Insurance Fraud and Its Effects on the American Consumer

When a person commits any type of insurance fraud, the consumer is the one who pays the ultimate price for that fraud. Many believe that no one is directly affected by a one-time padding from a personal insurance claim, or even submitting a false or inflated invoice in an effort to boost profits. However, when the insurance company has to pay for those claims, it is the policyholders who are the ones to pay for the inflated prices.

As expenses for the insurance company rise, so do the policyholder's premiums. The Insurance Information Institute (III) estimates that $30 billion per year are a result of fraudulent insurance claims. Because insurance companies must make money in order to stay in business these fraudulent costs are passed on to the consumers and the loss is absorbed through increased premiums.

In addition to the loss caused by the fraudulent claims, insurance companies have other related costs to combat these fraudulent claims. When a claim is flagged as fraudulent, a team of investigators and attorneys must be hired in order to identify and fight the claim. So, in addition to the premium increase due to the loss, the policyholder must pay more fees so the insurance company can investigate and pursue legal action to fight against the fraudulent claims.

The average American holds various policies of insurance. Most have auto insurance, homeowners insurance, medical insurance, life insurance, workman's compensation insurance and a variety of other insurance policies. When examining all these different policies an individual pays hefty annual costs each year for each individual policy they own. And if the individual needs to make a legitimate claim with their insurance company, the premiums they pay are usually quite high. When an individual considers that the reasons for these increased costs are primarily fraudulent claims, the problem of these misleaders who commit these acts becomes quite relevant in their personal lives.

The temptation to commit this fraudulent act is quite understandable. After paying years of insurance and thousands of dollars you always hope that you will never have to collect from the insurance company. After all, collecting would mean that you encountered some sort of misfortune in your life. Then when someone does find themselves needing to collect from the insurance company, many see this as an opportunity to "get their money's worth" by inflating the losses. Others justify the fraudulent claims by stating the unfair practices and low settlement offers. However, if the fraudulent claims did not exist, then neither would the high premiums and low settlements.

Without a doubt, the system is not perfect. However, continuation of making fraudulent claims will only increase the consumer's prices while the insurance companies continue to scramble to investigate and fight these fraudulent claim holders.

References:

http://www.iii.org/media/facts/