By: Will Anderson
You’ve probably heard the term insurance fraud before. Do you know what it really means, though? The FBI has estimated that insurance fraud costs the government $40 billion each year. Insurance fraud is defined as any act used to defraud an insurance process. As you might assume, this can be a variety of things. Some of the most common forms of insurance fraud can be classified into four common schemes.
The most common type of insurance fraud is a premium diversion. Premium diversion occurs when an insurance industry professional embezzles insurance premiums paid by policyholders. An example of premium diversion is selling insurance without a license, collecting those premium payments and then failing to pay the claims. Premium diversion is a very serious offense and comes with severe consequences. You can end up in jail, receive a heavy fine and have a criminal record.
Another common type of insurance fraud is known as fee churning. This involves exorbitant trading in order to maximize commissions. People engage in fee churning to boost their commissions. Even though you can’t measure churning in a quantitative way, the constant buying and selling of securities is a dead giveaway of fee churning. If you’re found guilty of this offense, it can result in severe fines and sanctions by the SEC and other regulatory bodies.
Asset diversion is the stealing of insurance company assets. This most commonly occurs during mergers of an already existing insurance company. To put that in perspective, using borrowed funds to buy an insurance company and using the assets from the company to pay off debt would be considered asset diversion. Although it typically depends on the severity of your insurance scheme, asset diversion usually leads to state or federal criminal charges.
Worker’s Compensation Fraud
Worker’s compensation fraud is one of the easier forms of insurance fraud to detect. Some companies provide workers compensation at a reduced cost. Then, they misappropriate premium funds without ever providing insurance. This is more obvious than the rest because it clearly affects employees.
The above makes it clear – you should buy from an insurance agent that you have researched well, is respected and that you trust.