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The Cost Of Insurance Fraud

Insurance fraud has been around since the concept of insurance was invented. From fraudulent arson claims in the 1700’s, to stolen vehicle claims in the present, fraud has been around for a long time, and with the promise of easy money, probably always will be. The criminal element has always been an insurance nemesis, and the insurance industry as well as the criminal justice system has constantly been trying to fight it.

One of the biggest problems, and hardest to combat, is automobile insurance fraud. According to The Coalition Against Insurance Fraud, $4.8B to $6.8B in fraudulent automobile claims are paid out annually. The claims range from fraudulent stolen vehicle claims to exaggerated injuries. As long as money is involved a willing participant can be found, such as crooked doctors and mechanics.

Stolen vehicle fraud is the most common form of automobile insurance fraud. In a shaky economy, this form of fraud is on the rise. From not being able to meet car payment obligations, to just trying to make money off of the parts, fake theft claims are a big problem. There are plenty of criminals willing to steal a car for a cut of the insurance payment.  The insured then takes the settlement check and pays off their car loan, or if no loan pockets the difference. Another scam is determined to be fraud but may or may not involve the insured. A car is stolen and the vehicle is sent to a “chop shop”, the car is dismantled and the parts are sold to unscrupulous mechanics, or unknowing consumers.  Of course the insured may have set-up the theft and on top of the check received from having the vehicle stolen, they may get a percentage of the money made from the “chop shop”. In some cases the sum of the cars parts may be worth more than the car as a whole.

As far as physical damage claims go there are several scenarios that result in insurance fraud, where the damage is real, but the cause is fraud. Just to put a few bucks in their pocket, insured’s have been known to bang up their vehicles to get paid. Someone has a fairly low collision deductible, say $250, they will hit another object, say a tree at slow speed and put in a claim saying hit and run. Since it is called hit and run the insured will not be faulted, and the carrier will pay the claim. Another common problem is adding existing damage to a new claim.  Months earlier an insured may have hit something, sustained some damage they could live with so they did not put in a claim, plus it may have been their fault. The insured is now in a new collision that may or may not be their fault. Damage is minor, but they add in the old damage from the earlier accident. Since it now is determined that the accident isn’t the insured’s fault, their deductible may be waived, and the insurance company technically pays for double damage, with no deductible charge.

A really disturbing instance in insurance fraud is who is involved. Chiropractors and physicians are being caught more and more as willing participants in insurance fraud. Although the accident may be legitimate, chiropractors and physicians are willing to beef up injuries to get more money for the claimant, and get a percentage of the payout. An insured may be involved in a minor fender bender and receive no or very minor injuries, they are able to find a doctor or chiropractor willing to say the injuries are much more substantial, thus getting more money for the insured, and a kick-back for themselves.

The cost of fraud isn’t the insurance company’s burden; it is the legitimate insured’s burden.  Higher claim payouts mean higher rates for the honest insured.  Both insurance companies and the court system are trying to combat fraud. Insurance companies invest millions in fraud units, and private investigators. The courts are trying to implement laws to combat abuse by some medical professionals. Some states do not allow chiropractors to make major medical decisions that result in high medical costs. As long as there is easy money to be made, fraud will exist. The only remedy is constant vigilance by the insurance industry as well as the judicial system. If the damage can be lessened,  it will cost all of us less in insurance.