Insurance fraud

A basic overview

More than 7,000 insurance companies collect more than $1 trillion annually in premiums. Thus, insurance fraud is greatly influenced by the extensive industry's size, which provides more opportunities and more significant incentives to commit illegal activities.

Fraud Costs

Insurance fraud (non-health insurance) costs more than $40 billion annually. This means that Insurance Fraud costs an average American family $400 to $700 annually in the form of premium increases.

Common Schemes

Premium Diversion

• Premium diversion refers to the embezzlement or revocation of insurance premiums.
• This is the most prevalent type of insurance fraud.
• In general, insurance agents don't send premiums to underwriters and instead keep the money for their use.
• Another scheme that involves premium diversion is selling insurance without a license, collecting premiums, and then not paying claims.

Fee Churning

• Fee churning is a process where several intermediaries receive commissions from reinsurance agreements.
• Repeated commissions reduce the initial premium until there is no money to pay claims.
• The business that is left to pay the claims often comes from a company the conspirators set up to fail.
• Each transaction is legitimate if it is viewed in isolation. Fraud can only emerge when the cumulative effect of all trades is considered.

Asset Diversion

• Asset diversion refers to the theft of assets from insurance companies.
• This happens almost exclusively when an insurance company is acquired or merged.
• Asset diversion is often used to acquire control of an insurance company using borrowed funds. The subject then uses the assets of the acquired business to pay the debt. The issue can then use the assets remaining to pay off the debt.

Fraud in Workers' Compensation

• Some entities claim to offer workers' compensation insurance at a lower cost, but they misappropriate premium funds and never provide insurance.

Disaster Fraud Schemes

• Policyholders may make exaggerated or false claims.
• Flood damage misclassified as wind, fire, or theft.
• Individuals who live hundreds of miles from the disaster zone can file claims.
• Contractor bid-rigging, which falsely inflates the cost of repairs
• Contractors that require upfront payments for services and then fail to complete the agreed-upon repairs.
• Fraudulent charity schemes to misappropriate funds for disaster relief.

The Government Response

• The Attorney General created the Hurricane Katrina Fraud Task Force on September 8, 2005.
• The HKTF was designed to investigate, prosecute, and deter federal crimes related to disasters.
• The F.B.I. received over 70 indictments and more than 60 guilty pleas in one Katrina fraud case (as of March 2007).

Insurance Fraud Resources

Contact the following organizations for more information on Insurance Fraud and where to report it.

Fraud Bureaus

Most states have one. Reporting a scam could be eligible for a reward.

Insurance Companies

You can directly contact the insurance company if you suspect that they are being defrauded. Some companies have fraud reporting systems. If your company does not have a fraud hotline or reporting system, you can call the headquarters.

National Insurance Crime Bureau (NICB).

(800) 835 6422

Coalition Against Insurance Fraud

www.insurancefraud.org

The CAIF is a coalition of public interest organizations, consumer groups, government agencies, and insurers to prevent insurance fraud. The CAIF website provides a wealth of information for consumers.

National Association of Insurance Commissioners

www.naic.org

The NAIC supports state insurance regulators in serving the public interest and achieving regulatory goals. The NAIC website contains many fraud resources.

Individuals are encouraged to report Insurance fraud to their local F.B.I. Office.

This includes workers' compensation fraud and life insurance fraud. Health Care Insurance is the most prevalent form of insurance fraud. This fraud can be committed by both the patient and the healthcare provider.

California's state law has many provisions that target people who use deceptive or fraudulent practices to insurance policies or claims. These include health insurance fraud and dental insurance fraud. In addition, worker's compensation fraud is also a standard offense.

However, a substantial portion of the insurance industry engages in activities that affect and concern interstate commerce. The United States federal law contains provisions that criminalize interstate fraud and deceit.

For substantially the same conduct, Federal law provides more severe penalties than California law.

Our federal criminal defense lawyers have provided a brief review to help readers better understand insurance fraud laws.

18 U.S.C. 18 U.S.C. Section 1033, Subsection (a) provides that anyone involved in the insurance industry and engaging in activities that affect interstate commerce is guilty of a federal crime.

It must be proved that they made a material false report or statement or willfully and materially exaggerated any land, property, or financial instrument in certain circumstances. This includes financial reports that are presented to regulatory agencies or offices to influence government action.

This section is directed more at insurance companies than individuals. It penalizes overvaluation with deceptive intent or fraudulent intent of insured land and property primarily.

The false statements must be material. They must relate to important facts that could impact the outcome of an insurance case. The messages must be sent to an insurance regulator official or their appointee to influence an individual's actions.

Violations of this Subsection can result in harsh penalties, including up to 10 years imprisonment in federal prison.

This fraud offence can result in a maximum sentence of 15 years.

Insurance Companies Employees are at Risk of Fraud

Section 1033 subsection (b) states that anyone who is an officer or director, agent, employee, or officer of an insurance company and is again engaged in interstate commerce so that the federal government can have jurisdiction over it and embezzles or steals any money or property of the company is guilty a federal crime.

This Section 1033 violation carries a maximum penalty of 10 years in federal jail. However, an enhancement is available under Subsection (b), which increases the maximum penalty to 15 years if the defendant's conduct puts the viability or causes it to be subjected to mandatory court supervision, such as receivership.

Federal crime: Anyone involved in interstate insurance commerce and who enters false material facts into any logbook or report with the intent of deceiving anyone, not just regulators, about the financial situation of an insurance company's financial condition is guilty under Subsection (c). Section 1033.

This subdivision allows for a maximum penalty of 10 years. However, if the false statement causes severe damage to an insurance company, it can be increased to 15 years.

Federal crimes include threats and force, verbal or written, intended to influence or obstruct insurance business illegally.

This section is located in Subsection (d), Section 1033. It is punishable with a maximum of 10 years in federal prison.

Penalties for 18 U.S.C. SS 1033 with Prior Conviction

Subsection (e), which also applies to insurance workers, makes it a crime for them to allow a prohibited person to work in their business. They face the same maximum penalty.

However, Subsection (e) allows a person who has been convicted and is prohibited from working in the insurance industry to apply for permission from an insurance regulator.

Fighting 18 U.S.C. SS 1033 Insurance Fraud Accusations

Federal prosecutors consider insurance fraud a serious crime. 

Federal Insurance fraud cases can be complex. They involve alleged illegal activities as well as state and federal laws and multiple federal agencies.

Federal law criminalizes insurance fraud. If convicted, it can lead to decades in federal prison and stiff fines.

For a free consultation, contact our team of criminal defense lawyers if you or someone in your family works in the insurance sector.

We do a lot of federal prefiling intervention as well as federal jury trial work. Our experience and expertise will be used to help you find the best resolution for your case.