Top Insurance Scams in the United States: How to Stay Safe

Insurance scams are acts of misbehavior aimed at receiving illicit gains from insurance policies. They significantly affect both an individual and insurance companies, leading to increased premiums for policyholders and potential financial losses for insurers.

In 2023, the FBI documented a rise in the number of insurance fraud cases. Among the reasons are economic pressures and technological progress that has opened ample opportunities to wrongdoers.

It has to be said that the elderly remain particularly vulnerable to these scams mainly due to their declining cognitive abilities, isolated lifestyles, and lack of technical skills. But in general, no one is immune to insurance scams, especially those unfamiliar with insurance details and policy fine prints.

Here’s a detailed overview of common types, methods, and prevention measures related to insurance scams in the US.

Common Types of Insurance Scams

These scams can occur in different types of insurance, including health, auto, life, and property. Below are some common types that target policyholders.

Health Insurance Fraud

Fraudsters may impersonate legitimate health insurance companies, offering fake policies or services. They often send phishing emails or call their potential victim to gain access to personal information and then steal the person’s identity or use the person’s insurance without their permission. In some cases, scammers may also claim to have special low-cost health insurance, which does not actually exist.

Automobile Insurance Fraud

Most scams in this category involve phony repair shops that inflate repair costs or charge for repairs that were never performed. Some con artists may stage minor accidents so they can claim damages from unsuspecting drivers, pressuring them to settle on the spot or file claims with their insurance company, which in fact are false. Fraudsters may also sell counterfeit auto insurance policies that leave drivers inadequately insured or not insured at all.

Life Insurance Fraud

Scammers sell fraudulent life insurance policies, where premiums are collected and there is no actual coverage. Another common scam involves fraudulent advisors convincing policyholders to surrender their policies for fake investments, resulting in financial losses for the victims. In some cases, fraudsters may use stolen identities to apply for life insurance policies and collect the benefits illegally.

Property Insurance Fraud

In times of natural disasters, criminals come forward with unwarranted or overpriced services. They may present themselves as contractors, demanding upfront payments for repairs they would never carry out or charging exorbitant prices for minor work. Some scammers may also file false claims on a homeowner’s behalf and then disappear with insurance payout, without doing an ounce of work.

Methods Employed by Fraudsters

There are various methods fraudsters use to dupe the policyholders in insurance fraud. Understanding these methods can help individuals recognize and avoid falling victim to scams.

Fake Insurance Agents

Scammers act like real insurance agents and sell non-existent policies. They might create websites, business cards, and other professional-looking materials to deceive their victims. A victim usually realizes they have been scammed only when they try to file a claim. These fake agents may rush people into making a hasty decision thus denying them the time needed to check the authenticity of the agent.

Identity Theft

Stolen personal information is used to file false claims or take out policies in the name of the victim. This can have serious financial consequences for victims as they may be held liable for claims or premiums on policies they did not know existed. Identity theft in the context of insurance can damage credit scores and create long-term financial issues as well. Such information is acquired by fraudsters through data breaches, phishing, or social engineering techniques.

Phishing and Social Engineering

We have already mentioned phishing, a very common method in which a policyholder receives an email or text message that appears from a legitimate insurance company. It requests that a policyholder verify their information or pay insurance premiums. Links to fake websites in these messages are designed to capture personal details. Social engineering tactics may involve phone calls from scammers pretending to be insurance representatives.

Protecting Against Insurance Scams

Taking proactive measures can significantly reduce the risk of becoming a victim of these fraudulent activities. The following are essential steps that may help in safeguarding you and your loved ones against insurance scams.

Verify Insurance Agents and Companies

The credentials of the agent and the authenticity of the insurance company should always be verified. This can be done by checking the company’s official website, looking up the agent’s license number with the state insurance department, and reading reviews from other customers.

Ensure the company is registered with the National Association of Insurance Commissioners (NAIC) or other relevant regulatory bodies.

Read Policy Documents Carefully

Understand the terms and conditions of the insurance policy thoroughly. Pay attention to details such as coverage limits, exclusions, and the claims process. If something seems unclear or too good to be true, seek advice from a trusted advisor or contact the insurance company directly for clarification. Besides, it is important to keep copies of all correspondence and documents for reference.

Report Suspicious Activity

If you suspect fraud, act quickly — contact the appropriate insurer and the authorities. Many insurance companies have fraud hotlines; state insurance departments can also assist. Providing information in a timely manner can help avoid further losses and, more generally, contribute to continuing efforts to eradicate insurance fraud. Information about the activities in question will aid investigative efforts.

Legal and Regulatory Framework

The government combats insurance scams through various legal means. Several agencies and organizations are involved in preventing, detecting, and prosecuting insurance fraud:

• The National Association of Insurance Commissioners (NAIC) provides a platform for state insurance regulators to pool their efforts in fighting insurance fraud. They develop model laws and regulations, conduct training programs, and facilitate information sharing among states.
• All states in the US have a State Insurance Department responsible for regulating insurance companies and agents within its jurisdiction. They deal with licensing and premium rate setting for policies, give consumers the necessary information regarding the types of policies, solve disputes between the carriers and policyholders, investigate complaints raised against companies, and conduct audits to ensure the companies abide by the set insurance regulations. A policyholder can contact their state insurance department to report fraud or seek assistance.
• The Federal Bureau of Investigation (FBI) investigates large-scale insurance fraud cases; for example, those involving organized crime or complex schemes crossing state lines. They collaborate with state regulators, the NAIC, and other federal agencies to identify and prosecute fraudsters.
• National Insurance Crime Bureau (NICB) is a non-profit organization that partners with insurers and law enforcement to detect, deter, and prosecute insurance fraud. The Bureau provides analytical support, conducts investigations, and offers training programs for law enforcement and insurance professionals.

These are the institutes that can protect and help the victims of insurance fraud:

• The Federal Trade Commission (FTC) offers guidance on how to identify and report scams. They have a dedicated website, IdentityTheft.gov, where victims can report identity theft and get a recovery plan. They also distribute consumer education materials.
• Most State Attorney General Offices have consumer protection divisions that handle insurance fraud complaints. They have the authority to offer legal assistance, investigate fraud claims, and take action against companies and individuals violating the law.
• The Better Business Bureau (BBB) helps consumers identify trustworthy companies and avoid untrustworthy ones. They maintain a database of complaints and reviews; any person who has fallen prey to fraudulent activity can file a complaint against the company involved in the fraudulent activity on their website at https://www.bbb.org/.

Conclusion

Insurance fraud in the United States affects everybody, from insurers and policyholders to the economy as a whole. Through a combination of regulation and public awareness efforts to combat insurance fraud, the US government and people can contribute to creating a more transparent insurance industry. People and companies should be constantly vigilant and report any suspected activity to help mitigate this widespread problem. Staying informed and alert can protect you from becoming a victim.