The cost of insurance fraud in the U.S. is a whopping $308.6 billion each year, according to the Coalition Against Insurance Fraud. And it’s a cost we all pay for. Insurance fraud is one of the reasons so many home insurers have become insolvent or left Florida entirely in recent years. It also plays a significant role in rising premium costs.
Insurance fraud occurs when deception is used against an insurance company, agent, or other person for financial gain. In Florida, insurance fraud is classified as a crime punishable by criminal and civil penalties, including serious fines and imprisonment. There are numerous types and examples of insurance fraud. Here, we focus on the four most common insurance fraud scams.
1. Exaggerated or Fake Insurance Claims
One of the most common insurance fraud scams involves a policyholder lying to get more money. It may involve overstating the value of something or submitting a claim for something not actually occurring (e.g., staging a burglary or house fire).
2. Contractor & AOB Fraud
Contractor fraud is an opportunistic type of insurance fraud, aimed at cheating homeowners and insurers alike. It typically occurs after a natural disaster or other catastrophe affecting entire neighborhoods. Unscrupulous people go door-to-door, claiming to be contractors or builders, and making offers sounding too good to be true.
Fraud associated with the assignment of benefits (AOB) involves a contractor, builder, or repair person getting a homeowner to sign over insurance benefits to them. Historically, the fraudsters then paired up with lawyers who sued insurers, tying everything up in court and dramatically increasing costs for everyone.
How AOB fraud works:
Since AOBs were outlawed in Florida in 2022, newer tactics involve tricking homeowners into signing something called a Direction to Pay contract, which is just an alternative to AOB fraud.
3. Misrepresentation When Obtaining Coverage
Another common insurance fraud scam involves homeowners lying during the application process in order to get a lower premium. This might involve providing inaccurate details about your home or omitting information possibly disqualifying you for coverage, such as previous or current damage to the home.
4. Inflated Repair Costs to ‘Cover Deductible’
This is when a homeowner arranges with a repair person/company to submit a falsified invoice to make up for the homeowner’s deductible. The repair company might even offer to “waive” the homeowner’s deductible. The problem is they aren’t authorized to do this – and it’s insurance fraud.
Consider this scenario:
Your insurance company determines your roof repairs should cost $10,000. Your deductible is $1,000, leaving the insurer to pay the roofer the remaining $9,000.
Ordinarily, you and your insurer would pay your respective portions of the bill. If an unethical roofer promises to waive your $1K, or to “pay” you $1K for putting one of their business signs in your yard, they’re stuck getting paid less for the job thus, providing an inflated bill to the insurer, falsely indicating the homeowner’s $1K deductible was paid).
Homeowners pay a price because contractors will then cut corners to make up for their loss with cheaper labor or materials, affecting the quality of the roof you end up with.
How Insurance Fraud Impacts You
While a new study indicates a quarter of all young adults might not consider insurance fraud a crime, rest assured it very much is. Rising rates of insurance fraud penalizes every American, to the tune of $932.63 a year per person, or $3,750.52 for the average family, according to a 2022 study by the Coalition Against Insurance Fraud.
Join Us in Stopping Insurance Fraud
YOU have a role to play in stopping insurance fraud – and helping stop rising insurance rates. Report insurance fraud by calling the state’s Insurance Fraud Hotline at (800) 378-0445 or submitting your report online at www.fraudfreeflorida.com. You may even be eligible for up to $25,000 in fraud fighter rewards.
At Edison Insurance Company, providing you and your family the protection you need against adverse events is what we do. By identifying and reporting insurance fraud, you can help us continue to provide this protection at a reasonable cost.