How to Detect Insurance Fraud
Insurance fraud occurs when an insured person presents a fake or exaggerated claim to his insurance company in hopes of receiving payments he's not entitled to. When fraud goes undetected, it threatens an insurance company's profit and the company may have to pass the cost of fraud on to customers in the form of higher premiums. So it's vital to the health of an insurance company to have established systems for detecting fraud.
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Instructions
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Draft and use an extensive application for insurance; if necessary, consult an attorney. A proper and thorough application for insurance can reveal an applicant who shows a heightened susceptibility to filing a false or exaggerated claim. For example, questions regarding the applicant's former insurance carrier can be revealing--especially questions about prior claims and whether the applicant was ever found guilty of insurance fraud. It is also helpful to ask questions about the applicant's financial situation, such as how he will pay for insurance coverage, and questions that assist in determining the applicant's cash flow.
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Establish a database of legitimate claims paid. Each claim should have a description of the type of injury claim (e.g., personal injury, loss of earnings, property damage) and the amount of money the claimant was awarded by the adjuster. Although every claim is different, and variations in payment is to be expected depending on the circumstances, having an established database of legitimate claims allows an adjuster to compare present claims with previous claims to detect exaggerated losses.
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Draft and employ a fraud checklist for fraud investigators and adjusters. Some types of claims have common elements. Arson, for instance, frequently occurs late at night or early in the morning, when a building or home is abandoned by people and items. Also, the insured typically has had a financial problem with the building in the recent past (e.g., inability to sell). Fraud investigators and adjusters can use the checklist to complete a thorough investigation of the claim and determine whether there are any commonalities with illegal, criminal and/or fraudulent behavior.
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Educate consumers about fraud detection and establish a fraud detection toll-free telephone tip line. Since undetected fraud affects all consumers in the form of higher insurance premiums, educating consumers about why detecting fraud is important and how undetected fraud hurts their finances provides an incentive for their cooperation in flagging false and exaggerated claims. Assure consumers that their tips will be kept confidential and that they may provide information anonymously.
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References
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