4 Fraud-Fighting Checklists for Agents

Are your clients or prospects trying to pull a scam? Industry experts share their red flags for fraud.

Insurance fraud is bigger than ever, and scammers are coming up with new wrinkles all the time. As the guys on the front lines, insurance agents are in a unique position to spot insurance fraud as it’s happening and play a powerful role in stopping it before it starts.

Conservative guesses put the cost of fraud across all lines at $80 billion a year, said Jim Quiggle of the Coalition Against Insurance Fraud (CAIF). The Aite Group estimates it at about $70 billion for property-casualty fraud alone, with 10 percent of every claims dollar goes to fraud.

And instances of fraud are on the rise: The National Insurance Crime Bureau (NICB) conducts numerous studies on insurance fraud and reports a 27 percent increase in the submission of questionable claims by NICB member insurance companies since 2010.

Here are the types of fraud experts say are most prevalent today:

Claims padding: “Lost wedding rings, inflated home entertainment systems after burglaries or house fires—these kinds of claims are a perennial drain on insurers,” Quiggle said.

Staged auto crashes: A long-standing, well established and sophisticated crime niche, dominated by ethnic groups (Russians, Armenians, Estonians), especially in heavily populated urban areas in states with mandatory personal injury protection insurance like Florida, Massachusetts, New York and New Jersey. Crooks take out policies on people who then stage accidents to collect medical benefits under the state’s no-fault provisions, Walsh said. A largely Russian-run ring in New York made at least $400 million in bogus injury claims, Quiggle said.

Read related: "Convicted PIP Fraud Ring Leader Faces 75 Years in Jail ."

Contractor fraud: Whenever natural disasters strike, contractor scams are close behind; and events like last year’s Superstorm Sandy are like ringing the dinner bell for crooks. The problem has grown so acute that more states are passing laws cracking down on dishonest contractors.

Read related: "One Year After Sandy, New Jersey Regulator Warns of Insurance Fraud."

Workers’ comp fraud: Strapped business owners reluctant to part with cash for workers’ comp premium are hiding workers in shell companies or labeling them independent contractors, especially in the construction industry, Quiggle said. Networks of check-cashing firms help launder the money.

Read related: "Fla., N.Y. Workers' Comp Reforms Working, But Officials Say More Needs to Be Done."

Arson: Economic hard times always make auto, home or business arson more popular. Nearly two-thirds of state fraud bureaus reported increased home arson cases in 2010.

Healthcare reform scams: The large market of uninsured Americans are ripe for the pickings here, as bogus healthcare plans grow. Most state fraud bureaus have reported a spike in fake health plans, with nearly 40 percent saying their caseload was much higher, according to CAIF.

Ghost brokering: The growth in online and direct insurance has created a lucrative market for an emerging trend known as “ghost broking,” said James Ruotolo, principal at SAS, a business analytics software firm. Ghost brokers offer significantly cheaper insurance rates than legitimate insurance agents by falsifying key details in the application to ensure that the insured pays lower premiums. Ghost brokers are often unlicensed and the policies they obtain for their customers/victims may be invalidated because of the fraudulent way in which they were obtained. Although the practice is prevalent in the United Kingdom, more cases are emerging in the U.S., CAIF’s Quiggle said. 

Read related: "Who You Gonna Call?: Insurers Aim to Bust Ghost-Brokering Practice."

Agents are in a unique position to spot insurance fraud before it happens because they are sometimes dealing face-to-face with the would-be perpetrators. Fraud experts—and insurance agents who have personally faced down fraud--provided this checklist for agents to use in preventing the most prevalent forms of insurance fraud:

Auto fraud:

  • No record of prior coverage
  • Vehicle garaging address does not match mailing address or driver’s license address
  • The policy took effect just before the loss
  • The policy expires soon
  • Policyholder frequently wants to add or remove vehicles and/or drivers from their policy
  • Policyholder asks you to back-date coverage such as towing or rental
  • More vehicles than drivers listed on the policy
  • The client sharply increased the policy before the loss
  • The client has personal or financial problems
  • The crash happened shortly after the policy was taken out or the vehicle was registered.

Commercial fraud:

  • Claimant is ill or nearing retirement age
  • Finances are in arrears, such as taxes, payroll and loans
  • Inventory is obsolete or overstated
  • Claimant sharply increased policy just before loss
  • Policy seems to overvalue property
  • Claimed loss is not directly related to business.

Personal property loss (home arson, “stolen” possessions):

  • Claimant sharply increased policy before loss
  • Client has significant debt or faces foreclosure
  • Insured property such as jewelry or home music system seems far more expensive than client’s income
  • Policyholder asks you to backdate coverage such as water coverage endorsement
  • Building or contents were for sale at the time of loss
  • Property is in disrepair, condemned or to be demolished
  • Several items were recently added to the policy just before the loss.

General red flags:

  • Applicant is unsolicited, walk-in business not referred by an existing policyholder
  • Applicant states they will soon be moving to insuring state and wants to establish coverage before moving there
  • The applicant needs insurance immediately, and “doesn’t have time” to provide detailed answers to standard questions
  • Applicant neither works nor resides near the agency
  • Applicant wants to or already paid premium in cash or by another non-traceable method (cashier’s check, money order)
  • Applicant’s address is in a high-rise apartment complex, but no apartment number is listed
  • Applicant initially quotes a commercial policy, then later buys a personal lines policy for the same vehicle
  • Personal lines policy paid for with routing number/account number of a corporate bank account (and vice versa)
  • Applicant requests all correspondence to be sent to an out-of-state address
  • Applicant cannot produce current identification and/or driver’s license, or has a temporary, recently issued, or out-of-state driver’s license/state identification card
  • Applicant is unusually familiar with insurance terms or procedures such as medical terminology, workers’ compensation claims handling procedures and laws, vehicle repair terminology, coverage and special limits
  • If you suspect someone is gaming the system or intentionally trying to obtain benefits to which they are not entitled, contact the insurance companies’ special investigation unit or the National Insurance Crime Bureau hotline at 1-800-TEL-NICB.
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