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Fraud in Its Many Forms - Us Insurance Industry

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Brad Jones

06 September 2011

Professor Brink

Risk Management and Insurance

Fraud in its many forms

Fraud accounts for 10 percent or U.S $30 billion dollars of the U.S insurance industry incurred losses and loss adjustment expenses per year, according to a May 2009 study by the insurance information institute. Fraud is the intentional misrepresentation of facts, with intent to deceive resulting in financial harm. This is the reason millions of Americans commit these crimes on a yearly basis. Next to tax evasion insurance fraud are the largest of white collar crimes in America. The three forms of insurance fraud that will be researched in this paper are life insurance, property and casualty, and health insurance fraud. I will be discussing the large amounts of Americans that abuse these various insurances and the total numbers of monies lost in fraudulent claims and the money spent by insurance companies to investigate these claims.

Life insurance is a contract between the policy holder and the insurer where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. In America most life insurance policies demand for the insurer to pay a lump sum in the result of the insured's death. This policy is a large reason that life insurance fraud is rampant in America resulting in these claims accounting for 11.8 billion dollars a year. An example of an individual that has taken advantage of term life insurance is Bridgette Buckner a woman who collected 10,000 dollars on a bogus claim that her 4 year old daughter had died she also collected 40,000 a year earlier claiming that her husband had died. Buckner was only caught after claiming that same husband had died again as she was seeking another settlement for 15,000. In addition, Buckner had also made claims that another daughter had died a year earlier and netted 20,000 off that claim. Buckner's case is the reason that life insurance has become a profitable business for criminals because many of them are hard to trace if they file claims with different insurance companies. If there were significant efforts to reduce these types of fraudulent cases it wouldn't take insurance companies and law enforcement years to figure out that someone like Bridgette Buckner is taking advantage of the system. The gains would be more money being allocated to the people who actually lost family members.

Property and casualty insurance has to be broken down into two forms. There is property insurance that protects a person or a business with an interest in physical property against its loss or the loss of its income producing abilities. Casualty insurance mainly protects a person or business from legal liability for losses caused by injury to other people or damage to the property of others. The totals lost in these fraudulent cases on a yearly basis since the year 2000 are in the billions of dollars. Property and casualty fraudulent crimes range from individuals burning their own homes, slip and falls in department stores, car accidents, and staged robberies most of these fraudulent cases are soft crimes meaning people exaggerate on some of the items that were taken from their homes or injuries sustained from supposed accidents. Soft fraudulent claims are easier to get away with because they are often committed by normally honest people. According to the insurance fraud coalition 11-30 cent or more is lost to soft fraud. On the other hand, hard fraud scams only account for a small fraction of losses. The reason for the discrepancy of losses from hard to soft fraud is that insurance companies only investigate the crimes that they believe will result in major lose to their company. Thus, allowing individuals committing soft crimes the leeway to collect on their false clams. These crimes not only hurt the insurance company they also hurt its clients because of the losses on claims result in larger deductibles for current and future clients. If there were significant efforts to reduce this form of fraud the insurance premiums would be cheaper resulting in a better relationship between the insurance company and its clients. In addition, if there were stricter laws in place for individuals who choose to take advantage of their insurance there would be a natural decrease in arson, false claims of slip and fall and over exaggerated loses and car injuries.

Medicare is a form of healthcare insurance provided by the government to U.S citizens aged 65 and older to cover 80% of any medical cost these individuals may need the other 20% is covered by a



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