Be Aware of Insurance Fraud
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As more and more insurance companies are operating nowadays, there are fraudulent companies claiming to sell insurance, as well. Thus, it is important that you need to be aware of suspicious companies that are possibly committing insurance fraud.
Insurance fraud does not mean only seller fraud. It can also refer to buyer fraud. As there are bogus companies that sell insurance, there are also bogus buyers that “buy” insurance. Seller fraud happens when the policy seller, or insurance company, takes control of the process in a way that maximizes profit. Buyer fraud happens when an insurance buyer “bends” the usual process in order to get more coverage or benefits.
Seller fraud has several variations, however they are all based on four basic types. A ghost company is a basic type of seller fraud where insurance policies are issued and the company accepts premiums from the policyholders. However, the company guaranteeing this policy is either illegal or does not exist at all. A ghost company is usually operated by scam artists who put high pressure on unsuspecting victims until they finally give in and get an insurance policy.
Another basic type of seller fraud is premium theft. Premium theft happens when an insurance agent accepts premiums from policyholders but does not submit it to the insurance company that underwrites the policy. With the insurance company not receiving any premiums from the policyholder, the insurance policy will then be considered invalid.
The other two basic types of seller fraud are churning and under or over-coverage. Churning happens when the insurance agent convinces a policyholder to renew, cancel or open a new policy in a manner that the agent benefits more rather than the policyholder. Under coverage or over coverage is similar to churning wherein the insurance agent manipulates the situation so that he ends up benefiting more.