INSURANCE & ITS SCAMS

8/7/2019 INSURANCE & ITS SCAMS

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INSURANCE & ITS SCAMS


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WHAT IS INSURANCE??

f

In law and economics, insurance isa formofriskmanagement primarilyusedto hedge againstthe riskofacontingent, uncertain loss. Insuranceisdefinedastheequitabletransferoftheriskofaloss, fromoneentitytoanother,inexchange forpayment.An insurerisacompanysellingtheinsurance;an insured or policyholderisthepersonorentitybuyingtheinsurancepolicy.The insurance rate isa factor usedtodeterminetheamounttobecharged foracertainamountofinsurancecoverage,called

the premium. Riskmanagement,thepracticeofappraising andcontrollingrisk,hasevolvedasadiscrete fieldofstudyandpractice.

f Thetransactioninvolvestheinsuredassumingaguaranteedandknownrelativelysmalllossinthe formofpaymenttotheinsurerinexchange fortheinsurer'spromisetocompensate (indemnify)theinsuredinthecaseofalarge,possiblydevastatingloss.Theinsuredreceivesa contract called

the insurancepolicy whichdetailstheconditionsandcircumstances underwhichtheinsuredwillbecompensated.


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INTRODUCTION:

fInsurance = Collectivebearingof Risk.

fBasicHumantraitistobeaversetothe

ideaofrisktaking.

fInsurance,whetherlifeornon-life,

providespeoplewithareasonable

degreeofsecurityandassurancethat

theywillbeprotectedintheeventofa

calamityor failureofanysort.


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WHAT ARE INSURANCE SCAMS ?

f Insurance fraud isanyactcommittedwiththeintent

to fraudulently obtainpayment froman insurer.

f Insurance fraudhasexistedeversincethebeginningofinsuranceasa

commercialenterprise.Fraudulent claimsaccount forasignificant

portionofallclaimsreceivedbyinsurers,andcostbillionsofdollarsannually.Typesofinsurance fraudareverydiverse,andoccurinallareas

ofinsurance. Insurancecrimesalsorangeinseverity, fromslightly

exaggeratingclaimstodeliberatelycausingaccidentsordamage.

Fraudulentactivitiesalsoaffectthelivesofinnocentpeople,both

directlythroughaccidentalorpurposefulinjuryordamage,andindirectlyasthesecrimescauseinsurancepremiumstobehigher.

Insurance fraudposesaverysignificantproblem,andgovernmentsand

otherorganizationsaremakingeffortstodetersuchactivities.


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WHAT ARE THE CAUSES FOR INSURANCE

SCAMS??

f The chiefmotiveinallinsurancecrimesis financialprofit.Insurancecontractsprovideboththeinsuredandtheinsurerwithopportunities forexploitation. Onereasonthatthisopportunityarisesisinthecaseofover-insurance,whentheamountinsuredisgreaterthantheactualvalueofthepropertyinsured.Thisconditioncanbeverydifficulttoavoid,especiallysinceaninsuranceprovidermightsometimesencourageitinorderto

obtaingreaterprofits.Thisallows fraudsterstomakeprofitsbydestroyingtheirpropertybecausethepaymenttheyreceive fromtheirinsurersisofgreatervaluethanthepropertytheydestroy.

f Insurancecompaniesarealsosusceptibleto fraudbecause falseinsuranceclaimscanbemadetoappearlikeordinaryclaims.Thisallows fraudsterstofileclaims fordamagesthatneveroccurred,andsoobtainpaymentwithlittleornoinitialcost.

f Themostcommon formofinsurance fraudisinflatingofloss.


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LOSSES DUE TO INSURANCE FRAUD?

f It is virtually impossible to determine an exact value for the amount of money stolenthrough insurance fraud. Insurance fraud is designed to be undetectable, unlike visiblecrimes such as robbery or murder. As such, the number of cases of insurance fraud that aredetected is much lower than the number of acts that are actually committed. The best thatcan be done is to provide an estimate for the losses that insurers suffer due to insurancefraud. The Coalition Against Insurance Fraud estimates that in 2006 a total of about $80billion was lost in the United States due to insurance fraud.

f According to estimates by the Insurance Information Institute

, insurance fraud accounts for10%, or about $30 billion, of losses in the property and casualty insurance industries in theUnited States.The National Health Care Anti-Fraud Association estimates that 3% of thehealth care industrys expenditures in the United States are due to fraudulent activities,amounting to a cost of about $51 billion. Other estimates attribute as much as 10% of thetotal healthcare spending in the United States to fraudabout $115 billion annually. In theunited Kingdom the Insurance Fraud Bureau estimates that the loss due to insurance fraud

in the United Kingdom is about 1.5 billion ($3.08 billion), causing a 5% increase ininsurance premiums. The Insurance Bureau of Canada estimates that personal injury fraudin Canada costs about C$500 million annually.


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TYPES OF INSURANCE

INSURANCE

GENERAL INSURANCE

FIREINSURANCE

MARINEINSURANCE

MEDICLAIM MOTORVEHICLE

LIFEINSURANCE


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LIFE INSURANCE

f Life insurance or life assurance isacontractbetweenthepolicy

ownerandthe insurer,wheretheinsureragreestopayadesignated

beneficiaryasumofmoney upontheoccurrenceoftheinsured

individual'sorindividuals' death orotherevent,suchasterminalillness

orcriticalillness. Inreturn,thepolicyowneragreestopayastipulatedamountatregularintervalsorinlumpsums.Theremaybedesignsin

somecountrieswherebillsanddeathexpensespluscatering forafter

funeralexpensesshouldbeincludedin Policy Premium. Inthe United

States,thepredominant formsimplyspecifiesalumpsumtobepaidon

theinsured'sdemise.


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LIFE INSURANCE FRAUD-CASE STUDY

f Mr.and Mrs. Kowalskiwereahappycouple forover 20 years.Theylivedin Trinities, Poland.

Hewasabusinessmanandshewasaschoolteacher.Theironlyworrywastheirson.First,he

droppedoutofschool.Thenhegotinthebadcompanyofdrugdealers.Finally,hewas

arrested forsellingdrugstokidsonthestreet.

Mr.and Mrs. Kowalskiwereshocked.Theydecidedtodoeverythingpossibleto savetheir

child.Theygothimreleased fromprison untilthecourtproceedingbegan.Intheiropinion,theonlywaytohelptheirsontostraightenouthislifeandescapejusticewasto

sendhim faraway from Poland,toacountrywithwhich Polanddoesnothaveanextradition

treaty. Thatwouldcosta fortune,said Mr. Kowalskitohiswife, a fortunewedonothave.

Ms. Kowalskistartedtothinkabouthowtomakeplentyofmoney, fastandeasy. She

remembereda fewlifeinsurancepostersshesawrecently,whichmadeherthinkaboutwhat

wouldhappenifsheweretosufferan untimelydeath. Mrs. Kowalskisuggestedtoherhusband,

Whatifweinvestourlifetimesavingsinpurchasinga fewlifeinsurancepolicieswitha few

differentinsurancecompanies?


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f Next,weshould findadoctortosignmydeathcertificate. Ofcourse,wewillhavetopaythedoctor forthat.Then,withmydeathcertificateyou cancashthe

policieseasily.Wecanbuyoursons freedomwiththatmoneyand usewhateverislefttomake

acomfortablelivingabroadtoo.

At first,herhusbandwasreluctanttotheidea,buteventually,sincetheysawnootherwayto

solvetheproblemwiththeirson,heagreedtoit.

f Mrs. Kowalskicalleda fewinsurancecompaniesandverysoonreceivedoffers fromseveral

companies forpolicies. Inthecaseofherdeathherhusbandcouldcash-inallofthepoliciesfor

atotalof US$1 million.

Dr. Malinowskiwasanotoriousgambler. Unfortunately,hewasnotasuccessfulone.Theoffer

madebythe Kowalskiscameattimewhenhewasalmostbroke. Despitehisdifficulteconomic

situation,hewassomewhatworriedaboutthescheme.Heconvinced Mrs. Kowalskiofthe

necessitytomakethewholethinglookmorerealistic.Thus,heprescribedhersometests

andadvisedhertokeepcomplainingabout terribleheadaches


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f Threemonthslater, Dr. Malinowskipronounced Mrs. Kowalskidead.Heissuedadeath

certificate.Thecauseofdeathwasabraintumor.

Mr. Kowalskisubmittedthedeathcertificatetotheinsurancecompanies.Thetotalamount Mr.

Kowalskicollectedwas US$200,000.Asagreed,hepaid Dr. MalinowskiUS$10,000.

Twoweekslater, Mr.and Mrs. Kowalskiaswellastheirsonhadtheirsuitcasespacked,plane

ticketsto Argentinaand falsepassports;stolenpersonaldatawere usedtoobtainthepassports.

Then,policeofficersknockedatthedoor.Howwasthiscaseinvestigatedandprosecuted?


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CONCLUSION

f Thehopeisexpressedthatthisthesiswillbringclaritytoaverydifficult

areaofresearch,toanotherwiseclosedbook.Theroleoforganised

crimesyndicatescannoteverbe under-emphasised,andeducationand

publicityonthistopic,regardlesshowhumble,isofthe utmost

importance.in insurance frauds

INSURANCE & ITS SCAMS

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