Introduction
People have invested a lot of money in business activities and buildings and this has exposed their money to serious risks. Human life has become very vulnerable to diseases, accidents, and injuries that make people unable to do their activities (Feinman 2010). However, insurance companies have stepped in and helped people by alleviating their fears. The policies and covers offered by these companies ensure people can invest their hard-earned money in risky activities without fearing that they will suffer losses. In addition, people have insured their lives to safeguard them against diseases, injuries, and death. This paper explores common insurance frauds and how they can be managed using case examples from the United Kingdom.
Definition
Insurance refers to the services offered by companies that are willing and able to undertake risk prevention and compensation services to individuals and property. There are two broad categories of insurance that include life assurance and property insurance (Goldwich 2009). The first one refers to the process of safeguarding the life of an individual against injuries, loss of jobs, diseases, and death. The last one involves safeguarding property against losses caused by fire, theft, accidents, and industrial strikes.
Fraud refers to all attempts to obtain financial or material gains through false means. This means that insurance fraudsters use deception, tricks, falsehood, and wrong evidence to obtain favors as a result of suffering losses (Madura 2011). This behavior has become common especially in developed nations and this has forced insurance companies to incur heavy losses. As a result, they have become very strict to ensure they are not conned again.
Types of Insurance Frauds
Insurance frauds have become very common especially in the United Kingdom and this has made insurance to be an unattractive investment. This company aspires to make profits by ensuring only genuine claims are compensated (Gerst 2008).
However, this has not been the case due to the high number of insurance claims being filled and compensated. Some of these companies have been forced to close their operations since this business has become a futile investment. Even though, the role of this business is to safeguard and compensate its clients when they incur losses or injuries this should not exceed the profits generated. Unfortunately, most insurance companies are spending more money on compensations than expanding their operations (Madura 2011). This means this business is no longer a viable investment. Some of the common insurance frauds in the United Kingdom include the following.
Inflation of Losses
Insurance companies compensate individuals by restoring them to their initial financial positions before the loss occurred. This means that if the insured has a vehicle worth $ 10,000 and an accident occurs forcing the vehicle to be declared junk the insurance company will either buy another car worth the same amount for the owner or give the money to the insured to buy another car. In addition, life assurance policies compensate individuals with a similar amount of money they spent or wasted in treatment or due to loss of jobs (Longcore 2011). This policy is specified by the principle of utmost good faith that requires clients to claim actual compensations and avoid inflating their claims.
Unfortunately, this has not always been the case since people have been inflating their losses. This means that instead of an insurance company paying for the actual amount of money spent in treatment or in repairing vehicles they are forced to pay almost double the actual amount of money used (Shernoff 2011). Therefore, these companies have been subjected to economic sabotage since their operational costs are almost equal to their profits. This crime is always committed by the insured in collaboration with professionals like doctors and lawyers who certify that the victim deserves to be compensated.
Over Insurance
Insurance companies demand that customers must pay premiums that reflect the actual value of their property or salaries. This means that a property with a high value will have a higher premium compared to a low-priced property. However, most people do not consider the principle of indemnity that requires the insurer to put the insured in their former positions before the damage or loss occurred (Archer 2012). People overprice their property so that they can claim a huge amount of money in case they incur losses. This is a serious insurance crime that violates the principles of utmost good faith and indemnity.
In addition, people must ensure their property or life with one insurance company. However, this does not mean that they cannot consider the services offered by other companies depending on their conditions and rates of compensation. The principle of contribution claims that when an individual has registered property in more than one insurance company the costs of damages and losses will be shared equally amongst all companies (Madura 2011). However, most people claim double compensations since this principle is hardly followed. They present claims to all companies and demand compensation. This amounts to higher compensations than the actual price of their property or damage incurred.
Underpayment and Delayed payments
Insurance frauds are not committed by the insured only but also by these insurance companies. Even though, these companies are investments expected to generate profits they should not do this at the expense of their clients. This means that they should follow their principles and provide proportional compensations to their clients (Markson 2010). However, there are many cases where clients have been poorly compensated due to fraudulent considerations that lower the compensation packages. Some companies do not conduct full investigations before deciding to pay their clients. Therefore, they make wrong decisions and give their clients very little money which is not equivalent to the losses suffered.
In addition, clients are supposed to be compensated immediately they incur losses. This means that they must report the incident to their insurance company and the nearest police department to ensure the occurrence is documented. However, despite these efforts, some insurance companies take too long before they compensate their clients (Jones 2013). They claim to conduct investigations to establish the validity of these claims before compensating the victims.
This process can sometimes take months or years before the insured is compensated and this means businesses will stop operating for that long. In case of loss of jobs, people follow their claims until they give up since the expenses incurred in following their cases are more than the compensations expected. This is an insurance fraud perpetrated by insurance companies and subjects victims to suffering.
Cancellation of Policies
Some unscrupulous insurance companies frustrate their clients by changing their policy covers or deleting their information from their database. In some cases, they even cancel their contracts or claim to have compensated their clients and threaten to sue them for extortion. The contract between the insurance company and its clients is an important document that outlines their terms of engagement and specifies the policies covered by the insurance company. In addition, it specifies the losses that can be compensated and the conditions that may trigger this situation. Therefore, in case of any loss or damage, the insured must present the insurance certificate issued when signing the contract before any other step is done. This is the initial stage of compensation that shows the insured and the company had an agreement.
However, some insurance companies may delete this information from their system or change it to reflect other policies that were not covered in the initial agreement. This means that if the loss is not specified by their terms of engagement the insured will not be compensated (Jones 2013). In case a loss occurs the insured cannot be compensated and continues to suffer as the company continues to deny any engagement with the person.
False Claims
This has become a common insurance fraud, especially in the health and motor vehicle sectors. Some people cannot be trusted even with their property and lives. Health insurance schemes like Medicaid and Medicare have offered fertile grounds for fraudsters to steal money from insurance companies. In addition, lawyers, doctors, and mechanics have contributed to an increase in this crime due to the role they play in advancing illegal compensations.
Insurance companies demand that there must be sufficient evidence that there was a loss, damage, or injury before they compensate their clients. In addition, they demand that there must be a relationship between the insured and the property destroyed, damaged, or stoles (Rejda 2010). The loss must be measurable to ensure the company compensates the victim with the same amount of money or similar property. However, these principles have never been considered seriously by medical practitioners, investigators, mechanics, and lawyers.
Some doctors have collaborated with patients and claimed false compensations for the treatment of diseases or injuries that did not exist. On the other hand, mechanics and motorists have cooperated and presented false claims for nonexisting damages and repairs done on insured vehicles (Orsina 2011). Similar cases have been widely reported in the United Kingdom where other motorists and members of the public have colluded with motorists to claim they were accidentally hit and injured.
Intentional Losses and Damages
Insurance companies compensate clients when they experience losses that are directly connected with their insurance covers. However, sometimes it may be difficult to decide whether an accident was intentional or not and this puts the client at risk of suffering the losses without compensation. They have become creative and now most clients are setting fire on their property or intentionally causing accidents and colluding with other victims to claim compensation.
Ownership
The United Kingdom has many insurance companies that offer different covers for different groups of property and owners. New motorists are forced to pay higher insurance premiums compared to experienced drivers since they are likely to cause accidents. In addition, first-time car owners are exposed to more risks than those that have many cars. Moreover, some regions like urban centers are riskier compared to rural areas (Giles 2012).
This means that new motorists and those that live in urban areas must pay high insurance premiums due to the nature of their experience and location respectively. However, some parents and motorists evade these regulations by registering their vehicles in rural areas and showing different owners to reduce the premiums they are supposed to pay to insurance companies. This is an insurance fraud that goes on unnoticed unless insurance companies conduct long investigations to establish the owner and residence of such vehicles.
Causes of Insurance Fraud
Greed for money and wealth is the main cause of many cases of fraud in many government and private organizations. Even though, people know the consequences of this behavior they are motivated by greed to commit these crimes regardless of their punishments (Jordan 2011). There are many cases where people have been convicted of other crimes due to greed and insurance frauds are not exceptions.
People wish to have money and wealth irrespective of what they already have. Even though, they know the right way of generating wealth is through hard work they rarely follow this path because it is slow (Girgenti 2011). However, they consider cheating their insurance companies as the shortest way of getting wealth quickly. Greed makes some of them engage in activities like arson that risk their lives as they attempt to seek compensation from insurance companies.
In addition, living expenses have escalated and this has forced doctors, lawyers, and other professionals to engage in illegal activities to earn money (Madura 2011). Sometimes, insurance brokers, agents, and investigators collaborate with clients to steal money from insurance companies in terms of compensations. Most doctors and lawyers are paid low salaries that cannot sustain their families until the next payday. This makes them vulnerable to manipulation from unscrupulous insurance clients.
Effects
Tax is an important asset in a nation and all citizens must follow all processes to ensure they pay taxes. These funds are used to finance various local and national projects. However, fraud in the insurance sector is a serious challenge to local and national authorities in terms of collecting revenue (Jones 2013). Businesses must present their annual reports for auditing to establish the amount of tax they should pay based on their profits. However, the endless instances of fraud in the insurance sector make it impossible to calculate the profits generated by a company.
Most of them estimate their profits and do not have actual figures that show how they have performed. Some companies do not present accurate figures since their compensations are usually marred with doubts (Bourhis 2011). In addition, it leads to losses and frustrations in insurance companies forcing them to close their operations. This leads to joblessness and increases the dependency ratio in a country.
Secondly, most cases of insurance fraud lead to losses of lives, property, time, and energy. In addition, they contribute to an increase in injuries and death when people try to jump in front of speeding vehicles in stage-managed accidents. Even though, they may be compensated and earn good money they suffer injuries that may interfere with their normal lives or lead to other serious complications in the future.
Lastly, insurance fraud leads to unnecessary expenses and discourages investors from venturing into this business. Nobody is willing and ready to invest in a business that cannot generate enough revenue to finance its projects. Therefore, this sector is left with very few players who are in charge demand huge premiums from clients since they have huge markets for their services.
Solutions
The insurance industry is an important sector that ensures people are free to invest in any activity regardless of the risks associated with it. However, this sector is facing a serious financial crisis due to fraud perpetrated by clients, agents, and other parties. However, the following measures can be beneficial in curbing these incidences.
First, there should be severe punishments for those who engage in this crime. The United Kingdom established the Fraud Act 2006 and Financial Services Act 1986 that ensures all fraudsters are fined, imprisoned for ten years, or get both sentences. This was a good way of deterring people from committing this crime. In addition, there is the need to establish offices that will facilitate investigations that will help the authorities to arrest fraudsters (Jones 2013). The United Kingdom established the Serious Fraud Office in 1987 to ensure all fraud cases are investigated and suspects prosecuted.
Secondly, public awareness campaigns must be established to educate the public on the evils of insurance frauds and how to detect and report them. This will ensure the public is very careful and avoids participating in suspicious activities. In addition, there should be qualified bodies to conduct investigations on all suspicious activities. This should culminate in the prosecution of perpetrators and ensuring all second and third-party participants are given severe punishments for colluding with the initial criminals.
Lastly, all the principles that guide this industry must be respected by all stakeholders and applied in equal measures. There should be clear warnings regarding those who break insurance rules to ensure this industry is protected from clients with criminal intentions.
Conclusion
The insurance sector is a base for all other business activities since it safeguards their operations. Therefore, this industry must be protected and developed to ensure people can engage in risky legal activities without fear of losses or injuries. Insurance fraud is a major letdown in this sector and should be condemned by everybody. The above solutions will help to alleviate insurance fraud perpetrated by clients, insurance companies, and their agents.
References
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Bourhis, R 2011, Insult to Injury: Insurance, Fraud, and the Big Business of Bad Faith, Berrett-Koehler Publishing, California.
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