Insurance Institute of Michigan
January 17, 2019

Insurance Fraud

What is insurance fraud?
How do Michigan residents feel about insurance fraud?
What are the penalties for this crime?
How much does insurance fraud cost?
What is the industry doing to combat this crime?
What can you do to fight fraud?

What is insurance fraud?

Insurance fraud is a crime when a person receives insurance money for filing a false claim, inflating a legitimate claim or billing for services that were never received.

Insurance fraud has many faces. It ranges from otherwise honest people who “pad” their legitimate claims to elaborate schemes perpetrated by members of an organized ring.

Examples of fraud include:

  • Inflating a claim to get out of paying a deductible or to cover past insurance premiums.
  • Orchestrating the destruction of an owned automobile, home or business to collect insurance.
  • Exaggerating the extent of a minor injury to collect workers’ compensation benefits.
  • Billing insurance companies for medical services that were not rendered.Fraud is more prevalent in some lines of insurance and in some geographical areas than others.  Hard core schemes, which involve networks of professionals appear to be concentrated in urban areas.  For example, five people working out of a Los Angeles-area auto body shop were suspected of filing 40 bogus insurance claims worth a total of $300,000 for hit-and-run damage to vehicles they owned.  They used these vehicles to stage several accidents after insuring them through multiple carriers.  Insurance records indicate that most of the repairs were performed by one Los Angeles body shop.  Investigators identified the fraud when they determined that most of the claims were identical, with all vehicles sustaining the same damage and all accidents lacking witnesses.

How do Michigan residents feel about insurance fraud?

Did you know that 26 percent of Michigan residents recently surveyed knew someone who had committed insurance fraud, yet only one in eight reported it to law enforcement authorities?

A survey of 400 Michigan residents, conducted by EPIC/MRA found that 83 percent consider insurance fraud a serious crime.

When asked what penalties should be used to punish people who are found guilty of committing insurance fraud multiple responses were accepted.  While 66 percent said they should have to pay a fine, 40 percent thought they should have to serve jail time.

Having someone torch a car to collect on the insurance premiums paid in the past was determined to be the most serious type of insurance fraud, followed by falsely claiming a work-related injury to collect workers’ compensation insurance.

What are the penalties for this crime?

The public is concerned about the insurance fraud problem.  According to a Gallup poll, citizens ranked insurance fraud an 8.9 on a 10-point scale.  In the past, inadequate civil and criminal penalties made it difficult to fight insurance fraud.  That is why a law was enacted in Michigan making it a felony to commit insurance fraud.  Convicted criminals face up to four years in prison, a maximum fine of $50,000 and mandatory restitution.

How much does insurance fraud cost?

The The Coalition for Insurance Fraud estimates that insurance fraud costs Americans over $80 billion annually.  It is estimated that insurance fraud increases premium costs for the average American family by $950 each year.

Also, fraud results in higher taxes and inflated prices for consumer goods and services.

What is the industry doing to combat this crime?

First and foremost, individual insurance companies are increasing their efforts to take the profit out of insurance fraud.  Insurers representing more than two-thirds of the property/casualty insurance market have now established Special Investigative Units (SIUs).  These SIUs train insurance people to identify losses that should be given a closer look.  And many other companies without formal SIUs carry out fraud investigations in other ways.

Here in Michigan, the industry is actively involved in two organizations that have been established to combat all types of arson and auto theft, including fraudulent acts.  Insurance companies also provide funding for rewards associated with these programs.

The Help Eliminate Auto Theft (HEAT) program rewards callers up to $1,000 for tips that lead to the arrest and binding over for trial of a suspected car thief; up to $10,000 if the tip results in the arrest and binding over for trial of suspected theft ring members and/or chop shop operators.  The reporting number is 1-800-242-HEAT.

Through ARSON CONTROL, rewards of up to $5,000 are paid to persons who provide information that leads to the arrest and/or conviction of arsons.  The telephone number for reporting these crimes is 1-800-44-ARSON.

What can you do to fight fraud?

You can reduce the incidence of fraud — the cost of fraud — and its impact on the price you pay for car, home and other types of insurance.

  • Report all accidents and losses.
    If you are involved in an accident or witness one — report it to authorities.
  • Maintain accurate records of accidents.
    Keep accurate records of what happened.  Write down names, addresses and telephone numbers of those involved and get names of any witnesses.
  • Be alert to possible fraud schemes.
    If you think someone is trying to entice you into a fraudulent act — contact police.
  • If you suspect someone is committing insurance fraud — report it.
    Call HEAT at 1-800-242-HEAT or Arson Control at 1-800-44-ARSON.  You may be eligible for a reward

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