Fraudulent claims on insurance costs the industry millions every year, while the knock on effect results in our premiums being raised to cover the cost. As consumers we all end up paying for claims that people make on their insurance that shouldn’t be made, so we all need to be aware of this crime. Most of us are honest hard working individuals who would not dream of defrauding insurance companies but unfortunately there are those who would not think twice about doing so and are no better than thieves as a result.
Insurance Fraud Explained
Policy holders defraud insurance companies by filing false claims on their insurance policies for financial gain. It is not a new phenomenon but has always been around from the earliest days of insurance. There are many types of insurance fraud that range from exaggerated claims made on policies, to out and out planned occurrences such as arranging an accident in order to make a claim. This crime affects us all in a variety of ways. The most obvious is that our premiums are raised to cover the cost of fraud, while emotionally victims of orchestrated crime, in order to make a fraudulent claim, suffer greatly as a consequence. Many Insurance companies are members of the Insurance Fraud Bureau where they join forces to fight insurance fraud.
What is the Motivation for Committing Insurance Fraud?
The obvious answer to this is greed. It is a crime that can be committed from the arm chair with ease. Those who have no conscience as to how they affect others can manipulate situations for their own financial gain. Fraudsters who are caught out face lenient sentences when it comes to punishment so it is worth the low risk for these individuals. The insurance companies in some cases end up paying out on a fraudulent claim as it is far lower in terms of cost than taking the fraudster to court.
Some consumers over insure their possessions so that they can make an inflated claim on their insurance. For instance they may insure a sofa for £1000 when in actual fact it only cost £600. By destroying the sofa then claiming for a new one they are in fact gaining even if the insurance company insists on replacing the sofa physically. The fraudster can always sell the new more expensive sofa therefore making a profit. Although there are huge insurance claim scams, in general, the most common from the “little man” is inflated claiming.
How is Fraud Detected?
Firstly fraudulent claims must be suspected by the insurer. Sometimes it will come to light due to statistical analysis or by way of insurance advisors who may suspect fraud. As consumers we can also assist by reporting claims that we know to be fraudulent, although many people would find “informing” distasteful so it is the decision of the individual in this case.
There are mainly two types of fraudulent claim namely exaggerated claims where claimants try to claim more than the item insured is or was worth and false claims where the incident never occurred or damage was never done. Suspicious claims can then be investigated by specially trained people within the company called SIU’s or Special Investigative Units. These highly trained professionals know just what to look for when a claim is deemed suspicious plus when they do uncover evidence it can be used to refuse a claim payout or even to prosecute the fraudster.
How Many Types of Fraud are there?
There are various types of fraud some more serious than others but all effectively a crime. It depends on which kind of insurance policy is being defrauded. So let’s have a look at some of the categories.
This category is up and coming so to speak, in that it has become more frequent of late involving claims being made due to staged collisions. This can be done by individuals or gangs of participants who sometimes include insurance claims adjusters themselves. For instance a fraudster may drive onto a roundabout, brake sharply, so causing the driver behind to go into the back of their car. Of course as most drivers will understand you are expected to drive leaving a sufficient braking distance, so if you run into the back of a vehicle you are deemed to have been driving too close, making the collision your fault. The fraudster then claims for whiplash injuries as well as damage to their vehicle which they usually inflate meaning the claim against the other person’s car insurance can run into thousands of pounds. It is a very lucrative business.
One foolish individual in the North of England was reported to have rung his insurance company to make a fraudulent claim for injury and damage following a car accident but did not hang up properly, so was heard bragging on the other end to friends about how easy it was to make a false claim for whiplash. The call had been recorded so the evidence was used in a prosecution by the IFED (Insurance Fraud Enforcement Department) who are financed by the insurance industry. This prosecution was their first, back in July 2012.
Drivers can take steps to avoid becoming a victim of road “cash for crash” fraudsters by:
- Being vigilant at all times. Be aware who is on the road and focus on your driving
- Make sure you are not distracted by other passengers such as children, you are not eating lunch at the wheel or talking on your mobile (this is illegal anyway) so not to be attracted to scammers
- Make sure your braking distance is sufficient enough so that if the car in front suddenly brakes you will be able to stop without colliding
- Notice if the car in front has working brake lights
- Notice erratic driving by the car in front
- Are passengers in the car in front watching you unnecessarily
- Has the car in front got any damage to its rear end (it may have been used in a scam previously)
All these points on their own seem harmless but put them together and you have a possible scammer ready to make you his next victim.
This type of fraud is less common as it involves faking death in order to make a false claim. There are one or two high profile cases such as that of the Government minister John Stonehouse who faked his own death by drowning when he went missing on a Miami Beach in 1974. He was in fact alive and well living in Australia under a false name. He was arrested and brought back to Britain charged with fraud, theft and forgery then jailed as a consequence for seven years.
Hugo Sanchez is another example of a life insurance fraudster. He too faked his own death and took up residence in Australia while his wife cashed in on his life Insurance. He received a five year sentence in May 2012. The investigation into his disappearance and fraud took five years and began following suspicions raised by his former employers. This case shows that the authorities will be dogged in their determination to seek out fraudsters whom they suspect.
Policy holders will sometimes exaggerate their claims to obtain more money from an insurer. They may say an item was destroyed when it wasn’t or they may inflate the value of an insured item to gain more money. Either way this is classed as fraud. One highly risky way to make a false property claim involves arson. This is a very dangerous road for the fraudster to travel along as in some cases it can result in not only total loss of property but also in tragic loss of life.
There are many instances where business owners who have fallen on hard times have set fire to their premises in order to make an insurance claim. One such case was in 2007 when the owner of a carpet warehouse set fire to it. This individual had increased his insurance cover in the days leading up to the fire, while it was also discovered that his business was in trouble financially as well as being heavily in debt.
Forensic investigators discovered two barbecues in the burned out building along with one on a window sill near the yard where the fire originated. The barbecue was filled with toilet rolls and cardboard in order to set the blaze going. Further evidence, such as matches and white spirit that were bought by the accused, added weight to the huge amount of evidence that had been gathered by the investigators. The owner was found guilty and jailed for five and a half years.
Mobile Phone Insurance
Mobile phones are currently one of the most scammed products when it comes to insurance claims. The problem escalates year by year as mobiles become more sophisticated so are very expensive and desirable items. It is thought that some 40% of insurance claims regarding mobile phones are fraudulent, which is a huge amount. From claims due to handset damage to claims for loss or theft it is a minefield for mobile phone insurers when it comes to detecting fraud.
Some fraudsters are small fry, while others are part of huge gangs of organised people who are strictly out to defraud and make money. Investigators can glean information on further examination of handsets. For instance a claimant may say that they dropped their phone down the toilet by accident. This can be easily verified by an expert on examination, while they can even tell if the phone was damaged on a previous occasion too.
Claimants who say their phone has been stolen are generally truthful as they have to report the theft to the police and provide an account of what, where, when and how for a police crime report to be issued. The owner is then given an incident number to quote to the insurance company. It is a brave person who will furnish the police with a false story. Claimants who claim to have lost their phones are a different matter entirely as it is not as easy to check up on or verify their story.
Insurers cannot argue with claimants who say they left their device on the bus or lost it from their handbag. Only repeated claims would alert your insurer of foul play. Some wily criminals even take out multiple policies on the same phone with different insurance companies, so claiming for loss on several policies. They have to be very cautious as some companies own multiple insurance providers meaning their plot can be foiled if spotted.
Surprisingly, unlike other types of insurance, there is no central database at the moment when it comes to mobile phone insurance. This, we are sure, will be rectified in the future. It is difficult for insurance companies and police to keep up with mobile phone crime and fraud as there are so many handsets in existence with more and more people buying mobile phones, including parents for their children. Unfortunately all these fraudulent claims are costing consumers millions as our premiums rocket to cover insurance company losses due to fraud.
What are The Consequences of Insurance Fraud?
- Making a fraudulent insurance claim whether intentional or not can lead to loss of insurance or even prosecution and imprisonment
- If this happens you will find it harder to get insurance in the future
- Hurting family and friends can also occur (arson being an example)
- Never lie regarding details when filling in forms as when you make a claim this will come to light making any policy invalid
- Everyone is affected as premiums go up due to fraud
- Honesty is the best policy when claiming. Always ask your insurer if you are not certain what to answer on an insurance claim form.
If you suspect that someone is making a fraudulent claim you can report it by contacting The Insurance Fraud Bureau on their cheat line. Tele 0870 850 4431.