Business Decision Making Project, Part 2
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business_decision_making_project_part_ii.docxBusiness Decision Making Project Part II
Fraud is a major issue that affects both insurance companies and consumers and comes in many forms. There is hard fraud, which is when the person sets out to intentionally defraud the insurance company (such as setting a house on fire or staging an auto accident), and there is soft fraud, which is more opportunity fraud (such as padding a claim to receive more payout when a legitimate loss occurs). Below we explore the different types of fraud and how they affect consumers and the insurance industry.
One statistic found was that 18% of people surveyed think it's OK to increase a claim amount (known as "padding a claim") to make up for previous premiums paid. Twenty-four percent believe it's OK to increase the claim amount to make up the deductible they have to pay for a claim. (Insurance-research.org, 2013) This quantitative statistic means that insurance companies have an uphill battle against fraud as almost two of every three people think it is OK to defraud the insurance companies. What is even more shocking is that these fraudsters do not believe what they do is fraud since they pay premiums. Fraudulent claims are becoming more and more of a major issue in the insurance world. Approximately 90 percent of cost of insurance is padded. Claims that add damage, injuries, false documentation submitted for valuables in the vehicle. The other 10 percent are the results of organized accidents. There are large amount offenders that receive light sentences. This causes the issues to become a larger issue in the fraudulent claims against insurance claims.
Insurance fraud can be very costly to the ones that do have to pay the monthly premiums. Because of claims that are false or staged auto crashes, the premiums cost people around $200 to $300 a year. For families, this can add up to around $1000 per year. According to the Coalition against Insurance Fraud estimates that fraudulent claims run $80 billion a year. Some claims are due to economic hardships. For instance, economic hardships may have caused a woman in Mobile, Alabama, to start a fire that gutted her business. (www.al.com 2015). The woman faces a maximum penalty of 20 years in prison for her actions. Companies around the world have falsified documents and filed false claims all in the pursuit of money. Not only does this affect the company these people run, but also the employees. Through the actions of an individual, hundreds could lose their jobs. Business Travel News put out a report claiming that 27% of executives or upper management employees commit fraud.
The cost of insurance fraud is high, not only in a monetary sense but this loss can be found in many forms. Loss of jobs, dwindling resources and poor service quality are all repercussions of fraudulent insurance claims. Due to the increase of fraudulent insurance claims there is great emphasis on catching and prosecuting those who seek to elicit insurance payouts. "More than $346 million in restitution was ordered from cases handled by fraud bureaus in 2010” (Fraud Statistics, n.d.). According to Scott (2015) these numbers have risen drastically in the auto insurance field where fraudulent claims are costing auto insurance holders over $6 billion dollars each year in excess payments. Below is a chart on the top ten questionable claims by insurance type in 2011-2012 according to the Insurance Information Institute. As you can see by the chart below personal property claims have increased year over year by 140% and followed by commercial claims with a 34% increase from 2011-2012.
TOP TEN QUESTIONABLE CLAIMS BY INSURANCE TYPE, 2011-2012 (1)
|
(1) Based on claims insurance companies refer to the National Insurance Crime Bureau to be reviewed and investigated. (2) Includes employers' liability. (3) Includes all policy types, not just top 10.
Source: National Insurance Crime Bureau.
Fraud negatively affects the auto insurance company by increasing the amount of money paid on the claim as well as the costs to employ special investigators and adjusters to catch people who commit the fraud. The consumer is negatively affected because they see premium increases each year as a way for the auto industry to counter-balance the amount of fraudulent claims which were paid.
References
Insurance-research.org. (2013). Retrieved from http://www.insurance-research.org/research-publications/insurance-fraud-public-view-2013-edition
http://www.foxbusiness.com/personal-finance/2015/02/26/true-cost-auto-insurance-fraud-how-all-pay-in-increased-premiums/
Business Travel News 2014. Senior-Level Shenanigans by JoAnn Deluna (http://www.businesstravelnews.com/Expense-Management/Senior-Level-Shenanigans--Survey--27-Percent-Of-Executive/Upper-Management-Employees-Commit-Expense-Fraud/?a=proc)
AL.com 2015. Mobile Woman who set fire to own business (http://www.al.com/news/mobile/index.ssf/2015/03/mobile_woman_who_set_fire_to_o.html)
Fraud statistics. (n.d.). Retrieved April 6, 2015, from
http://www.insurancefraud.org/statistics.htm#Auto insurance
Scott, G. (2015). Auto Insurance Fraud on the Rise: Is the Economy to Blame? Retrieved April
6, 2015, from http://www.insweb.com/news-features/auto-insurance-fraud-on-rise.html
Insurance Information Institute. (2015). Retrieved from http://www.iii.org/fact-statistic/fraud
Business Decision Making Project Part II
Fraud is a major issue that affects both insurance companies and consumers and comes in
many forms. There is hard fraud, which is when the person sets out to in
tentionally defraud the
insurance company (such as setting a house on fire or staging an auto accident), and there is
soft
fraud, which is more opportunity fraud (such as padding a claim to receive more payout when a
legitimate loss occurs). Below we exp
lore the different types of fraud and how they affect
consumers and the insurance industry.
One statistic found was that
18% of people surveyed think it's OK to increase a claim
amount (known as "padding a claim") to make up for previous premiums paid.
Twenty
-
four
percent believe it's OK to increase the claim amount to make up the deductible they have to pay
for a claim.
(
Insurance
-
research.org
, 2013) This quantitative statistic means that insurance
companies have an uphill battle against fraud as alm
os
t two
of every
three
people think it is OK
to defraud the insurance companies. What is even more shocking is that these fraudsters do not
believe what they do is fraud since they pay premiums.
Fraudulent claims are becoming more
and more of a major issue
in the insurance world. Approximately 90 percent of cost of insurance
is padded. Claims that add damage, injuries, false documentation submitted for valuables in the
vehicle. The other 10 percent are the results of organized accidents. There are large amo
unt
offenders that receive light sentences. This causes the issues to become a larger issue in the
fraudulent claims against insurance claims.
Insurance fraud can be very costly to the ones that do have to pay the monthly premiums.
Because of claims that
are false or staged auto crashes, the premiums cost people around $200 to
$300 a year. For families, this can add up to around $1000 per year. According to the Coalition
Business Decision Making Project Part II
Fraud is a major issue that affects both insurance companies and consumers and comes in
many forms. There is hard fraud, which is when the person sets out to intentionally defraud the
insurance company (such as setting a house on fire or staging an auto accident), and there is soft
fraud, which is more opportunity fraud (such as padding a claim to receive more payout when a
legitimate loss occurs). Below we explore the different types of fraud and how they affect
consumers and the insurance industry.
One statistic found was that 18% of people surveyed think it's OK to increase a claim
amount (known as "padding a claim") to make up for previous premiums paid. Twenty-four
percent believe it's OK to increase the claim amount to make up the deductible they have to pay
for a claim. (Insurance-research.org, 2013) This quantitative statistic means that insurance
companies have an uphill battle against fraud as almost two of every three people think it is OK
to defraud the insurance companies. What is even more shocking is that these fraudsters do not
believe what they do is fraud since they pay premiums. Fraudulent claims are becoming more
and more of a major issue in the insurance world. Approximately 90 percent of cost of insurance
is padded. Claims that add damage, injuries, false documentation submitted for valuables in the
vehicle. The other 10 percent are the results of organized accidents. There are large amount
offenders that receive light sentences. This causes the issues to become a larger issue in the
fraudulent claims against insurance claims.
Insurance fraud can be very costly to the ones that do have to pay the monthly premiums.
Because of claims that are false or staged auto crashes, the premiums cost people around $200 to
$300 a year. For families, this can add up to around $1000 per year. According to the Coalition
