Insurance fraud is an expensive
problem for us. Although it is often seen as something that only impacts the
insurance company, the truth is that it costs every driver. The consequences of
fraudulent insurance claims are far-reaching, and many people do not realize
that what seems like a small thing adds up to millions of wasted dollars and
higher rates for everyone. What is insurance fraud and how does it wind up
costing everyone? The truth might surprise you.
Clarifying
what Constitutes Fraud
One of the biggest problems with
insurance fraud is that many people do not even realize they’re committing it.
Some of the acts that are in fact fraud are seen as so minor no one realizes
that they can add up fast to a really big problem. False claims are not the
only thing that constitutes fraud.
Inflating an insurance claim is one
of the most common types of insurance fraud, and one that most people think is
not a big deal. After all, the claim itself is legitimate, so what’s the harm
in adding a few extra dollars on the top? If your house has been robbed,
increasing the value of your stolen electronic equipment a little probably
won’t impact the insurance company much – at least it wouldn’t if you were the
only person who did it. Inflated claims however can really add up and cost the
insurance companies large amounts of money – a cost that winds up being passed
on to their customers.
The purpose of insurance is to
restore you to where you were prior to whatever incident prompted the claim,
whether it’s a car accident, a theft, a fire or any other covered peril. Using
your insurance to actually improve your situation beyond that is fraud, plain
and simple.
Why
Insurance Fraud Hurts Everyone
Often a crime against a company is
seen as victimless, and there is a common belief that insurance companies have
so much money that they can take the hit and it won’t really hurt anyone. The
truth is that when you steal from an insurance company – and at its simplest
level, that’s precisely what insurance fraud is – you steal from all of the
people who purchase their insurance from that company.
Insurance companies determine their car insurance quotes rates or simply
car insurance rates based on a complex
system of risk analysis, and also on their history of claims payout. If they
find they are paying out much more on claims than they anticipated, there is
only one way to make up for that difference: they raise rates. Thus, if
fraudulent insurance claims increase the amount of money that an insurance
company has to pay out, it means that the company will have to use an overall
rate increase to stay in the black.
While things like tickets and
accidents only affect the rates of the driver whose record they are on,
insurance fraud has an impact on the rates of every driver insured by that
company. Simply put, the cost of insurance fraud is passed on to the company’s
customers. Which means it’s not just a crime against a company, but against
innocent customers as well.
The
Personal Consequences of Fraud
In addition to creating a major
problem that affects everyone, there are serious consequences for you if you
are found guilty of insurance fraud. Making a fraudulent claim is illegal, and
you could find yourself in court facing charges. Furthermore, it is a direct
violation of your insurance contract, which means that the insurance company
can cancel your policy and refuse you future coverage. And when you go looking
for coverage elsewhere, you will likely find that many car insurance companies
will deny you coverage with fraud on your record.
The severity of the consequences
will vary based on the situation, but whether the situation involves inflating
a claim or making an outright false claim legal action is likely. Jail time and
hefty fines are among the possible legal consequences.
Insurance fraud comes at a very high
cost to everyone. While it may seem harmless on the surface to benefit from an
insurance policy, the consequences in the long run are far more serious than
they appear. It is not a small problem, nor is it a problem that affects only
the insurance companies. Avoid being an unknowing accomplice to fraud by
following all of your insurance company’s guidelines when it comes to filing
and processing a claim. Stay alert and report any suspicious activity on the
part of the other driver when you are involved in an accident claim. If you
have knowledge of a fraudulent claim, report it. You will be protect from the
high cost of insurance fraud.
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