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What is insurance fraud, and how can you recognize it?

Insurance fraud is an issue not only in Michigan and Illinois but around the country. It is not only insurance companies and their employees, like you, who pay the price but the general public as well. According to the Association of Certified Fraud Examiners, the huge losses within the industry due to fraud get passed along to consumers in the form of higher costs. 

There are ways to commit fraud on essentially every type of insurance policy. Some of the most common instances of fraud involve health insurance, workers' compensation, vehicle or property policies. Because insurance fraud is often very subtle, it can be difficult for you to build a successful defense against it.

There are two basic categories of insurance fraud: the soft variety and the hard variety. Soft fraud involves a claim that is legitimate in its essentials but inflated to include losses that never actually occurred. Hard fraud is an attempt to obtain reimbursement from an insurance company by intentionally staging a theft, injury or accident in a premeditated fashion. An example of the latter would be abandoning a newly purchased vehicle and then reporting it stolen, while an example of the former is reporting a genuine loss or theft of an electronic device but making an additional claim for an accessory that you never actually owned. 

There are many red flags you can watch for that may indicate that insurance fraud is taking place:

  • The claim is not well documented.
  • The insured is unusually knowledgeable about insurance procedures.
  • The insured insists on a fast settlement.
  • There is a history of multiple past losses and claims.
  • The claim happens only a short time after the policy goes into effect.

These red flags apply generally to all types of insurance. There are others that are specific to certain types of policies. 

The information in this article is not intended as legal advice but provided for educational purposes only.

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