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Secret ways insurance companies fight claims fraud
Insurance fraud is an $80-billion-a-year crime, costing the average American family about $950 annually in excess insurance premiums, according to the Coalition Against Insurance Fraud (CAIF).
Insurers are fighting back in a variety of ways to spot and reduce fraud. They want to make sure customers who come to them seeking insurance quotes don't end up making expensive and bogus claims. They also are keeping tabs on their own employees, as well as workers at companies they insure.
Some of their fraud-fighting tactics are subtle. Here are six "secret" anti-fraud tactics that insurance companies use to stay ahead of insurance crooks.
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Cross-checks
"Insurers do thousands of cross-checks every day" in a bid to spot commonalities in the claims checks they issue, says Gary Buchanan, a vice president at AmWINS, an insurance brokerage firm. Insurers are looking for patterns, like the name of a person who has been issued checks multiple times or big insurance payouts going to the same address over and over. These are red flags for potential fraud.
Employee credit checks
Insurance firms conduct background checks on many prospective employees as a fraud precaution. If you have bad credit, you likely won't be hired as a claims adjuster because "a claims person is basically sitting there cutting checks all day long," Buchanan says. He adds that, from an insurer's perspective, someone with bad credit or financial problems is "more likely to have a reason to skim money."
And the problem isn't just with claims adjusters. Most insurance agents are honest, but the CAIF says a growing number of unethical agents are stealing consumers' car insurance or life insurance premiums and not buying the requested policies. That's yet another reason insurers run credit checks on job applicants.
No post office boxes
When insurance companies are underwriting policies for businesses, they're vigilant in their efforts to fend off fraud. For instance, with directors and officers liability insurance, many insurance companies will not allow post office boxes to be listed as addresses. The reason? According to Buchanan, many corporate executives have high-level access to important financial documents, including claims checks. A shady executive can set up arbitrary post office boxes for fraudulent purposes. A post office box could easily be used to receive insurance checks that should rightfully go to a corporation.
Requiring proof of business I.D.
Vendors who do business with insurance companies must have a valid street address, Buchanan says. Insurers also require government identification, such as an employer identification number (EIN) or a personal Social Security number. Gathering these forms of identification minimizes the risk of an insurer being conned by a temporary dummy corporation or a fly-by-night business.
Preferring the U.S. Postal Service
If a consumer files a big insurance claim, an insurer will mail a check through the U.S. Postal Service only -- particularly if the company smells something fishy.
"They won't hand you the check nor will they let you come into an office and pick it up," says Buchanan. The use of FedEx or UPS to overnight checks also is out of question. Why the U.S. mail only? If you use the U.S. Postal Service to commit insurance fraud you also could be charged with mail fraud.
Beefing up fraud investigation units
The average consumer knows that insurers employ many claims adjusters and insurance sales representatives. What most people don't know, however, is that insurers have tripled their anti-fraud spending in recent years. Most insurers have created special fraud-busting units, which are typically staffed by former detectives and police officers.
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