White-Collar Crime

Resulting in increased insurance premiums for all Americans, insurance fraud is one of the most common and costly white-collar crimes. Billions of dollars are lost yearly. This section deals with life/disability, auto, homeowners, and business/commercial insurance, but not health insurance (covered under healthcare insurance fraud). Insurance fraud can occur within an insurance company, by its own employees, or outside the company by individuals not associated with the company.

External insurance fraud is committed by policyholders or by professionals who provide assistance to those making claims. A common fraudulent activity is "padding" claims to make the loss appear more than it actually is. By overstating the damage, an individual claimant and an insurance adjuster (one who assesses the damage for the insurance company) receive a higher insurance payment than necessary. The adjuster then receives some of the payment for his or her part in the scam, generally called a "kickback."

Other aggressive schemes involve organized groups such as automobile accident rings. These crime rings file numerous accident claims involving fraudulent damage. Other fake claims involve falsifying or exaggerating disability (being unable to work due to an injury) claims. Fraudulent disability claims cost insurance companies over a billion dollars per year. Insurance scammers are even able to fraudulently collect on life insurance policies, costing hundreds of millions of dollars every year.

Internal fraud comes from within the industry through company officials, employees, and agents. One type of internal fraud is diverting insurance premiums paid by policyholders to the personal accounts of company employees. Agents may also receive policy payments and not pass them to the company. The most aggressive form of insurance fraud is creating an entirely bogus or fake company, often through offshore (not in the United States) banks owned by criminals. A victim is conned into paying premiums to the nonexistent insurance company for nonexistent coverage.