Insurance fraud occurs when an insured tries to claim advantage through a policy for an incident that hasn’t happened or a loss that has not been incurred. When there is actual loss but the claim amount is more than the loss, it is also counted as insurance loss. Another scenario of insurance fraud occurs when the insured is rightful to a claim but the insurer denies claim or undervalues the loss of the insured. However, these frauds are termed as criminal offences only when the fraud is done already and had been done intentionally.
Insurance fraud can be classified in two main types on the basis of its nature. The two major types of insurance fraud are:
- Hard fraud: Hard frauds are illegitimate claims made with the intention of gaining easy money.
- Soft fraud: Soft frauds are legitimate claims but the claim amount is more than the actual loss suffered. This is the most common type of insurance fraud as people like to take advantage of every situation at hand.
Under these two major classifications of insurance fraud, there are some common kinds of insurance fraud that need to be discussed here:
- False claims: False claims is a situation when a claim is made on account of a loss that has not happened at all. This falls under the hard fraud section. For example, if a person damages his own vehicle and stages it as an accident damage to claim through the policy, it is a clear case of false claims. Agents need to be aware and cautious about these types of insurance fraud.
- Over-rated claims: Over — rated claims occur when the loss has happened and the source of loss is also genuine but the claim amount surpasses the damage amount. This falls under the soft fraud section. For example, a house is destroyed in an earthquake. If the insurance company has over-valued the house, the compensation will be more than the damage.
- Life-insurance frauds: Life insurance is one of the most common type of insurance policies that people buy. However, life-insurance fraud occurs when a person tried to fake death in order the claim from the insurance company. This falls under the hard fraud segment.
As we learn in depth about insurance frauds, know that not all frauds are committed by the people getting the insurance policies. Some insurance frauds are also committed by the insurance agents, agencies or companies. The two major type of insurance frauds in this category are:
- Premium diversion: Premium diversion occurs when the insured pays out the premium but it does not reach the carrier. Literally, agents collect premium but do not pass it on the carrier. Later, they refuse to pay the claims on account of non-payment of premium amount.
- Fee churning: Fee churning is when an insurance agent moves from companies to companies looking for a better commission rate. This increases the premium amount to be paid by the customer.
To conclude, these are the various types of insurance fraud that all people related to the insurance industry must be aware of. This is the first step to recognize and stop fraud completely.