The Insurance Research Council estimates that each year insurers lose $5 billion to $7 billion to inflated auto accident claims alone, although the real cost of insurance fraud likely runs to tens of billions. Insurers pass those losses on to consumers via raised premiums, making fraud a multi-victim crime.
Most insurance companies maintain fraud detection departments whose only function is to prevent scams and to recover benefit monies paid out to scammers. The two major categories of fraud with which they deal most often are inflated claims and a too-high risk to premium ratio.
While inflated claims are the primary source of company losses, the second problem is more serious. Essentially, insurance clients hide or fail to disclose risk factors when they apply for their insurance coverage. Consequently, their premiums are lower than they should be.
In order to combat all instances of fraud, insurance companies have “whistle-blower” phone lines where anonymous calls can be recorded. Claims analysis and an examination of clients’ claims histories can also yield evidence of fraud.
In some cases, however, insurance company actually watch their clients. While this is most common in disability or other forms of health claims, surveillance can be used in a variety of insurance fraud cases.
All methods of combating fraud, however, involve a lot of effort and leg work on the part of insurers. While some expense for maintaining fraud detection departments may also be passed on to consumers, insuring accurate benefit payments and honest applications are a vital aspect of keeping auto and other insurance premiums at a fair level