a work related

injury. Independent medical examinations are used to debunk falseinsurance claims and allow the insurance company or claimant to seek a

non-partial medical view for injury related cases.

Property Insurance Fraud:

Possible motivations for this can include obtaining payment that is worth

more than the value of the property destroyed, or to destroy and

subsequently receive payment for goods that could not otherwise be sold.

According to Alfred Manes, the majority of property insurance crimes

involve arson.

Internal Fraud:


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There are those perpetrated against insurance companies or its

policyholders by agents, managers, executives or other employees.

External Fraud:

There are direct against insurance by individuals or entities as divers an

policy holders provides, beneficiaries, vendors, etc.

AUTOMOBILE INSURANCE FRAUDS:

Insurance fraud w.r.t. Automobiles is widespread, automobiles are

supposed to be insured everywhere. There are numerous types to

automobile fraud claims such as:

Filing a false theft report

Filing a false injury report

Filing a false accident report

Filing a false damage report

Filing a claim that the automobile was wrecked.

In additions to individuals i.e. policyholders, the automobile frauds can be

committed by insurance adjusters repair shops, dealership and other co

conspirators


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LIFE INSURANCE FRAUDS:

Life insurance fraud is very specific. It refers to act of international

deception on the part of those selling life insurance. Following are the ways

through which fraudsters commit frauds in life insurance:

Some life Insurance fraud is committed by people buying insurance

or who already possess it. The m

Common kind is making deliberate misstatements on applications for

insurance.

It is observed that many times the information provides by the policy

holder are fake or incomplete whit the information of hiding truth.

E.g. existing disease, age factor hereditary problems etc.

Many times, the police holders have faked death so that family

members can claim policies.

Few doctors can get involved in life insurance fraud by acting as

medical examiners that certify the health of people applying. Whit

the person seeking health insurance, they deliberately information

on medical exams.

Vertical frauds: In this agents recruit people whit terminal illnesses to

buy numerous policies, all of which will have an annuity. The person

gets some money to make it to the end of his or life, but the majority

of the funds will end up in the pockets of third-party investors sifter

the person s death.


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Health insurance fraud:

Fraudulent behavior designed to solicit money which a person or groups is

not entitled is called as health insurance funds involving, in this are

perpetuated by verity of sources , including health insurance companies

,insurance brokers, unscrupulous doctors ,allied health professionals,

medical institution and patients.

Following are the few examples to commits frauds:

Falsification of information on forms.

Filling of false claims, claims treatments for patients that never

occurred.Filling of prescription under patients names and then sell them in the

black market.

Diagnose diseases that not exists and order unnecessary testing,

Frauds are committed by health insurance companies also such as:

Companies are not paying on legitimate claims.

Some companies may intentionally deny payment in the

hopes that claimants will not protest the treatment.

Selling insurance in a state in which a company is not licensedto operate is fraud too.


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Property insurance fraud:

This is a wider area of insurance frauds different losses i.e. fire, marine,

burglary, theft, accidents w.r.t. property are utilized to commit fraud by

fraudsters. Possible areas include

Obtaining payment that is worth more than the value of the property

destroyed or to destroy and subsequently receive payment for goods

that could not otherwise be sold.

Concealing of the information by the insurance company at the time

of insurance contract.

Payment of exorbitant commission to the agents for heavy sales and

advertisement of the policies by the insurance companies.

Intentionally damaging the property and asking for insurance claim

by the policy holders.


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Internal Frauds:

There are those perpetrated against insurance companies or its

policyholders by agents, managers, executives or other insurance

employees.

It includes:

I. Fake /False Documents:Agents or insurer issuing fake policies,

certificates, insurance identifications cards or binders.

II. False Statement:Agents or insurer making false statement on a

filling with the department and insurance.

III.

Pocketing Premiums: Agents or insurer pocketing premiums,then issuing a fairy policy or none at all.

EXTERNAL FRAUD:

There are direct against insurance by individuals or entities as diverse as

policy holders medical provides, beneficiaries vendors, etc.

It includes:

Arson-forprofit:

An owner or someone hires the vehicle to collect insurance money.

Disaster fraud :

Unscrupulous operations persuade disaster fraud victims to claim more

damages than actually occurred, or they collect money to repair damages

property but never complete the work.

Creating a fraudulent claim:

It may include:

A. Staged or caused autoaccidents.

B. Staged slip and fall accidents.


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C. False claim of foreign object in food or rink.

D. Taking a dearth to collect benefits.

E. Murder-forprofit etc.

Exaggerated claims [overstating the amount of loss] :

The most common examples are:

A. Inflating bodily injuries from auto accidents.

B. Inflating value of items taken during a bulglary or theft.

C. Inflating a physical billing damage claim form a minor tender bender.

D. Medical providers inflating billing or upcoming of medical procedures

to name a few :

Falsifying a theft reports:

A property owner falsely reports items stolen or exaggerates the values of

items taken in a burglary to collect insurance money.

Medical fraud:

Unethical medical; practitioners or providers work in concert with schemingpatient, to create fictitious, accident related injuries to collect or

fraudulently disability workers compensation and personal injury claims.

There provides usually work through middlemen who recruit patients for

their scams. The doctors often bull insurers for multiple office visiting and

which never take place.

Misrepresenting facts to receive payment:

Claiming prior damage occurred in the current accident claiming a injury

created a partial or total disability elsewhere conducting the same or some

or work, duties etc.


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7. THE IMPACT OF INSURANCE FRAUD

Many states have enacted victims rights laws that allow victims to make

a statement in court either during a trial or

at sentencing. All victims of insurance

fraud are encouraged to take advantage of

this opportunity to spread the word to

judges, juries and others in the courtroom

including the news media about the

nature and severity of this crime. Below

are facts and figures that can be woven

into a personal statement of how fraud

has affected you and/or your company.

Insurance fraud is a major crime that imposes significant financial and

personal costs on individuals, businesses, government and society as a

whole. Fraud is widespread and growing. Insurance swindles victimize

people from virtually every race, income, age, education level and region of

the U.S.

At one level, insurance fraud is an economic crime costing individuals,

business and government billions of dollars a year. But fraud also is a

violent crime that can involve murder, personal injury and serious property

damage. Insurance fraud also imposes other personal costs such as

disrupted lives and families, humiliation and depression, lost jobs and

bankruptcy.

Overall financial cost

Nearly $80 billion in fraudulent claims are made annually in the U.S., the

Coalition Against Insurance Fraud estimates. This figure includes all lines of

insurance. Its also a conservative figure because much insurance fraud

goes undetected and unreported.

Higher insurance premiums

Fraud contributes to higher insurance premiums because insurance

companies generally must pass the costs of bogus claims and of fighting

fraud onto policyholders. This contributes to a premium spiral that can


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price essential insurance coverage, often required by state law, beyond the

reach of many consumers and businesses. For example:

Auto insurance: False injury claims involving deliberately staged car

accidents, for example, are a major reason auto insurance premiums inNew York, Florida and New Jersey are among the nations highest.

Workers compensation: Workers compensation premiums are rapidly

rising rapidly, in part because of fake injury claims by employees and fraud

by some employers to lower their premiums. Many smaller businesses,

especially, report that workers compensation insurance is increasingly

unaffordable.

Rising cost of goods & services

Businesses must pass the cost of rising insurance premiums onto their

customers by raising prices for goods and services. Many larger

corporations also spend millions of dollars a year for investigation and

fraud-prevention programs that aim. This cost also is reflected in higher

prices of products and services.

Jeopardize health, lives and property

Peoples health, lives and property are often endangered by insurancefraud schemes. Here are several examples:

Staged auto accidents: Innocent motorists lives are jeopardized when

they are maneuvered into car crashes staged by crime rings to collect large

payouts from auto insurers. One family of three was burned to death when

a staged accident went awry after their car was hit by two large trucks at

high speeds on a California freeway.

Murder for life insurance: A common life-insurance scheme involvesmurdering a spouse, relative or business associate to collect on the victims

life insurance policy, which often is worth $100,000 or more.

Health insurance swindles:The safety of people is jeopardized when they

unknowingly buy fake health insurance. In addition to having their premium

money stolen, policyholders needing chemotherapy and organ transplants


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have had to pay for life-saving medical treatment themselves when they

discovered their insurance was fake.In other health schemes, medical

providers often perform potentially dangerous and unneeded surgery on

healthy people solely to increase their insurance billings. In many cases, the

victims are elderly, poor and homeless.

Arson: Homes and businesses often are burned down for insurance

money. The lives of firefighters, family members and nearby residents also

are placed at risk. Numerous people have died or been seriously injured in

arson-for-profit fires. Also, the property damage is often magnified because

arson fires frequently spread to nearby dwellings.

Lost personal income, savings

Many insurance fraud schemes steal money directly from policyholders.

The varied schemes can cost people from a few dollars to their entire life

savings. Here are several examples:

Phony health coverage: Several hundred thousand people, for example,

have unknowingly purchased phony health coverage. They lost the

premium money they paid, but many also faced catastrophic losses when

they became ill and had to pay large medical bills themselves because their

policy was worthless. Some people incurred hundreds of thousands of

dollars in personal debt.

Fraudulent viaticals: Thousands of people also have lost money to

viaticals, a quasi-insurance product where people invest in the life-

insurance policies of dying people. Viaticals can be legitimate, but many

people have lost large investments in fraudulent viaticals. Some have lost

their life savings.

Dishonest agents:Dishonest insurance agents will pocket client insurance

premium checks themselves, leaving the clients dangerously uncovered.Dishonest insurance agents also increase a policyholders premiums by

secretly adding unwanted coverage to clients policies. Agents often target

the elderly with these swindles.


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Ruined credit

Many seriously ill people who purchased phony health insurance found

their credit ruined when they couldnt pay large medical bills after their

policy refused to pay.

Lost jobs

Some fraud schemes can cost people their jobs. Convicted swindler Martin

Frankel gained control of a small life insurance company called Franklin

American and secretly siphoned the companys assets into his own

accounts. This sent the company into bankruptcy, costing hundreds of

employees their jobs.

Diverts government resources

Fighting insurance fraud is a major expense for federal, state and local

governments. This dilutes the nations overall anti-crime efforts by

diverting often-limited government resources needed to fight other crimes.

Here are several examples of this:

State fraud bureaus: States conduct extensive anti-fraud programs,

funded by taxpayers and insurance companies. Most states, for example,

have insurance fraud agencies that investigate suspected swindles andrefer cases for potential prosecution.

Police and other law enforcement: State, local and federal law

enforcement all are involved in investigating insurance-fraud cases, often

jointly.

Prosecutions:Taxpayer funded prosecutors devote considerable time and

resources to pursuing fraud cases in court, many of which are complex and

require extensive time to build viable cases.

Federal government: The federal government annually allocates several

billion dollars to fighting fraud in Medicare and Medicaid, the respective

public health insurance programs for the elderly and poor.


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Personal costs

Insurance fraud also can impose large personal costs on its victims. Many

victims feel embarrassed, humiliated and even violated. Often their lives

and families also are disrupted for long periods of time. Many must recoverfrom serious financial losses or fraud-related physical injuries. Victims also

may have to recover or replace property that was stolen, damaged or

destroyed by schemes. Many victims also must spend considerable assisting

law enforcement and prosecutors as material witnesses.

Diverts from essential services

Federal and state government fraud-fighting efforts costs taxpayers billions

of dollars a year, thus diverting scarce tax money from other essential

public services. Fraud against taxpayer-funded health programs such as

Medicare and Medicaid diverts that money from meeting the health needs

of Americas theelderly and poor.


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8. MEASURES TO PREVENT

INSURANCE FRAUDS

It is necessary to adopt proper fraud prevention programs me to control

the rising insurance frauds:

General measures:

Role of the government:

Government should take lead in prevention of fraudulent activities in the

main important sector of insurance, strict actions must be taken against the

fraudsters

Awareness among the consumers:

Through proper training programs, street plays, consumer fares the

awareness can be created w.r.t. understanding of fraudulent areas in

insurance and necessary actions towards it.

Strengthening of low:

Fraud is a crime. The low and administration must be strengthened to take

strict and quick action against fraudsters. This will help to decline the no. of

fraudulent cases in future.

Role of media:

Media can play important role in spreading of awareness and knowledge

w.r.t. fraud prevention programs through newspaper, magazine, t. v. radio,

information for fraud phones areas and necessary help towards it can beprovide

Role of supervisory authorities:

IRDA, SEB should prepare an action plan to combat with the serious issue of

frauds.


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Track down the cheaters:

Police authorities, CBI should take action lead in tracking down the

cheaters.

Increasing value Bases approach in the society:

The citizens should believe and follow value based approach in their day-to-

day life. They must be able to differentiate between need and greed.

Measures to prevent frauds in insurance

Specific measures

I. It requires high standard of integrity form directors management

and employees of insurance organizations.

II. It is necessary to set realistic goals and objectives for best use of

resources.

III. It is necessary to organize, collect and evaluate the effectiveness of

information so that the management may avoid frauds.

IV. To prevent frauds in insurance the audit function must be carried out

in proper manner.

Measures by IRDA


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There is a need for a uniform policy and standard which will guide action of

employees within an insurance company. They are the guidelines for

professional conduct. It also states what the insurance company stands for

and is committed to which values. There should also be a reward and

punishment for any other behavior than that is prescribed. The code helps

in achieving organizations goals in socially acceptable manner. In case of

any dilemma, it prescribes solution and thus helps perform their routine

activities.

Sec 14 of Act, 1998 lays down the duties, powers and functions of IRDA :

1. Subject to the provisions of this act and any other law for the time

being in force the authority shall have duty to regulate, promote andensure orderly growth of the insurance business and re-insurance

business?

2. Without prejudice to the generality of the provisions contained in

sub-section

The powers and functions of the authority shall include:

a. Issue to the applicant a certificate of registrations, renew, modify

withdraw, suspend or cancel such registration;b. Protection of the investment of the policy holders in matters

concerning assigning of policy, nomination by policyholders,

insurance claim, surrender value of policy and other terms and

conditions of insurance;

c. Specifying the code of conduct for surveyors and loss assessors;

d. Promoting efficiency in the conduct of insurance business;

e. Levying fees and other charges for carrying out the purposes of the

act;

f. Promoting and regulating professional organization connected with

the investment and with business.

g. Calling for information form, undertaking inspect of, conducting

enquiries and investigations including audit of insurers,


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intermediaries, insurance intermediaries and other organization

connect with insurance business.

h. Specifying the form and manner in which books of A\c shall be

maintained and statement of A\c shall be rendered by insurers

another insurance intermediacies.

i. Specifying the form manner in which books of A/c shall be

maintained and statement of A/c shall be rendered by insurers other

insurance intermediacies;

j. Regulating investment of funds by insurance companies;

k. Regulating maintenance of margin of solvency;

l. Adjudication of disputes between insurers and intermediaries of

insurance intermediaries,m.Supervising the functioning of the tariff Advisory committee:

n. Specifying the %of premium income of the insurer to finance

schemes for promoting and regulating professional organizations

o. Specifying the % of life insurance business and general insurance

business to be undertaken by the insurer in the rural of social and

p. Exercising such power as my be prescribed

IRDAs code of conduct for agents


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Proposals seeking insurance cover should be filled in inly the person/S

seeking to be insured, as per the code of conduct being formulated by the

IRDA for insurance agents.

The provision in the code to mainly avoid complaints at later stage,especially form the nominees of the insured who at the time claim say that

discrepancies could have been avoided if the insured had filled in the

application on their own.

As per the code, it would be necessary for those availing insurance to fill in

the applications themselves. And it would also be made mandatory for the

agents to disclose on demand the commission that they would be entitled

to form the proposal.

The code to govern the intermediaries in insurance companies in the

country is like to direct the agents to provide a copy of the filled in

proposalapplication to the client, before submitting it the company.

For prospective insurance agents, the code is likely to recommend an

examination and a 100 hour training course. Additionally, all agents-present

future will be issued with identify cards by the IRDA.

Major Activities

a. Promotion of a better understanding of non-life insurance amongst

the public: providing inputs to the media about the developments in

the non-life insurance.

b. Promotion of sound development and maintenance of the reliability

of the non-life insurance industry: Developing codes of conduct for

meter companies, strengthening non-life insurance companies

disclosure, developing compliance programmers to observe laws and

regulations, etc.

c. Presentation of request and proposal: Representing the non-life

insurance industry in the presentation of regulatory reform requests,

and of opinions to insurance administration.


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d. Response to social issues: combating automobile theft taking

measures to prevent insurance fraud, etc.

e. International activities: promoting dialogue and information

exchange with overseas insurance associations, participating in

international organizations activities and international meetings.

f. Consumer Services: The GI Council promotes consumers

understanding of insurance, and the presence of the general

industry in society.

g. Social responsibility: The GI council undertakes activities having far

reaching social implication in association with law enforcement.

h. Request s & proposals: The GI council carries out activities to realize

the establishment & revision of laws and regulations beneficial to thegeneral insurance industry and society by making request and

proposals to the related parties.

i. Development of the Business Environment: The GI supports the

operation of various insurance related systems and mechanism

instrumental to insurance companies such as, Commercial Vehicles

Third party insurance pool.


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9. 15 MOST FAMOUS CASES OF

INSURANCE FRAUD

Insurance fraud seems like it might be an easy thing to do. Insurancecompanies are often so huge, one wonders how they might not even notice

a few mistakes in your favor. But the fact is thatinsurance companieshave

people who make it their full time job to sniff out fraud, ensuring that they

keep a tight bottom line. And while they may not catch every tiny little

fudge, you can be sure they are on the hunt for major offenders such as the

ones on this list. Check out these famous insurance fraud cases that surely

carried a huge bounty.

1. HCA/Medicare:In 2000 and 2002, HCA pleaded guilty to 14 felonies,including fraudulently billing Medicare as well as other programs.

HCA had inflated the seriousness of diagnoses, filed false cost

reports, and paid kickbacks to doctors to refer patients. HCA had to

pay the US government $631 million plus interest, as well as $17.5

million to state Medicaid agencies, on top of $250 million already

paid to Medicare for outstanding expense claims. It was the largest

fraud settlement in US history, with law suits reaching $2 billion in

total.

2. John Darwin's Death: John Darwin faked his death in a canoeingaccident, turning up five years later. He'd been secretly living in his

house and the house next door, while his wife claimed the money on

his life insurance. They were both sentenced to six years in prison,

but released on probation. BBC created a TV drama about their story

called Canoe Man.

3. The horse murders scandal:Between the mid 1970s and mid 1990s

many expensive horses were involved in insurance fraud. These

expensive horses, often show jumpers, were placed on insurance for

accident or death, and killed for the insurance money. The number ofhorses killed in this manner is believed to be at least 50 and possibly

as high as 100. It was the biggest scandal in equestrian sports,

resulting in the death of a whistleblower, Helen Brach, in addition to

the horses.
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4. John Mango's fire: A Toronto businessman, John Mango hired

someone to set fire to his business for the insurance money. Things

got quite out of hand, killing one person during the fire and forcing

many families to leave the area until the fire could be put out. Mango

was charged with second degree murder on top of his fraud charges.5. Swoop and squat:In the 90s, car insurance fraud ran rampant. Cars

would purposely get into accidents with innocent people on the

road, hoping to score insurance money, and often, they did. These

accidents frequently injured drivers, and some were even fatal.

These accidents usually earned the orchestrators about $20,000

each.

6. Michael Jackson's prescriptions:Lloyds of London has recently filed

suit to invalidate an insurance policy taken out by Michael Jackson.

The policy covered his "This Is It" tour in the event that it was notsuccessful. The payout was to be $17.5 million, but Lloyds argues that

it is invalid because Michael Jackson did not disclose prescription

drugs on his application. As Jackson died from an overdose, Lloyds is

claiming deception.

7. The Titanic: Everyone knows the story of the Titanic, but not

everyone realizes that some believe its part of a conspiracy to pull off

a huge insurance fraud. The Olympic, Titanic's sister ship, was

damaged and rendered useless during one of its voyages-and some

believe that the Titanic as it sunk was actually the Olympic.Conspiracy theorists note several inconsistencies in the performance

and construction of the "Titanic" that indicate the Titanic sinking was

a case of swapped ships.

8. Cooperman art theft hoax:Would you steal your own art for money?

LA ophthalmologist Steven Cooperman did. He arranged for a Picasso

and a Monet to be stolen from his home in an attempt to collect

$17.5 million in insurance money. He was convicted in July 1999.

9. Martin Frankel:Martin Frankel's insurance fraud is just one in a long

list of financial crimes. He was sentenced to 200 months in prisondue to over $200 million in losses to insurance companies. He

eventually plead guilty to 24 federal counts of racketeering and

conspiracy, securities fraud, and wire fraud.

10.Bristol-Myers Squibb kickbacks: Regulators in California have gone

after Bristol-Myers Squibb for insurance fraud, among other
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offenses. The lawsuit accuses Bristol-Myers of making payments to

high-prescribing physicians, targeting and profiting on the private

insurance industry. It is the largest health insurance fraud to be

pursued by a California state agency. Additionally, in 2007, the

pharmaceutical company paid $515 million to settle with federal andstate governments against allegations of kickbacks to defraud

Medicare and Medicaid.

11.Dr. Gupta's mystery procedures: There's a nationwide manhunt

launched by the FBI looking for Dr. Gautam Gupta. The complaint

against him alleges that he submitted claims to Blue Cross/Blue

Shield and Medicaid for unnecessary procedures, and even ones that

were never performed. The fraudulent insurance claims from Dr.

Gupta reached nearly $25 million.

12.Millionaire insurance fraud: Charles Ingram was first made famousas a fraud when he cheated on Who Wants To Be A Millionaire?,

using coded coughs to win. But his deception was further exposed

when he was convicted of insurance fraud as well. He placed a

suspicious 30,000 burglary claim, and was found to be dishonest,

ultimately winning two guilty charges for his fraud.

13.TAP Pharmaceuticals fraud:The Department of Justice got involved

with this pharmaceutical insurance fraud case. TAP Pharmaceuticals

engaged in fraudulent drug pricing and marketing conduct, as well as

filing fraudulent claims with Medicare and Medicaid. They agreed topay $559 million to the government for those claims, as part of an

$875 million settlement for all criminal charges and civil liabilities.

14.I get knocked down, but I get up againand knocked down again 48

more times: With 49 cases, Isabel Parker earned her title as the

queen of the slip and fall scam. During her career, she received

claims totaling $500,000.

15.Torching the Malibu: What do you do if you don't want to pay on

your car anymore? If you're teacher Tramesha Lashon Fox, you get

your students to set your car on fire in exchange for passing grades.She'd hoped to get insurance money, but instead lost her job and

served 90 days in jail.
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10. WHAT YOU NEED TO KNOW ABOUT

INSURANCE FRAUD

Almost everyone is familiar with insurance fraud. We've all heard the

stories of people who received millions after a car accident or the heartless

insurance firm refusing to pay out to a widow on a technicality. Insurance

fraudis one of the oldest types of fraud ever recorded, dating back to 300

B.C., when a Greek merchant sunk his own ship, in an attempt to cash in on

the insurance, and drowned in the attempt.

Whether you are a policyholder or a shareholder in an insurance company,insurance fraud affects you. The field ofinsuranceis wide and fraud exists

in every area. Therefore, in this article we are going to focus in on one of

the most important types of insurancelife insurance. We will look at the

major types of life insurance fraud and how they affect your bottom line.

It Takes Two to Tango

Insurance fraud comes in two main categories: seller fraud and buyer fraud.

Seller fraud occurs when the seller of a policy hijacks the usual process, in a

way that maximizes his or her profit. Buyer fraud occurs when the buyerbends the process to obtain more coverage, or claim more cash, than he or

she is rightly entitled to.

Types of Seller Fraud

There are many variations of seller fraud, but they all center around four

basic types. These are:

Ghost Companies:In the ghost company scenario, policies are issued

and premiums accepted from policyholders, but the companyunderwriting the policy isn't legitimate and often doesn't exist. These

outright frauds are a type of boiler room operation, where a team of

high-pressure scam artists dial likely victims to sell them false

policies. Unfortunately, the fraud isn't usually discovered until
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someone tries to file a claim on the policy their family member

thought was in effect, in the event of his or her death.

Premium Theft: The premium theft scenario is when the insurance

rep accepts premiums, but doesn't submit them to the companyunderwriting the policy, thus invalidating the policy. In this case, the

agent essentially pockets the money. Premium theft has become less

of an issue as more companies have moved towards direct deposit

models, but it is still possible in some cases.

Churning: Churning refers to a situation where the insurance rep

advises the customer to cancel, renew and open new policies in a

way that is beneficial to him or her, instead of beneficial to the client.

This type of insurance fraud often targets seniors and is driven by the

agent's desire for larger commissions. Churning keeps a portfolio

constantly in flux, with the primary purpose of lining the advisor's

pockets.

Over or Under Coverage:Similar to churning, under or over coverage

occurs when an insurance rep convinces customers to buy coverage

they don't need, or sells a lesser policy and represents it as a

complete policy. In either case, the rep is trying to maximize

commissions and ensure the sale, rather than focusing on meeting

the client's needs.

Types of Buyer Fraud:

Buyer fraud also comes in a number of different flavors, but they all center

around a theme of dishonesty. Basic types of buyer fraud include:

Post-Dated Life Insurance:Post-dated life insurance refers to a policy

that has been arranged after the death of the person being insured,

but appears to have been issued before death. This type of fraud is

usually carried out with the help of an insurance agent. It is also oneof the easier types of fraud for insurance companies to detect,

because record keeping has become more stringent.

False Medical History: Falsifying medical history is one of the most

common types of insurance fraud. By omitting details such as a

smoking habit or a pre-existing condition, the buyer hopes to get the
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insurance policy for cheaper than he or she would have otherwise

been able.

Murder for Proceeds:There are two versions of the murder for

proceeds fraud. In the first, the insured doesn't know they areinsured and are understandably surprised to be murdered. In the

second, the policy is legitimate and was taken out in better times,

however, financial hardships lead the perpetrator to decide that

killing his or her spouse/family member/business partner, for the

money, is the best way out of the problem.

Lack of Insurable Interest: As with murder for proceeds, insuring

people you shouldn't be insuring, in hopes that they will die,

constitutes fraud. Insurance is founded on the idea of protecting

people from financial loss, so using it to gamble on lives for a

financial gain is a perversion of the system. This includes vertical

settlements, which combine non-insurable interest with falsified

policies taken out on the terminally ill.

Suicidal Accidents: Just as financial hardship can lead otherwise

rational people towards murder, the same factors can lead people to

commit suicide in a way so it looks accidental. This constitutes fraud

in that it is an intentional act for the purpose of collecting the

insurance proceeds, and would not have occurred if those proceedsdid not exist. This can be a very difficult one to detect, as the medical

examiner has final say in accidental death. Even if it is clearly a

suicide, the claim centers on the state of mind, rational or not, at the

time of suicide.

Faking Death or Disability: Many life insurance policies have riders

for disability, creating the temptation to fake one to get the payout.

However, some people take it a step further and fake their own

deaths. In both cases, the fraudster has to deal with the possibility ofbeing discovered through an investigation.

The Cost of Insurance Fraud

Just as there are two main types of life insurance fraud, there are also two


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consequences. When people engage in buyer fraud, it raises the cost of

insurance. The reason for this is very simple; insurance companies are really

good at modeling, so they tweak their models to account for buyer fraud

and then spread that cost across all their policyholders. In a very real way,

every person who tries to stick it to the insurance company ultimatelymakes your policy cost more.

In contrast, seller fraud can potentially hurt just the select few that

experience it. It is, in every essence of the word, bad luck. However, on the

whole, every time the insurance company you invest in treats someone

badly, it loses business to a company with a better reputation and controls

on the agents. As an investor, you will be tempted to move yourcapitalto

the better performing company, thus punishing seller fraud in a

roundabout way. The internet has also helped reduce seller fraud, as manyshady outfits and practices become exposed sooner in the game.

The Bottom Line

Insurance is a business that is built onrisk analysisand probabilities. Every

instance of insurance fraud puts pressure on the business, whether seller or

buyer fraud. For this reason, many companies build generous contingency

funds to protect them against fraud, as well as other unforeseen events.

While this is good from the investor's perspective, it does unfortunately

lead to your personallife insurancepremiums being higher than theyotherwise would have been, in a more honest world.
http://www.investopedia.com/terms/c/capital.asphttp://www.investopedia.com/terms/c/capital.asphttp://www.investopedia.com/terms/c/capital.asphttp://www.investopedia.com/terms/r/risk-analysis.asphttp://www.investopedia.com/terms/r/risk-analysis.asphttp://www.investopedia.com/terms/r/risk-analysis.asphttp://www.investopedia.com/terms/l/lifeinsurance.asphttp://www.investopedia.com/terms/l/lifeinsurance.asphttp://www.investopedia.com/terms/l/lifeinsurance.asphttp://www.investopedia.com/terms/l/lifeinsurance.asphttp://www.investopedia.com/terms/r/risk-analysis.asphttp://www.investopedia.com/terms/c/capital.asp


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11. HOW TO DETECT AUTO

INSURANCE FRAUD

Investigators use public and private information to detect potential auto

insurance fraud. Claims adjusters and data experts at insurance companies

and law enforcement organizations detect fraud in several ways. Suspicious

claims are identified according to the company's proprietary statistical

methods. Specialists review suspicious claims for more clues. Private

Citizens, usually unrelated to the insured, might suspect fraud and report it

to police, fraud tip lines or fraud-focused organizations, such as theNational Insurance Crime Bureau and the Coalition Against Insurance Fraud.

Fraud raises auto insurance costs by at least 16 percent, according to

author Saul W. Seidman in his book "Trillion Dollar Scam: Exploding Health

Care Fraud."

Instructions

1. Use sophisticated computer programs and computing methods to detect

fraud, according to "Surveillance Technologies and Early Warning Systems:

Data Mining Applications Methods for Risk Detection." Investigators also

use data to identify suspicious relationships associated with the insured.

They review financial statements for unusual cash flows. They look for

associations with known insurance crime rings, according to author Pamela

Meyer in "Liespotting: Proven Methods to Detect Deception."


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2. Evaluate supervised and nonsupervised potential fraud claims, according

to the "Handbook of Statistical Analysis and Data Mining Applications" by

Robert Nisbet, John Elder, John Fletcher Elder and Gary Miner. Investigators

use both supervised and nonsupervised methods to evaluate the suspicious

claim. Insurers develop fraud-detection models based on demographic,attitudinal and business data information. Supervised claims involve

analysis of historical claim values to the insured's claim values. A suspicious

claim is compared to previously identified frauds. Unsupervised analysis

involves statistical identification of unusual amounts, repairs, medical care

and other red flags. Unsupervised analysis also connects abnormal values in

current claims to previously known fraud cases. Neither method absolutely

confirms fraud. Additional analysis helps to identify higher probabilities of

insurance fraud.

3. Recognize common auto insurance fraud. According to author Saul W.

Sideman, fraud costs other insureds higher insurance premiums. Fraud

costs of $1.05 for faked thefts, $2.15 for previous damages, $2.20 for

overcharges from body repair shops and $3.00 in staged car accidents for

every $100 in paid claims. Auto theft continues to increase in the United

States. According to the National Insurance Crime Bureau, more than 57

percent of stolen cars disappear. Professional crime rings ship stolen cars

overseas or sell the car for parts. However, some stolen cars are resold in

the U.S. to unsuspecting consumers. The NICB's VIN Check helpsprospective owners to check vehicle identification numbers for free.


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12. HOW TO DETECT HEALTH

INSURANCE CLAIM FRAUD

Health insurance claim fraud is the process in which a medical provider bills

for services that were never delivered or received. It's a way for medical

providers to dishonestly increase their payment. Health care fraud accounts

for nearly $70 billion of all health care spending in the United States. It's big

business for unscrupulous providers that translate to higher premium

payments for consumers.

Instruction

1. Keep good records of the medical services that you received. Document

all procedures and tests performed dates of visits and tests, and providers

who performed them. Retain copayment receipts.

2. Compare your medical service records against your billing statementfrom your insurance company. Contact your insurance company for a copy

of your bill if one wasn't sent to you.

3. Review your insurance plan benefit manual, so you know what's covered

by your insurance plan.


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4. Note any billing discrepancies you find, such as an added charge for a

procedure you don't recall receiving, double billing for the same procedure

when it was only completed once, and/or charges for procedures your

provider indicated were free.

5. Contact your insurance company right away when you suspect you're a

victim of fraud.

6. Report billing discrepancies to your state's Department of Insurance or

the attorney general's office. Someone from one or both agencies may ask

questions about your claim and request you submit to them copies of your

medical records, including receipts and other billing documentation. This

will allow them to conduct an investigation.


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13. HOW TO REPORT INSURANCE

FRAUD

Fraud can cost the insurance industry billions of dollars each year, which isultimately passed on to the insured as increased premiums. Insurance fraud

can be reported anonymously and easily.

According to insurancefraud.org, most states have their own fraud bureau

that can investigate insurance scams. Whistleblowers might even be able to

collect a reward for information leading to a conviction. Insurancefraud.org

provides a list of states that have an established fraud bureau. You can also

contact the insurance company, the National Insurance Crime Bureau,

Medicaid and Medicare, and the social security administration among

others.

Instructions

Hotlines Available

1. Many insurance carriers offer a fraud hotline. If you suspect someone

has committed fraud, look up that carrier's information online and don't

hesitate to give them a call. Some of the more common acts of fraud

toward an insurance carrier might include destroying your own car,

claiming lost or stolen personal items, or claiming injuries that did not

occur. The National Insurance Crime Bureau can also be found online. This

organization is operated by insurance carriers and will investigate auto,

liability, homeowners', and workers' comp fraud.

2. Social Security fraud occurs when someone is collecting benefits when

they are not eligible, collecting someone else's benefits such as a deceased

party, or working under the table for compensation above what is allowed

by social security guidelines. Fraud can also occur if an individual is

reporting a child that is not their own, or by collecting benefits when theylive overseas. Call 1-800-269-0271 to report this type of fraud or report it

online at ssa.gov.

3. The types of fraud committed against Medicaid and Medicare involve

doctors, pharmacists, and other health care providers. Doctors may report


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patients or groups of patients that did not visit their office, double bill for

procedures, bill for procedures that did not occur, or use false credentials

when submitting claims. Fraud can be reported at your local state Medicaid

agency or by calling the OIG hotline at 1-800-447-8477.

4. The USDA Office of the Inspector General offers a hotline at 1-800-424-

9121 during regular business hours. Their email address, as well as an

address for writing a letter, can be found on rma.usda.gov. Types of crop

insurance fraud might include filing claims against fields that were never

planted or crops that were not harvested.


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14. Insurance companies concerned

about rising incidents of fraud

Ernst & Youngs insurance fraud survey: frauds are driving up overall costs forinsurance companies

Mumbai, 2 June 2011Ernst & Young's insurance fraud survey has revealed that therising incidence of fraud is driving up costs for insurance companies and premiums forpolicy holders. Insurance companies are waking up to this grim reality, which may

threaten their viability and profitability. According to 80% of the survey respondents,

representing India's largest public and private insurance companies, fraud in insurance

can increase costs for insurers by at least 1% and can rise by more than 5% in certaincases. Further, more than 50% of the respondents believe that fraud directly impacts

premium, in some cases increasing premiums by more than 3%. This adversely affects

innocent consumers who end up paying a higher premium.

The survey was conducted to assess the fraud scenario in the Indian insurance industry,

the potential risk exposure, the economic impact of rising incidents of fraud, and industrypractices to counter fraud. Of the surveys respondents, 50% expressed the need for

heightened and more stringent anti-fraud regulations in the area of claims and surrender.

This area is most prone to fraud, with nearly 27% respondents rating it among thetopmost fraud risks in the insurance sector.

Insurance sector regulator, the Insurance Regulatory and Development Authority(IRDA), appears to share the concern of most of the respondents. According to public

media sources, the IRDA has reportedly decided to appoint reputed firms to developeffective reporting on industry-wide fraud within health care insurance.*

The survey findings should cause concern among insurance company directors.

Complacency around fraud, bribery and corruption, combined with cost-cutting

initiatives at many companies, creates additional exposure. With new legislation such asthe UK Bribery Act giving regulators stronger enforcement powers, management, in

particular, should demonstrate greater commitment to ethical conduct through their

actions, including making tough choices regarding departmental budgets and disciplinarymeasures.

As Arpinder Singh, Ernst & Youngs India Fraud Investigation & Disputes ServicesLeader states, It is managements job to set the tone and frame the controls and

programs to mitigate the fraud risk.

Companies: not prepared to counter fraud risksMany companies have to do more to establish a robust and effective fraud risk

management process. As much as 40% of the respondents expressed concern that theirorganizations do not have a dedicated anti-fraud department. Worse still, around 43%


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said that manual red flags are used to detect fraud in their organizations. Given the

quantum of data these insurance companies have to handle, this method may not beeffective enough as a measure.

Lack of third-party due diligence

The Indian insurance industry relies heavily on third parties, be it as a distributionchannel for selling its products or to conduct due diligence. As a result, the exposure to

fraud risk increases, which makes it imperative for a company to conduct due-diligencechecks before associating itself with any third party for business. Yet, according to the

survey, one-third of the respondents reported that their company does not screen all key

vendors and employees.

Arpinder Singh adds, The survey provides a wake-up call for insurance companies. Lack

of third-party due diligence and focus on anti-fraud measures; and a continued reliance

on manual methods to detect fraud inevitably increases the risk exposure. The adoption ofa definite methodology and a comprehensive and integrated approach to fraud risk can

help companies address the rising risk of fraud in the insurance sector.

Proactive fraud monitoring: the need of the hourThe results of the survey indicate that business leaders are aware of the need to address

fraud risk. Some of the more successful organizations have already begun focusing onthis area and have consequently benefitted from improved profitability.

Arpinder Singh concludes, Some of the points that companies must include in their fight

against fraud are a well-defined whistle-blowing policy, periodic fraud risk assessment,

third-party due diligence, data analytics tools to identify red flags, and the automation of

processes.


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15. Insurers lost over Rs. 30,000 crore

due to frauds in 2011: Study

New Delhi : Indian insurance companies have borne a loss of over Rs.

30,000 crore in 2011 due to different kinds of frauds, a study hasclaimed.

It cited collusion between the employees of insurers and private persons,

document falsification and manipulation in citing cause of death to claim

insurance benefits, as some of the reasons behind these frauds.

"The losses caused to the insurance sector are Rs. 30,401 crore which isroughly 9 per cent of the total estimated size of insurance industry in the

year 2011," the report said.


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