Whether you’re an insurance policyholder or an investor, insurance fraud impacts your financial health. In this blog post, we’ll talk about the most common types of insurance fraud, hopefully to give you some insight on how you can watch out for them.
Seller Fraud and Buyer Fraud
There are two types of insurance fraud, according to Investopedia: seller and buyer fraud. Seller fraud happens when the policy vendor bends the lawful process so that he or she could make more money off the buyer. Buyer fraud happens when the buyer is the one who bends the facts in order to cash in on the insurance or claim more than what he or she is intended to receive. For the purpose of protecting you, dear consumers, we’ll focus on defining seller fraud:
Ghost or Paper Companies. People are no stranger to news about ghost companies’ insurance scams. And at least someone you know knew someone who has been a victim of these scammers. What usually happens is: victim signs up for a promising insurance policy, only to find out in the end that the company offering the policy is not legitimate, or worse, nonexistent. Often times the fraud isn’t found out until the victim tries to file a reimbursement.
Premium Theft. Premium theft happens when the insurance policy agent charges clients premiums for insurance policies, even though the insurance company has no knowledge of such activities. In some cases, the premiums have not been underwritten by the company. Through the years, incidences of premium theft has decreased as insurance companies geared towards direct modes of payment, which involves charging the insurance payment on the policyholder’s financial account on a regular basis.
Churning, Churning happens when the insurance seller advises clients to renew, start or terminate insurance policy contracts so he or she can reap larger commissions.
Over and Under Coverage. Like churning, this type of insurance fraud works in favor of the insurance representative, and not in the best interest of the insurance policyholder. The insurance agent dupes a customer to buy insurance coverage they do not need or an inferior policy presented as a comprehensive policy. As a result, the client receives partial benefits or even none at all for their insurance payments.
When people take part of insurance scams, particularly buyer fraud, insurance costs increase. Basically, the insurance company is spreading the costs across the board, with insurance policyholders shouldering the costs.
To make sure that you are getting the most of your insurance, it wouldn’t hurt for you to take some insurance training or research. Better yet, hire a third-party risk analyst who can tell you whether the insurance plan that’s being offered to you is worth it or not.