Insurance is a complicated industry that provides many opportunities for fraud. In some cases where large companies commit illegal activities, lower-level employees may not even be aware of what is happening. If you work in the insurance industry, it is essential to understand what sorts of activities constitute insurance fraud.
According to the Federal Bureau of Investigation, insurance fraud costs over $40 billion every year. This number does not include fraud related to health insurance.
One type of insurance fraud is asset diversion, which essentially involves stealing the assets of an insurance company, often during a merger or acquisition. One example of this type of fraud involves getting a loan to acquire an insurance company and then paying back the loan with the assets of the newly acquired company. In some cases, the criminal entity may also divert some of the acquired company’s assets to itself.
A similar type of fraud involves diverting funds that come from client premiums. This is the most frequent type of fraudulent activity related to insurance, and you may liken it to embezzlement. One common example of this is selling insurance without a license and collecting premiums, but then keeping that money instead of using it to pay claims.
This type of fraud involves making transactions, such as reinsurance agreements, that appear legitimate but are actually fraudulent. Conspirators set up numerous reinsurance agreements in order to earn commissions, but they never intend to pay any claims. In some cases, you may only be able to see the fraudulent intention of the overall scheme after a while, because each transaction by itself seems legitimate.