What is Insurance Fraud?

March 17, 2020

Many people believe that insurance fraud is committed by hardened criminals who invent elaborate schemes to steal money. However, insurance fraud is more common than people may think and is often committed by regularly law-abiding citizens. Insurance contracts are in place to protect individuals against risk and to assist in worst-case scenarios. However, some people use it, intentionally or unintentionally, to bring personal wealth. While seemingly minor, these acts can come in the form of a purposely omitted detail or an exaggeration of the truth while filing an insurance claim.

Insurance fraud can be defined as an illegal act by either the buyer or seller of an insurance contract. It is usually attempted in order to exploit an insurance contract for financial gain. When it comes from the seller, it can come in the form of selling policies from non-existent company or failing to submit premiums. Premium diversion, for example, occurs when a business sells insurance without a license and also does not pay claims. Buyer fraud can come in the form of exaggerated or false claims, over-exaggeration, or post-dated policies.

Because insurance fraud is committed so often that it is estimated by the Insurance Bureau of Canada that at least 15% of every dollar paid in premium is used to cover fraudulent insurance claims, meaning that this is costing Canadians over $3 billion each year.

Insurance fraud comes in many forms, including but not limited to:

  • Inflating the value of items in a claim

  • Adding additional items in a claim

  • Lying about the way a loss occurred while filing a claim

  • Filing previously existing damage under a new or current insurance claim

  • Withholding relevant information including past claims, policy cancellations or previous convictions

  • Faking a death, kidnapping or murder

Committing any of the above can result in serious and severe consequences. Penalties for committing insurance fraud can include:

  • Conviction and imprisonment (fraud under $5000 can lead to a sentence of two years in prison, over $5000 can lead to a sentence of up to 10 years imprisonment)

  • Claim being denied

  • Insurer canceling your policy

  • Paying higher premiums for policies in the future

  • Denied insurance in the future

One of the most common reasons that a private investigator is hired is to assist with insurance cases. Often times, they are hired in order to prove whether a fraudulent insurance claim is filed. They can investigate all types of claims including personal injury, slip and fall, disability insurance, and health care (to name a few). If you require assistance in any of these areas, discuss your case with a professional private investigator today.

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