Filed Under:Risk Management, Loss Control

How you can combat insurance agent fraud

Early detection is key

When you hear the term
When you hear the term "insurance fraud" you probably think of clients doing wrong, but agents can be guilty of fraud as well.

According to the Coalition Against Insurance Fraud (CAIF), insurance fraud steals an estimated $80 billion a year across all lines of insurance. In addition, fraud accounts for 5% to 10% of claims costs for U.S. and Canadian insurers.

Along with my job as Claims Manager at Golden Bear Insurance Company, I am our Special Investigation Unit Assistant Coordinator. It’s my responsibility to ensure my colleagues and I are well equipped to identify and report suspected insurance fraud to protect our insured customers.

Under California’s Code of Regulations Insurance Fraud Prevention Unit, insurance organizations have a duty to establish a special investigation unit, train employees in fraud detection, detect red flag indicators of fraud and report suspected insurance fraud to the California Department of Insurance.

Even if you don't do business in California, all insurers should promote adherence to this regulation organically, whether it falls into their job description or not. It’s equally as important for insurers who aren’t legally responsible for protecting their company and clients from insurance fraud to be informed.

Defining agent fraud


We often think of insurance fraud as customers inflating their claims or intentionally damaging their property to collect on a claim. However, suspected insurance fraud includes any misrepresentation of fact or omission of fact pertaining to a transaction of insurance including claims, premium and application fraud. Insurers are well trained to identify homeowner, workers’ compensation, and auto fraud and take the necessary steps to combat it. But, how many insurers would be able to determine whether one of their agents were committing fraudulent behavior?

Fraudulent agents can use a variety of different schemes to make money. One common scam is premium pocketing. Instead of buying coverage on behalf of a customer, agents can pocket that money for themselves, leaving their wallet full but their customer unprotected. This creates problems both for the customer and for the coverage provider. It’s important to keep a close eye on the premiums that are coming in, and flag anything you deem suspicious.

Related: Illinois insurance agent pleads guilty to fraud scheme, money laundering

Another form of fraud to be watchful of is agents who try to oversell a customer insurance coverage they don’t need (for example, if they have another policy that already covers that risk), or sell clients policies that don’t exist. Many customers looking for coverage don’t know exactly what their policy should include, and look to their agent as a trusted source of information.

Insurance fraud can come in many forms, so it’s not always easy to identify. If you see suspicious behavior, it’s better to report it to the appropriate party quickly, rather than risk losing your insured’s trust.

The state of the industry


Insurance risks are evolving rapidly. New technology and innovations that gain popularity overnight make it a challenge for insurers to keep their finger on the pulse of what’s risky. Because of this, it’s crucial that insurers stay on top of new exposures and spend time talking to consumers about what they need from an insurance product.

New areas of coverage take time to develop and be tested. Many consumers are in the dark about what kinds of coverage they need, what should be included in a policy and how much it should cost them. The speed at which risks are emerging creates an opportunity for insurance agents to take advantage of unsuspecting customers and partnering insurance companies.

What are the consequences?


When an agent makes a mistake in securing proper coverage or completes the application for an insured with incorrect information, coverage can be denied in whole or in part. Insureds are then left unprotected and without adequate coverage.

Any kind of insurance scam raises premiums, empties wallets and wrecks credit. It also sparks a general distrust of the insurance industry and creates negative sentiment among customers.

Without the due diligence of their peers to act on their suspicion of fraud, agents can take their schemes so far that they drain their customers’ family finances. Even when a fraudulent agent is caught and prosecuted, the financial setbacks for the insured and the coverage provider can be devastating.

Combating agent fraud


Transparency, speed and resolution are key when dealing with fraud. There are many ways we as insurers can help restore consumer confidence when mistakes are made. Acting quickly and over-communicating can put the customer at ease and minimize distrust.

When agents attempt to cover up problems, they can turn a simple mistake into fraud and can end up risking both their license and reputation. Whether you’re an agent or a coverage provider, trust your gut. If you see something suspicious, say something. You could be saving a customer from a devastating financial lost and improving overall consumer trust in the insurance industry.

Related: 2 retired N.C. insurance agents convicted of fraud

Beth Ossino is Assistant Vice President, Claims Manager, at Golden Bear Insurance Company. She can be reached at beth@goldenbear.com

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