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Feb
4
Written by:
Jim Valkenburg
2/4/2009 12:54 PM
Insurance Fraud is the one major reason our insurance premiums are so high.
That is not a statistically generated opening line, but merely a statement to start you thinking. AND, it may well be true. So, what is insurance fraud anyway? Here is a simple definition from Wikipedia:
Insurance fraud is any act committed with the intent to fraudulently obtain payment from an insurer.
Perhaps that is too simple for such a complex topic, but rather than spend time on semantics of what it is, I submit to you that we all know what fraud is. It's a crime whether it be a minor offense or a major one, it is nevertheless a criminal act that is committed by millions of us on a daily basis. I would guess that it might be almost as rampant as traveling over the speed limit on our highways. Just so we can get on the same page, let me ask you a few questions (and I'll answer them for you):
1. How much do you think insurance fraud costs all of us annually? And I'll limit the "all of us" to people residing in the United States just so we can get some handle on the problem. ANSWER: No one really knows for sure because of the nature of the crime, but it is estimated that insurance fraud costs Americans at least $80 billion a year. (source: Coalition of Insurance Fraud at www.insurancefraud.org ). That's almost $1,000 for every family in America. Wouldn't you like to reduce your premiums be a thousand dollars every year?
2. What is "soft fraud'? Many people believe that harmless fudging is not criminal and much of it is considered soft fraud. Consider a car owner that inflates a fender bender claim to cover the deductible; or a person that underestimates how many miles she drives annually in order to lower her auto premium; or a homeowner that inflates the value of his stereo equipment that was stolen during a robbery; or a business that lists fewer employees than it actually has in order to pay lower business insurance and workers compensation premiums. (borrowed from the Coalition Against Insurance Fraud website). Many of us have committed "soft" fraud without even thinking about it. But, it all adds into that $80 billion annual total bill.
3. What is "hard fraud"? That is when someone deliberately fakes an accident, injury, theft, arson or some other loss in order to collect money from an insurance company. Only the act of deliberately staging the external crime distinguishes hard and soft fraud from each other. They both cost all of us a great deal of our premium dollars when we have to pay to cover losses that were not legitimate.
As an aside, let me add here that insurance is designed to make you whole again and not allow you to make a profit from some unforseen event. You should be put back in the same position you were before the claim event took place. In other words if a thief stole a $500 digital camera from you, you shouldn't expect the insurance company to buy you a $2,000 camera to replace it.
4. How many different types of insurance fraud are there? The list is very long covering almost everthing imaginable. If you want to see a listing there is a good one on the California Department of Insurance website. Try clicking here: http://www.insurance.ca.gov/0300-fraud/0100-fraud-division-overview/0100-what-is-insurance-fraud/
Want more?
Try these websites:
www.insurancefraud.com
http://en.wikipedia.org/wiki/Insurance_fraud
http://www.iaifa.org/
http://www.nicb.org
There's much more to come, but here's something to chew on as you consider adding to this blog: Las Vegas, Nevada has been ranked 2nd, 1st and then 2nd again in the number of auto thefts in the US in the years 2005, 2006 and 2007. What do you think? Were they all legitimate thefts? Do you think people stage thefts to collect insurance dollars? Do you think insurance fraud has a big impact on your premiums? Do you think it can be controlled or even stopped?
Let's keep this going. Tell me what you think and I'll come up with more statistics about the number one reason your insurance premiums are high.
Tags:
6 comment(s) so far...
Re: Insurance Fraud and You
Great Blog Jim. Very informative as well.
By Will Paccione on
2/6/2009 1:08 PM
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Re: Insurance Fraud and You
Hello Jim,
I really enjoyed reading your blog. All of this information is very true. In my opinion, I think insurance theft is a huge deal and greatly affects premiums for everyone not just the people who make the claims. Somebody somewhere has to pay these losses and, yes, the insurance company pays the claims but unfortunately the companies examine their losses every few months and if they are not gaining money then our rates will raise so they may recuperate their losses.
I think fraud can try to be controlled but the problem is if it is controlled, when policyholders file claims the claim process will take longer due to more investigating. Longer meaning weeks or even months to investigate if fraud took place and then the claimant is upset because the process is taking too long to investigate and the claim process is not "smooth" and it is a vicious circle. Not only does it take a long time but it costs more money to hire investigators which would require more money and so we, the policyholders, would probably pay for those extra investigators through even higher premiums.
Something that I have found to be interesting as I've been in this business is the amount of uninsured motorists that are on the road who don't even bother to carry insurance. Those kind of people are the ones that I really believe make our premiums go higher because they get into accidents and then we have to file the claims on our own insurance. To me, it seems like they, being the people who feel they don't need to carry insurance, have the best of both worlds because they can get into an accident and not have to pay higher premiums for one, their accident, but also they don't even pay a premium! All they get is a measly $250 fine from the DMV and are free until next time they get caught. The one coverage that I stress to clients is uninsured/underinsured motorist coverage because that could save their butt if they were ever involved in an accident with an uninsured driver and was seriously injured.
It would be interesting to know the number of uninsured drivers just in Las Vegas alone and how much money insurance companies pay out each year under the uninsured/underinsured motorist coverage.
By Bailey Upton on
2/6/2009 2:19 PM
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Re: Insurance Fraud and You
Thanks for the comments Bailey. Your issue of uninsured motorists is surely a form of insurance fraud. I think it may deserve a seperate blog all by itself because of its' rampant nature. I think the current figure in Clark County, Nevada is 20%! That means that one in every five vehicles on the road is being driven without insurance coverage! Of course, DMV would disagree because they do try and prosecute and they do try to enforce the mandatory insurance law, but criminals do what criminals do whether it is a "hard" crime or a "soft" one. There is a fine if you get caught and your driving priveleges are suspended and if you ever want your license back you have to have an SR-22 filing (see the Q&A section on this website), but none of that is enough of a deterent for those in our society that deliberately break the law. Unfortunately, we all wind up paying the bill eventually. I'll try to get some statistics for this blog on how many claims there are involving uninsured motorists and how much that one factor might be costing the rest of us.
Thanks for the comments!
By Jim Valkenburg on
2/6/2009 2:18 PM
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Re: Insurance Fraud and You
Excellent information! I would like to know if changing insurance companies after being with one for more than 25 years will hurt my rates? Is it true that if an insurance company sees that you have moved your policy on a regular basis, such as every year or two, that you will end up being rated at a higher rate?
Thank you,
Curious Georgette
By Curious Georgette on
5/2/2009 11:10 AM
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Re: Insurance Fraud and You
What about the lies and fraud being committed by insurance company and dishonest drivers? I have been on the other end of the spectrum, two separate accidents a few years apart that both driver's lied and denied doing damage to my car or person. The first person backed out of her parking space and rammed into my parked car while I was in it. She hung up her cell phone and yelled that she wanted the police immediately and began to cry to the officer when he arrived. He actually hugged her and told her that it must not have been her fault and he would "help" her in any way he could; even though her car was still "stuck" to mine. My rear bumper hung at an odd angle after we detached , but according to her insurance company, her car did not show "sufficient damages" and the police officer refused to return calls to my insurance company. I had to pay out of my pocket for Dr bills and to cover the deductable and my insurance rate went up. The second incident was even worse. The driver backed into my invisible car, we took pictures of the damages and exchanged information, she even appologized because she was in a hurry and was not paying attention. The damages to my car were under my deductable, and then the whammer hit...she lied and said she was not even in any accident and had no clue why I was trying to "scam" her. So my car now has a deep dent that "magically" appeared and I learned the lesson not to bother getting damages repaired and to have my own medical coverage, so when rude people lie and insurance companies screw you, at least you will be taken care of and will just have to grin and pay the next increase. I have never had an "at fault" accident, yet still have to justify these incidents and pay more for insurance. Even though it is not the case, Insurance companies treat us like we live in a No Fault state and do not even bother to take care of their insured. I can see why people do not bother to have insurance, they can just lie and get away each time...sucks to be one of the few honest people out here...
By Traci on
5/2/2009 11:10 AM
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Re: Insurance Fraud and You
Wow... It is easy to see why people can become angry, frustrated, and dissatisfied with the system as we now experience it. Being one of the "honest " ones does exacerbate an already screwed up mess. But, who do we blame? The insurance company? The rude and dishonest among us? The police department for not being more diligent? Who? I grant that the world is full of crooks that would lie, cheat and steal if they think they can get away with it, but we can't stop living and being honest ourselves. If we do that, the dishonest win! I don't want to make light of the last blog or the frustration that she feels, but not long ago my car was hit in a parking lot and I came out to a large dent in my door and a woman standing there waiting for me so she could apologize and give me her insurance information so I could get my car fixed. Surprised? So was I, but it happened. Some people are going to rip you off and some are going to surprise you with their integrity. I do believe that the "insurance company" is virtually neutral and they tend to look after their clients. But if the evidence is clear, they all practice due diligence and try to make things right. It's the lack of evidence and the constant barrage of rip-off artists that the companies run into every day that make the process appear tainted.
I wouldn't rush out to cancel my insurance just because I encountered a few creeps. Give it careful thought, find an agent that you can trust and stay one of the "honest" people. We need all we can get.
By Jim Valkenburg on
5/2/2009 11:10 AM
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