Insurance fraud costs billions annually and increases premiums for all policyholders. Detecting and preventing fraud protects insurers and honest customers.
Deliberately causing or faking loss:
Examples: - Faking death (stranger or John Doe) - Staged accidents - Arson for profit - Phantom claims (no loss occurred) - Intentional injury - Murder for insurance proceeds
Characteristics: - Premeditated - Organized - Criminal intent - Serious penalties - Felony charges
Exaggerating legitimate claims:
Examples: - Inflating injury severity - Padding expenses - False additional damage - Claiming unrelated items - Exaggerating symptoms
Characteristics: - Opportunistic - "Everyone does it" mentality - Still illegal - Misdemeanor to felony
Suspicious indicators:
Policy-related: - Recently issued (days/weeks) - Large face amount - Recent increase in coverage - Multiple policies from different companies - Recent beneficiary change - Premium paid in lump sum
Death circumstances: - Suspicious death (drowning, disappearance) - Body not recovered - Death occurred abroad - Conflicting accounts - Questionable cause of death - Suicide made to look accidental
Beneficiary behavior: - Immediate claim filing - Pushy for payment - Uncooperative with investigation - Inconsistent statements - Knowledge of death before reported - Recent relationship with insured - Financial motive
Application issues: - Misrepresentation discovered - False medical history - Concealed pre-existing condition - Impersonation at medical exam - Forged signatures
Every claim screened: 1. Policy validity check 2. Premium status 3. Contestable period status 4. Beneficiary verification 5. Death certificate review 6. Red flag assessment
When red flags present:
Special Investigation Unit (SIU): - Specialized fraud investigators - Law enforcement background - Advanced training - Authority to investigate thoroughly
Investigation steps: 1. Document review: - Application analysis - Medical records - Financial records - Public records
Agent (if suspicious activity)
Third-party verification:
Employer verification
Surveillance (if warranted):
Asset searches
Expert consultation:
Investors buy policies on strangers: - Find elderly person - Offer money to apply for insurance - Investor pays premiums - Investor profits at death - Lacks insurable interest - Illegal in most states
Agent schemes: - Collecting but not remitting premiums - Fake policies - Counterfeit receipts - Embezzlement
Fraudulent applications: - Using stolen identity - Impersonation at exam - False documents - Beneficiary identity theft
Faking own death: - Disappear - False identification of body - Death abroad (hard to verify) - Collect through beneficiary - Reappear later with new identity
Most states require: - Insurers report suspected fraud - To state fraud bureau - Within specific timeframe - Criminal and civil penalties for non-reporting
Industry organization: - Tracks insurance fraud - Database sharing - Assists investigations - Partners with law enforcement
Fraud prevention database: - Codes from past applications - Identifies inconsistencies - Prevents shopping for coverage - Detects non-disclosure
Required on applications:
Example statement:
"Any person who knowingly presents a false or
fraudulent claim for payment of a loss or benefit
or knowingly presents false information in an
application for insurance is guilty of a crime and
may be subject to fines and confinement in prison."
Variations by state: - Different wording required - Must appear prominently - On application and claim forms
Criminal penalties: - Felony charges - Prison time (5-10+ years) - Fines ($50,000+) - Restitution - Civil liability
Civil penalties: - Claim denial - Premium forfeiture - Treble damages (3× amount) - Attorney fees - Court costs
If agent involved: - License revocation - Criminal charges - Civil liability - Restitution orders - Reputation damage - Career ending
Agent responsibilities: - Know your client - Report suspicious activity - Accurate applications - Don't ignore red flags - Cooperate with investigations
Insurer practices: - Thorough underwriting - Application verification - Medical exam requirements - Database checks (MIB, Rx) - Background investigations - Agent training - SIU departments
Agent practices: - Verify applicant identity - Meet face-to-face - Complete applications accurately - Report suspicious circumstances - Document everything - Know anti-fraud laws
Insurance fraud costs billions annually and increases premiums for all policyholders. Detecting and preventing fraud protects insurers and honest customers.
Deliberately causing or faking loss:
Examples: - Faking death (stranger or John Doe) - Staged accidents - Arson for profit - Phantom claims (no loss occurred) - Intentional injury - Murder for insurance proceeds
Characteristics: - Premeditated - Organized - Criminal intent - Serious penalties - Felony charges
Exaggerating legitimate claims:
Examples: - Inflating injury severity - Padding expenses - False additional damage - Claiming unrelated items - Exaggerating symptoms
Characteristics: - Opportunistic - "Everyone does it" mentality - Still illegal - Misdemeanor to felony
Suspicious indicators:
Policy-related: - Recently issued (days/weeks) - Large face amount - Recent increase in coverage - Multiple policies from different companies - Recent beneficiary change - Premium paid in lump sum
Death circumstances: - Suspicious death (drowning, disappearance) - Body not recovered - Death occurred abroad - Conflicting accounts - Questionable cause of death - Suicide made to look accidental
Beneficiary behavior: - Immediate claim filing - Pushy for payment - Uncooperative with investigation - Inconsistent statements - Knowledge of death before reported - Recent relationship with insured - Financial motive
Application issues: - Misrepresentation discovered - False medical history - Concealed pre-existing condition - Impersonation at medical exam - Forged signatures
Every claim screened: 1. Policy validity check 2. Premium status 3. Contestable period status 4. Beneficiary verification 5. Death certificate review 6. Red flag assessment
When red flags present:
Special Investigation Unit (SIU): - Specialized fraud investigators - Law enforcement background - Advanced training - Authority to investigate thoroughly
Investigation steps: 1. Document review: - Application analysis - Medical records - Financial records - Public records
Agent (if suspicious activity)
Third-party verification:
Employer verification
Surveillance (if warranted):
Asset searches
Expert consultation:
Investors buy policies on strangers: - Find elderly person - Offer money to apply for insurance - Investor pays premiums - Investor profits at death - Lacks insurable interest - Illegal in most states
Agent schemes: - Collecting but not remitting premiums - Fake policies - Counterfeit receipts - Embezzlement
Fraudulent applications: - Using stolen identity - Impersonation at exam - False documents - Beneficiary identity theft
Faking own death: - Disappear - False identification of body - Death abroad (hard to verify) - Collect through beneficiary - Reappear later with new identity
Most states require: - Insurers report suspected fraud - To state fraud bureau - Within specific timeframe - Criminal and civil penalties for non-reporting
Industry organization: - Tracks insurance fraud - Database sharing - Assists investigations - Partners with law enforcement
Fraud prevention database: - Codes from past applications - Identifies inconsistencies - Prevents shopping for coverage - Detects non-disclosure
Required on applications:
Example statement:
"Any person who knowingly presents a false or
fraudulent claim for payment of a loss or benefit
or knowingly presents false information in an
application for insurance is guilty of a crime and
may be subject to fines and confinement in prison."
Variations by state: - Different wording required - Must appear prominently - On application and claim forms
Criminal penalties: - Felony charges - Prison time (5-10+ years) - Fines ($50,000+) - Restitution - Civil liability
Civil penalties: - Claim denial - Premium forfeiture - Treble damages (3× amount) - Attorney fees - Court costs
If agent involved: - License revocation - Criminal charges - Civil liability - Restitution orders - Reputation damage - Career ending
Agent responsibilities: - Know your client - Report suspicious activity - Accurate applications - Don't ignore red flags - Cooperate with investigations
Insurer practices: - Thorough underwriting - Application verification - Medical exam requirements - Database checks (MIB, Rx) - Background investigations - Agent training - SIU departments
Agent practices: - Verify applicant identity - Meet face-to-face - Complete applications accurately - Report suspicious circumstances - Document everything - Know anti-fraud laws