Insurance Frauds (Research Paper Sample)

INSURANCE FRAUD
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Outline
* Introduction
* Definition
* Types of Insurance Frauds
1 Inflating Losses
2 Over Insurance
3 Underpayment
4 Cancellation of Policies
5 False Claims
6 Ownership
* Causes
1 Greed
2 Tax Evasion
* Effects
1 Economic Sabotage
2 Losses and Injuries
3 Time Wastage
4 Unnecessary Expenses
* Solutions
1 Legislation
2 Public Awareness
3 Investigations
* Conclusion
Insurance Fraud
Introduction
People have invested a lot of money in business activities and buildings and this has exposed their money to serious risks. Human life has become very vulnerable to diseases, accidents and injuries that make people unable to do their activities (Feinman 2010). However, insurance companies have stepped in and helped people by alleviating their fears. The policies and covers offered by these companies ensure people can invest their hard earned money in risky activities without fearing that they will suffer losses. In addition, people have insured their lives to safeguard them against diseases, injuries and death. This paper explores common insurance frauds and how they can be managed using case examples from the United Kingdom.
Definition
Insurance refers to the services offered by companies that are willing and able to undertake risk prevention and compensation services to individuals and property. There are two broad categories of insurance that include life assurance and property insurance (Goldwich 2009). The first one refers to the process of safeguarding the life of an individual against injuries, loss of jobs, diseases and death. The last one involves safeguarding property against losses caused by fire, theft, accidents and industrial strikes. Fraud refers to all attempts to obtain financial or material gains through false means. This means that insurance fraudsters use deception, tricks, falsehood and wrong evidence to obtain favours as a result of suffering losses (Madura 2011). This behaviour has become common especially in developed nations and this has forced insurance companies to incur heavy losses. As a result, they have become very strict to ensure they are not conned again.
Types of Insurance Frauds
Insurance frauds have become very common especially in the United Kingdom and this has made insurance to be an unattractive investment. This company aspires to make profits by ensuring only genuine claims are compensated (Gerst 2008). However, this has not been the case due to the high number of insurance claims being filled and compensated. Some of these companies have been forced to close their operations since this business has become a futile investment. Even though, the role of this business is to safeguard and compensate its clients when they incur losses or injuries this should not exceed the profits generated. Unfortunately, most insurance companies are spending more money in compensations that expanding their operations (Madura 2011). This means this business is no longer a viable investment. Some of the common insurance frauds in the United Kingdom include the following.
Inflation of Losses
Insurance companies compensate individuals by restoring them to their initial financial positions before the loss occurred. This means that if the insured has a vehicle worth $ 10,000 and an accident occurs forcing the vehicle to be declared junk the insurance company will either buy another car worth the same amount for the owner or give the money to the insured to buy another car. In addition, life assurance policies compensate individuals with similar amount of money they spent or wasted in treatment or due to loss of jobs (Longcore 2011). This policy is specified by the principle of utmost good faith that requires clients to claim actual compensations and avoid inflating their claims.
Unfortunately, this has not always been the case since people have been inflating their losses. This means that instead of an insurance company paying for the actual amount of money spent in treatment or in repairing vehicles they are forced to pay almost double the actual amount of money used (Shernoff 2011). Therefore, these companies have been subjected to economic sabotage since their operational costs are almost equal to their profits. This crime is always committed by the insured in collaboration with professionals like doctors and lawyers who certify that the victim deserves to be compensated.
Over Insurance
Insurance companies demand that customers must pay premiums that reflect the actual value of their property or salaries. This means that a property with a high value will have a higher premium compared to a low priced property. However, most people do not consider the principle of indemnity that requires the insurer to put the insured in their former positions before the damage or loss occurred (Archer 2012). People over price their property so that they can claim huge amount of money in case they incur losses. This is a serious insurance crime that violates the principles of utmost good faith and indemnity.
In addition, people must insure their property or life with one insurance company. However, this does not mean that they cannot consider the services offered by other companies depending on their conditions and rates of compensation. The principle of contribution claims that when an individual has registered a property in more than one insurance company the costs of damages and losses will be shared equally amongst all companies (Madura 2011). However, most people claim double compensations since this principle is hardly followed. They present claims to all companies and demand compensations. This amounts to higher compensations that the actual price of their property or damage incurred.
Underpayment and Delayed payments
Insurance frauds are not committed by the insured only but also by these insurance companies. Even though, these companies are investments expected to generate profits they should not do this at the expense of their clients. This means that they should follow their principles and provide proportional compensations to their clients (Markson 2010). However, there are many cases where clients have been poorly compensated due to fraudulent considerations that lower the compensation packages. Some companies do not conduct full investigations before deciding to pay their clients. Therefore, they make wrong decisions and give their clients very little money which is not equivalent to the losses suffered.
In addition, clients are supposed to be compensated immediately they incur losses. This means that they must report the incidence to their insurance company and the nearest police department to ensure the occurrence is documented. However, despite these efforts some insurance companies take too long before they compensate their clients (Jones 2013). They claim to conduct investigations to establish the validity of these claims before compensating the victims.
This process can sometimes take months or years before the insured is compensated and this means businesses will stop operating for that long. In case of loss of jobs people follow their claims until they give up since the expenses incurred in following their cases is more than the compensations expected. This is an insurance fraud perpetuated by insurance companies and subjects victims to suffering.
Cancellation of Policies
Some unscrupulous insurance companies frustrate their clients by changing their policy covers or deleting their information from their database. In some cases, they even cancel their contracts or claim to have compensated their clients and threaten to sue them for extortion. The contract between the insurance company and their clients is an important document that outlines their terms of engagement and specifies the policies covered by the insurance company. In addition, it specifies the losses that can be compensated and the conditions that may trigger this situation. Therefore, incase of any loss or damage the insured must present the insurance certificate issued when signing the contract before any other step is done. This is the initial stage of compensation that shows the insured and the company had an agreement.
However, some insurance companies may delete this information from their system or change it to reflect other policies that were not covered in the initial agreement. This means that if the loss is not specified by their terms of engagement the insured will not be compensated (Jones 2013). In case a loss occurs the insured cannot be compensated and continues to suffer as the company continues to deny any engagement with the person.
False Claims
This has become a common insurance fraud especially in health and motor vehicle sectors. Some people cannot be trusted even with their property and lives. Health insurance schemes like Medicaid and Medicare have offered fertile grounds for fraudsters to steal money from insurance companies. In addition, lawyers, doctors and mechanics have contributed to an increase in this crime due to the role they play in advancing illegal compensations.
Insurance companies demand that there must be sufficient evidence that there was a loss, damage or injury before they compensate their clients. In addition, they demand that there must be a relationship between the insured and the property destroyed, damaged or stoles (Rejda 2010). The loss must be measurable to ensure the company compensates the victim with the same amount of money or a similar property. However, these principles have never been considered seriously by medical practitioners, investigators, mechanics and lawyers.
Some doctors have collaborated with patients and claimed false compensations for treatment of diseases or injuries that did not exist. On ...