Insurance fraud occurs when someone deliberately lies to gain insurance benefits they are not entitled to. While most insurance claims are real, some fraud claims are submitted to insurers to make easy money.
Insurance fraud is a constant struggle for every insurer and insurance company. Unfortunately, some frauds go through undetected and cost the insurance company financial loss and embarrassment. Successful fraudulent insurance claims can cost the industry billions to trillions worldwide.
This short article will explain the top types of fraud and the consequences when caught.
Top 5 Types of Insurance Frauds
Automobile Insurance Frauds
One of the most common insurance frauds is automobile insurance fraud. The frauds are mainly personal regarding their vehicle and accidents. Primarily purpose of a scam is to receive quick money and make insurers believe something small is very serious.
Auto Insurance Frauds can include:
- Staging Fake Accidents: Insured plans a simple vehicle crash with partners or other policyholders and pretends it was a sudden accident.
- Self-Inflicted Car Damages: Exaggerating or causing damage to an insured vehicle to gain more money for a cheap, quick fix.
- On Purpose Crash: A common car fraud is ‘panic stop’, where the policyholder instantly breaks, so the car behind would crash into them.
Healthcare Insurance Frauds
Another frequent personal insurance fraud claims are health insurance fraud. The scam claims occur when policyholders provide false or misleading information to a health insurance company to gain a significant reimbursement.
Healthcare Insurance Frauds can include:
- Creating Fake Invoices: Policyholders creating invoices or changing charges to gain more money than they have paid.
- Non-Smoker Life Insurance Fraud: When insured lie on their life insurance that they do not smoke when they are, in fact, heavy smokers. Policyholders don’t understand this is a crime, and the insurance will be invalid if a medical report proves that the patient is a smoker.
- Using Someone Else’s Coverage: When a policyholder provides the insurance company with medical bills of uninured members (family or friends). You cannot use anyone’s coverage unless added to the same policy by the insurance company.
Employee Compensation Fraud
Employee compensation frauds are one of the most popular business-related insurance scams. The fraud occurs when an employee fabricates an on-the-job injury to gain insurance benefits. Unfortunately, it can happen in almost any industry and has severe consequences when caught. It is a crime in Hong Kong punishable by a fine and imprisonment for up to seven years.
The Employee Compensation Insurance Frauds can include:
- Fabricating Injury: When employee fakes their injury on work premises and alleges it was due to their work duty. The employees aim to get a recovery break, compensation, and a free salary.
- Exaggerating Injury: An employee may be injured, but they exaggerate their injury to doctors or medical professionals to extend their recovery break and gain more salary and compensation benefits.
- Working While ‘Injured’: When an employee is on injury recovery break at ‘job A’ but has begun working at new ‘job B’. Working new jobs during a recovery break is illegal and breaks contract agreements. Also, it proves that the employee was faking their injury at their original position.
Individuals and businesses can scam fire and damage insurance frauds. The main purpose of this fraud is to gain quick insurance money to recover a company or get out of debt. No matter the cause, it is illegal, and the consequences will be worse than the possible reward.
Fire and Damage Insurance Frauds can include:
- Business Premises Fire: Business owners may set their location on fire to gain a hefty insurance payment. They do this when the business is not doing well, and owners need money desperately.
- Home Fires: Homeowners may have money problems and light their house on fire to solve their problems with an insurance settlement. Additionally, homeowners remove valuable and precious items from home before starting the fire and claim these items too.
Additionally, in any case of fire, a detailed investigation is taken to determine the cause of the fire. In addition, investigators can identify if the items claimed were in the property during the fire. Therefore, most owners will not get away with the fraud and suffer more due to breaking the law.
Theft or Robbery Frauds
Unfortunately, there are many instances where property owners or renters stage robberies to claim the cost of items under their insurance. They deliberately damage their property and try to convince the authority and insurance companies – that they have been robbed of the most expensive items. These items have just been hidden and moved to a friend’s house.
Theft or Robbery Insurance Frauds can include:
- Friendly Robber: Owners ask friends to come to rob their home on purpose and make it as realistic as possible. Then hide their valuable assets in their home (friend’s home).
- Self-Damaged House: Owners try to find places to hide their valuables and then damage the house to make it look like a robbery has occurred.
Once again, serious investigations begin after a robbery, and home/business owners rarely get away with the crime.
According to the Hong Kong Federation of Insurers, ‘it is estimated that about 10% to 15% of the insurance claims paid out could be fraudulent’.
Frauds can be commercial or personal; these top five insurance frauds may seem smart to the person committing them. However, new technology is getting smarter and detecting frauds easily and quickly.
Therefore, no matter the fraud and who committed it, the consequences are never worth it. An insurance fraud crime is significantly fined depending on the fraud and may have to spend up to 7 years in prison.
To Learn More about how to deal with insurance frauds in Hong Kong and Asia, contact Red Asia Insurance.