Between 2000 and 2002, unsuspecting Americans bought more than 200,000 fraudulent health insurance policies worth over $250 million from unlicensed insurance brokers, as reported by the federal government’s General Accounting Office. It is worth noting that insurance fraud is also common in the life, business, and homeowners insurance categories. Insurance fraud costs the average family in the U.S. up to $700 annually. This means you must beware of false agents and fraudulent policies. Here’s some more information on this topic.
Insurance Fraud Examples and List
1. Fake Policies
Some legitimate firms that don’t have the state license to sell insurance may mislead consumers into thinking their offerings are ‘real insurance plans’ while circumventing state insurance regulations. For instance, a company that sells health discount plans may brand them as insurance policies when they’re actually noninsurance and unregulated insurance products.
2. Premium Diversion
Deceptive insurance employees, agents, and brokers may collect premiums from clients and pocket them instead of delivering them to the insurance company. The client may be convinced that their premiums are being channeled to the insurer while the insurance firm doesn’t receive payment and thus does not renew or cancels the policy. If you don’t receive a copy of the policy or insurance ID card in time, find out from the insurance company if premiums have been paid for your policy. The diversion of premiums is the most prevalent insurance fraud, says the Federal Bureau of Investigation (FBI).
3. Illegitimate Denial Fraud
Illegitimate denial fraud is essentially about insurers acting in bad faith. Such fraudulent actions include denying claims, denying coverage to people with certain conditions that insurers are obligated to cover, deliberately underpaying claims, and failing to adequately investigate claims. Examples of “bad faith insurance” practices include:
- Insurers automatically denying claims
- Sending bills to policyholders for services their insurance policy explicitly covers
- Inventing pretextual justifications for underpaying or denying claims
- Sending clients deliberately confusing paperwork with the hope that they won’t notice that they’re being denied legitimate coverage or being overcharged.
How to Spot Fake Agents and Fraudulent Policies
1. High-Pressure Sales Tactics
If a broker aggressively pressures you into signing up for a policy with a caveat that the premiums are likely to go up, you should take a step back and reevaluate the policy so that you make a prudent decision.
2. Abnormally Low Premiums
Premiums vary from insurer to insurer, but be wary if one insurance company or agent offers a policy with dramatically lower premiums (50 to 20 percent less) than other companies with similar coverage. They could be selling you a fake policy or one which gives you limited coverage.
Check for a Valid Address or Credentials
A genuine agent has an easily reachable business phone number and email address as well as a legitimate physical address. Agents who insist on communicating through cell phone and personal email are likely insurance frauds.
Adds Coverages that You Didn’t Demand
Brokers’ and Agents’ commissions are based on the premiums of the insurance policies they manage to sell. Unscrupulous agents may attempt to add coverages you didn’t ask for to increase premiums, and consequently their commission. Look out for any requests for additional premiums after you’ve already purchased a policy.
How to Avoid Insurance Fraud
If you’re in doubt or if you have a complaint, contact the State Insurance Department. You can also report fraud via the Online Fraud Reporting System.
Insurance fraud is a significant problem in the U.S.; hence you must make sure to be cautious of false agents and fraudulent policies. At Hoffman Brown Company, we will provide you with genuine business and personal insurance policies. To get started, contact us today!
