Auditor looking at financial records with a magnifying glass

All About Insurance Fraud

Insurance fraud is a serious crime.

It is both a widespread white collar crime and runs into the billions of dollars for the insurance industry. Unsurprisingly, it is taken very seriously by the insurance industry. They frequently prosecute alleged perpetrators. The bond set in the case can be high enough to require a bail bond company to cover it.

What is Insurance Fraud?

In laymen’s terms, insurance fraud is basically when someone lies to the insurance company in hopes of getting money they aren’t legally due. This can be done by an individual policyholder, an organized crime ring or even trusted professionals involved in the claims filing process, such as doctors and clinics.

The insurance industry is essentially in the business of giving people money when certain things happen. When your product is a check that can be cashed, many people see this as a whole lot of temptation. They think that if they can dummy up the papers, it is like printing money. In fact, in some places, insurance fraud is so common that certain insurance companies get locally referred to as “The ATM.”

“Hard fraud” is where there is intent to commit a crime from the beginning. The entire claim is fabricated. There is no pretense at all that this is a legitimate claim and not a crime.

However, in some cases, it starts relatively innocently with perhaps a little white lie. This gets called “soft fraud.” Many people do not make up fake claims whole cloth. They just exaggerate a little bit in hopes of getting as much as they can for their claim.

But this can be a slippery slope which blurs the lines of right and wrong. Soon, the little white lie exaggerating the details a hair becomes outright intent to defraud. Claims started getting fabricated in their entirety. Typically, over time, the claims grow larger.

This is often when people get caught: Because they got greedy and also sloppy. By the time they are caught in a lie, there is often quite a long track record of fraudulent claims behind them. The sums of money involved can be astonishingly large.

Insurance is an incredibly complicated business. It is bounded by the laws governing both health care companies, such as HIPAA, and financial industries, such as the Gramm-Leach-Bliley Act. Additionally, it is regulated at the state level. Large insurance companies may offer coverage in all states of the U.S., as well as some U.S. territories.

With such a large coverage area and so much bureaucratic oversight, insurance companies are generally hip deep in paperwork at all times. Criminals sometimes take advantage of this fact by making up fake clinics or hospitals and simply manufacturing claims completely out of thin air.

But, the insurance industry also attracts many savvy people. Some companies have their own in-house fraud department. With so much money on the table, if they are bilked for enough, they will track down the perpetrators and pursue remedy in a court of a law. Remedy can include repayment of funds received fraudulently and jail time.

While some cases are blatantly bad actors doing something they know to be both morally and legally wrong, other cases are not so clear cut. Soft fraud sometimes starts out as a situation where the policy holder was not really sure what they were supposed to do. The degree to which insurance is complicated and bureaucratic can leave ordinary individuals confused as to exactly what the rules are and how they are supposed to be applied.

What does Fraud Include?

Generally speaking, proving fraud involves the following elements:

  • Knowingly and intentionally making a statement which is either false or misleading.
  • The statement must be part of a claims filing to seek insurance funds.
  • The statement must be material — in other words, pertinent to the decision to pay the claim.

Exact details will vary by state. Insurance is a particularly complex business, so insurance fraud cases are often similarly complex. You should talk to a lawyer if you are concerned that you may have misled your insurance company at some point without realizing this was potentially criminal behavior. The more money involved, the more likely they are to track it down.

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