Insurance fraud can be categorized as either internal or external. Internal and external fraud can include both hard and soft fraud.
Internal Insurance Fraud
While most people think of insurance fraud as perpetrated by insureds in an attempt to deceive insurers with false or exaggerated claims, fraud also takes place from an internal angle. Internal fraud is committed against an insurance company or its policyholders by insurance agents, managers, executives, and other insurance employees. Examples include:
-making misrepresentations on insurance applications;
-creating false insurance documents and papers;
-adding unwanted insurance coverage;
-churning fees; and
-mishandling reserve funds
External Insurance Fraud
External fraud schemes are those directed against insurance companies by individuals or entities such as policyholders, medical providers, beneficiaries, and career criminals. Examples include:
-manufactured fraudulent claims
-bodily injury schemes
Who Commits Insurance Fraud?
Perhaps no serious crime attracts a wider variety of perpetrators than insurance fraud. People who would never think of robbing a bank, stealing a car, or burglarizing a home or business find the lure of easy and big money through insurance fraud very difficult to resist.
Unfortunately, perpetrators of fraud are not as easily identifiable as pickpockets, burglars, or kidnappers. They do not wear skull caps or face masks. They do not carry weapons or lock picks or crowbars. They may be members of organized and complex rings who steal large amounts through claim mills, or they may be medical professionals who inflate the costs of their services or charge for services not rendered. They may be individuals acting alone, ordinary people trying to cover their deductibles or who see filing an inflated insurance claim as a way to make a little extra money. They may be neighbors claiming that damages that actually occurred to their vehicles months or years earlier are the result of a recent accident.
Who Pays for Insurance Fraud?
Insurance fraud is a national problem affecting every business, household, and consumer, and it is an increasingly expensive burden on our national economy. In general, insurance fraud results in higher insurance premiums for all policyholders. When insurers pay fraudulent claims for unnecessary or improper repairs, for property that was not damaged or stolen, or for injuries that were not as severe as reported or were not sustained at all, they end up charging all policyholders higher premiums in order to maintain legal requirements regarding capital and surplus. Insurers must deal with the immediate issue of cash outlay for these fraudulent claims. This duty undermines their financial position, diminishes cash reserves, and threatens financial stability.