AIC30 Claim Handling Principles and Practices Chapter 6

Concealment

An intentional failure to disclose a material fact.

Describe a chop shop is

A chop shop is an auto repair facility that dismantles stolen autos and either sells the parts or uses them to repair vehicles brought into the shop by unsuspecting patrons.

Misrepresentation

A false statement of a material fact on which a party relies

Identify three types of insurance claim fraud where the motive is individual financial gain or profit

A lessee of a vehicle that has excess mileage when the lease is up ships the vehicle out of the country and claims it was stolen or burns it to avoid the extra fess. Arson for profit schemes in which a contractor is hired to set fire to a business or residence so that the property owner may reap financial gain through insurance. Business owners making water, smoke, or fire claims for damage to obsolete unsalable, or excess inventory, equipment, or supplies.

Hard Fraud

Actions that are undertaken deliberately to defraud

Staged accident

An accident deliberately caused by a person who intends to feign injury and collect on the ensuing claim

Describe what an arson for profit contractor is

An arson-for-profit contractor is an individual hired to set fire to a business or residence so that the property owner may reap financial gain through insurance. The property owner establishes an alibi using witness who will testify that he or she was far from the fire scene,

Insurance Fraud

Any deliberate deception committed against an insurer or an insurance producer for the purpose of unwarranted financial gain

Define what a false claim is

False claims arise when an insured purses a claim for property damage or injury that has not actually occurred.

Describe the elements that constitute fraud

Fraud occurs when all of these elements exist: 1. An individual or an organization intentionally makes an untrue representation. 2. The untrue representation concerns an important of a material fact or event. 3, The untrue is representation is knowingly made. 4. The untrue representation is intended to deceive. 5. The victim relies on and acts on the untrue representation. 6. The victim suffers some detriment, such as loss of money and/or property, as a result of relying upon and acting on the untrue representation.

Soft Fraud, or opportunity fraud

Fraud that occurs when a legitimate claim is exaggerated

Fred is a claim representative investigating a fire loss at a restaurant. In his investigation, he discovered that a month before the loss, a movie theater next door to the restaurant had moved to a new location several miles away. What should Fred be aware of in his investigation of the fire regarding a possible motive for insurance fraud?

Fred should be aware that according to the National Fire Protection Association, almost one-third of all restaurant fires raise suspicions of fraud. Because location affects a restaurant's success, problems with location can create a motive for fraud. The fact that the movie theater next door closed and moved away could have had a serious effect on the revenue of the restaurant. The owner may have decided that burning the restaurant and collecting the insurance proceeds was an attractive, albeit criminal, way to recoup losses.

Norris is a fraud claim investigator who was assigned to investigate a suspected "chop shop" He anticipates that the criminals who operate this auto body shop are paying an auto thief to steal specific makes and models of vehicles and deliver them to the shop. The owners then disassemble the vehicles, discard the shells, and save the parts for use in repairing unsuspecting customers vehicles. The criminals submit bills to insurers for parts that appear to have been ordered from legitimate parts distributors. How can Norris prove that the parts are used in the vehicle repairs are actually parts of stolen vehicles?

In an effort to fight this type of organized insurance fraud, auto manufactures stamp a VIN on several component parts of repaired vehicles. Norris can locate the VIN on various auto parts and track those vehicles to show that they were stolen. When he has sufficient evidence of fraud, the state can charge the individuals accordingly and can assign strict penalties to reduce the profit that results from the fraud.

Material fact

In insurance, a fact that would affect the insurer's decision to provide or maintain insurance or to settle a claim

List three common motives for insurance fraud

Individual financial gain or profit, Sense of entitlement, Participation in organized crime

Explain how insures use computers to detect indication of possible insurance fraud

Many insurers now use computer programs to detect characteristics that are common to fraudulent claims. Such programs can analyze vast amounts of data across different lines of insurance to identify claim patterns and other similarities that may indicate fraud. Several organizations, such as Insurance Service Office, offer electronic antifraud databases that contain claim related records or provide access to public records that may be used to gather evidence of fraud.

Explain why there is conflicting data about whether a correlation exists between depressed economy and an increase in insurance fraud

Part of the problem in finding a correlation between a depressed economy and an increase in insurance fraud is that insurance fraud occurs on a microeconomic, not a national economic, level. Studying local economic conditions may have more relevance. another part of the problem is lack of uniformity in insurance fraud laws and improved reporting technology that allows new variables to be considered, making previous analysis obsolete. Also, there may be a lag between an economic downturn or upturn and a change in the number of fraudulent insurance claims. the largest impediment ,ay be that the answer is buried insurers claim databases and no serious effort was apparently made to correlate fraud claim data with regional economic data.

Identify several factors related to the insurer that may create an opportunity for fraud

Several factors related to the insurer may create an opportunity for fraud including insurers underwriting and claim practices, managed care practices and public distrust of insurers.

Identify reasons why some individuals believe that they are entitled to extra benefits from insurance

Some individuals believe that they are entitled to extra benefits form Insurance for several reasons. Some individuals believe that is something bad happens, someone should pay for it and they use that reasoning to justify exaggerating or padding a claim to cover their insurance deductible or to recover some of the premium. Some people consider their premium payments a sort of fund from which they can be repaid in the event of a claim. They further justify their sense of entitlement with the opinion that insures are large, impersonal, wealthy institutions that will not miss a few extra dollars added to an auto claim or a workers claim

Joe has his car insured for hail. He hit his car many times with a hammer and made a claim for hail damage. What type of fraud has occurred to make the auto claim illegitimate

The damage to Joe's car was not fortuitous or caused by an accident. Joe caused the damage intentionally. So this attempt to defraud the insurer is considered a type of hard fraud called an intentional loss.

Explain why soft fraud is also known as opportunity fraud

The perpetrator of soft fraud uses the "opportunity" of a legitimate claim to obtain unwarranted personal gain.