According to the FBI, insurance fraud (non-health insurance) costs the economy over $40 billion each year. U.S. insurers (across all lines of insurance) are estimated to lose $80 billion annually to fraud. Insurance fraud (non-health insurance) costs the average U.S. family between $400 and $700 per year in the form of increased premiums.

What is Insurance Fraud? Insurance fraud occurs when people deceive an insurance company to receive compensation or other benefits to which they are not entitled. It requires the perpetrator to knowingly make a false or misleading statement.

When Does Insurance Fraud Occur? Insurance fraud can occur any time during a policy or contract’s lifetime, which could include during the sales/application process, during the underwriting process, or in connection with a claim or application for other benefits.

Preventing, Detecting, and Reporting Insurance Fraud: Employees and agents are the front lines of insurance fraud prevention and detection. Staying diligent and learning the indicators of potentially fraudulent activity, also known as “red flags,” are the first steps to preventing and detecting insurance fraud. If you identify any red flags indicating potential fraud, you should report the activity to the insurance carrier involved. The carrier will review and take appropriate actions, to resolve suspected fraudulent insurance acts. Remember, red flags do not always indicate fraud but are indicators of activity that may require additional review.

Underwriting: Red flags during the underwriting process include, but are not limited to:

• Applicant/caller does not know information like a DOB, address, etc.
• Information on the application is vague or ambiguous as to details of health history, dates, places of treatment, names of physicians or hospitals, etc.
• Application for insurance is for an amount of insurance just under the threshold for a full evaluation of health (e.g., blood or Paramed)
• Names and other important information are spelled wrong
• The applicant fails to sign and date the application
• Pertinent questions are not answered on the application (e.g., income, other insurance, hazardous duties or activities, etc.)
• The applicant has a history of many insurance claims and losses
• Information on the application is inconsistent with prior applications
• Documents are altered
• Signatures are inconsistent
• Information is inconsistent with publicly available information
• Physician’s report is vague on details of medical history or inconsistent with the information shown on the application
• The applicant has unclear sources of income

Customer Service and Claims:

• Names are misspelled
• The information on a claim is inconsistent with the information on file or on the application
• Documents are altered
• Signatures are inconsistent on forms
• Claimant attempts to demand unreasonable processing timetable
• Long delay between the date of death and submission of a claim
• Forms of proof of death are suspicious or incomplete
• The death occurred in a foreign country, or the beneficiary lives in a foreign country
• Disappearance of the insured where no body has been recovered and/or no evidence of death exists
• Over-submission of documentation, including submission of information not requested
• Beneficiary information, including contact information, is vague or incomplete
• The last change of beneficiary was completed by an attorney-in-fact who named themselves as beneficiary
• Change of beneficiary dated shortly before the death of the insured

Surrender, Loan, or Withdrawal: Red flags during the surrender loan or withdrawal process include, but are not limited to:

• Agent requesting surrender checks be sent to him/her for delivery
• Purported requests by the owner to send surrender check to address other than listed on policy or contract
• Signatures that do not match those in file
• Altered documents
• Attorney-in-fact makes a request, and the file shows the owner is handling all transactions prior to surrender
• Owner volunteers reason for surrender that doesn’t seem reasonable
• Request from owner or agent to not divulge surrender to anyone
• Caller ID is blocked

Account Takeovers: Account takeovers are a form of fraud facilitated by an unknown third party gaining access to unique details of a customer’s account. The fraudster will pose as the real customer and gain access to make changes to the real customer’s account, withdraw funds, surrender the policy, request a loan, or obtain other identifying information of the customer. Red flags that may indicate a third-party account takeover include, but are not limited to:

• A caller has trouble answering customer verification questions like date of birth, Social Security #, etc.
• A caller answers customer authentication questions incorrectly but with a confident tone
• The caller’s voice doesn’t fit the customer
• Documentation appears altered
• Signatures on information received from the policy/contract owner do not match the policy/contract owner’s signatures on applications or other documents

Business Email Compromise (BEC) is another type of account takeover. It is becoming an increasingly common way for fraudsters to attack insurance companies. It occurs when a legitimate email account is compromised and used to attempt fraudulent acts. Red flags that may indicate BEC include, but are not limited to:

• A bank account change coupled with a disbursement request (same or separate emails)
• Rush or priority request(s)
• Change in established payment method (e.g., from EFT to check)
• Excessive follow-up to ensure a change/transaction is processed
• Change in client or vendor’s typical communication style (may include misspellings or just how they write)
• The sender’s email address (and possibly other contact information) changes at some point during the “conversation”
• An atypical request, which does not follow a client’s past behavior (e.g., timing, size of transaction requests, etc.)
• Transfer instructions refer to a bank located in a different state, region, etc. from the account owner
• Attempting to bypass typical communication or validation methods (e.g., requesting forms delivered via email rather than mail or attempting to avoid phone calls)

AIP Marketing Alliance provides this information for educational purposes. However, the list of fraudulent activities outlined above is not complete.