Should you be concerned about insurance fraud?
As a business or individual, you might not be directly affected by the billions of dollars of insurance fraud that occurs every year. Indirectly however, the result of fraudulent claims affects everyone in the form of higher premiums and excess payments, as the insurance industry struggles to make up for these losses.
Insurance fraud can not only be malicious, where the individual or business knows they are falsifying a claim, but it can also be due to non-disclosure of relevant information or simply exaggerating a legitimate claim.
Deliberately falsifying a claim
This type of deliberate fraud is premeditated and can be done by both businesses and individuals. For example, a business may set fire to an old building and then make a fraudulent insurance claim because the building had been on the market for years and hadn't sold, leaving them with a profitless asset on their hands; an insurance payout increases their capital and removes a ‚Äòlemon' from their books.
Deliberate fraud also occurs when claims are made for thefts or injuries that actually didn't take place. As far as injuries are concerned, ‚Äòaccidentally' slipping on a wet surface in the supermarket or tripping over a cracked pavement are often fraudulent claims (but not always, of course) and when proven to be false are considered as 'staged incidents' in the insurance industry.
Not disclosing relevant information
This can be deliberate or totally unintentional, but in reality it involves not giving your insurer all the information they need to decide whether or not to provide you with a policy or to pay a claim. For example, if you want to insure your car, but don't tell your insurer that you have a string of DUIs or accidents that were deemed to be your fault, any claims that rely on that information would be fraudulent.
It's also considered to be non-disclosure if your car is stolen or broken into outside your home at night, when you had previously told your insurer that it's always parked in a locked garage overnight, not on the street. Even if your car is normally parked in the garage overnight, but was left on the road this one time, you still need to inform your insurance company as part of your claim, otherwise you are submitting a fraudulent claim.
Exaggerating or padding a claim
These fraudulent claims are actually legitimate claims that have been padded with inflated replacement costs, so that the claimant receives a bigger payout than the actual value of the item. Insurance companies are pretty knowledgeable about the value of items, so these exaggerated claims aren't always paid as expected by the claimant.
Avoiding fraudulent claims
Whilst the insurance industry continually invests their resources into identifying deliberate fraudulent claims, it's always best to avoid making false claims, whether deliberate or accidental. Fraud is a crime and depending on the circumstances can involve both fines and jail time.
The easiest way to avoid making a fraudulent claim is to disclose all relevant information to your insurer as required and to be totally honest when making a claim. Read the PDS or Duty of Disclosure and make sure that you don't inadvertently void your insurance by forgetting to keep your insurer updated about your circumstances.
To find out more about the claims process, talk to us today!
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Gail Findlay.