Abstract
Fraud is a crime committed against another party’s property, either directly or indirectly. Fraud cases are among the earliest reported crimes, which are the highest in commitment until today. The extent of fraud cases does not only lie in crossing over the property rights of that party, but also in deliberate deceitful acts. Insurance fraud, which is a form of white-collar crimes, raises eyebrows hence attracting researchers to this field, which is the inspiration behind the writing of this research paper. This research paper is partition into four sections; the background of insurance fraud, the causes of these frauds, schemes in which insurance fraud takes place, and lastly is how the frauds are detected and mitigated.
Introduction
The impact fraud has on society as a whole is far-reaching (Smith, Button, Johnston & Frimpong, 2011, p. 2). The aggregate cases on insurance fraud are escalating every dawn, placing it amongst top white-collar crimes. The breaching of contract, originally put in place to secure an insured against risks, damages, or losses, in trust to an insurer, is what necessitates insurance fraud (Clarke, 1989 p. 3). The information insurance institute defines insurance fraud as the intentional deceit by an agent or insurance for purposes of financial gain. The cases are so high in developing countries, in comparison to developed countries. The execution of insurance fraud takes mainly two dimensions; when the insurance is breached to obtain insurance, or when the insured deliberately causes damage to obtain insurance (Nikoloska, 1857 p. 159) and are classified as either external, internal and hard or soft (Akomea-Frimpong, 2016 p. 11). Also, the fraud may be said to have taken place when it occurs alongside the two dimensions stated above (Nikoloska, 1857 p. 159). Insurance fraud may cause loss of property, endangerment of health, costly premiums, high cost of goods and services, loss of employment, and even loss of life. This insurance fraud paper intensively examines the causes, execution, effects of insurance fraud, and how these cases are mitigated.
Causes of insurance frauds
A majority of the cases resulting in insurance fraud result from an individual’s behaviors as well as from laxities from related institutions (Goel, 2014 p. 241). In such, fraud arises on instances such as when confronted with a challenge, and they don’t want to share it among their circle of friends because of fear of shame, and such is referred to as ‘non-sharable problem.’ Other factors such as stress and level of self-esteem may push an individual to be in the field of ‘non-sharable’ problem. Another reason for a cause for one to involve in insurance fraud is pressure. Pressure, otherwise also referred to as motivation, pushes one to engage in insurance fraud to fill the void that comes with pressure, and in such a case, the person has to deal with it for cognitive satisfaction. Rationalization is another aspect of behaviour that as well motivates on to engage in fraud. All three together form the fraud triangle (Akomea-Frimpong, 2016, p. 22).
Also, the opportunity to commit fraud is another cause of insurance fraud. The perpetrators for these opportunities may be due to loose policies that make way for insurance fraud or indiscipline among perpetrators who seek to make use of these opportunities. Within finance sectors, this is a significant problem arising from loose controls. It is so unfortunate that these frauds continue taking place despite internal audit departments that are put in place in financial institutions to handle integrity in values. Thus, it is appropriate to conclude that many of these cases are due to poor risk management controls formulated within institutions. Also, some of these frauds take place following ignorance from management, and from that, the institutions have had to pay dearly for these ignorances. Studies show that the perpetrators are often afraid of the aftermath, but due to the untamed desires to fulfill their motives, they always go forward to commit them. Only the sanctions that are put in place may bar them from executing their motives (Akomea-Frimpong, 2016 p. 26)
In light of pressure as a driving force, insurance industries to commit fraud are to doubtfulness of the indirect costs. There is stiff competition among insurance companies over who will provide better non-life insurance premiums over the others. Thus at the same time, there are messages of doubtful claims sent to the public, especially by brokers who advise customers why not to use a specific insurance company due to the difficulties and irritations arising from their services. Therefore, most of these insurance companies opt to focus on survival rather than profitability, and in due course, they end up forced to indulge in fraudulent activities. When the markets seem to soar, more customers are lured into their services, and this forces the companies to cut down their rates that consequently lead to massive losses. As a cover-up, manipulations of numbers have to take place to replace the damages, and that is how a company ends up engaging in these insurance fraud crimes (Clarke, 1989 p. 5).
Schemes in insurance fraud.
The discussions around the threshold to declare a crime as insurance fraud is unsettled (Clarke, 1989 p.10), yet some measurements have already been put in place to categorize a crime as fraud (Derrig, 2002 p. 274). With companies lacking efficient records of doubtful management, it is difficult for such companies to make claims. Therefore, poor records have resulted in a majority of these cases unattended. Most fraudulent cases are recognised in the early months of the first year of policymaking, and these are the period the insurance institutions should be keen on keeping and analysing their records. The primary schemes in insurance where fraud case are so high are fire, households, automobile (Clarke, 1989 p.10; Goel, 2014, p.241; Whitaker, 2019 p.2) and fire (Clarke, 1989 p.10; Whitaker, 2019 p.2), travel and commercial industries (Clarke, 1989 p.10; Whitaker, 2019 p.2) occurring across various schemes which I discuss in the next few paragraphs below. The schemes are broadly put under four categories; premium schemes that involve the deliberate misinterpretation of information by the employer to lower premiums for compensation, agent fraud committed by an agent who fails to forward records of a client who obtained the service from them, claimant fraud that involves fabricating an injury and organized fraud that mainly occur on an automobile and medical cases for financial compensation of false claims (Whitaker, 2019 p. 7).
Automobile
For the reported claims, fraud within the automobile sector accounts for about 17 % (Insurance Information Institute, 2020). This follows the little inconsistent profits the automobile insurance makes annually, forcing them to indulge in the dark economy (Clarke, 1989 p. 11). Ditching is very prominent and involves giving out the vehicle to offset another loan or fulfill an insurance policy. Often the owner abandons the vehicle without notice of the insurance company hoping another person will acquire it wholly or partially by extracting the parts of the car. The owner of the vehicle then reports the case to the company who have to cover for that (Whitaker, 2019 p. 4-5). Another common one is past posting where an individual without insurance seeks for insurance after involvement in an accident and later uses that opportunity to obtain insurance to recover their vehicle. Fraud may also appear in vehicle repair where old parts are billed out after replacement with new components, and often takes place between the insured and the repairing agency (Whitaker, 2019 p.5; Clarke, 1989 p.11). Also, inflating damages for insurance (Insurance Information Institute, 2020; (Whitaker, 2019 p.5) are typical where costs are increased to substitute for deductibles, often an agreement between an insured and the repair shop (Whitaker, 2019 p.5; Clarke, 1989 p.11). Other insurance frauds within the motor sector are phantom vehicles, staged accidents, and switching of vehicle number plates to hoard money (Whitaker, 2019 p.5).
Property insurance fraud
A majority of crimes under the property are related to burglary and damages. The frauds range from signing for insurance for inexistent properties or inflating the insurance cist for those properties. The common one in this section is increased inventory where a non-existent property is claimed for coverage, giving a reason for fire damage. Here what is true is that the property claimed lost may never have been inexistent, or the property was lost. Thus, fraudulent activities take place to gain insurance deceitfully. Phony thefts are another one where insured files claims for lost burglarized property, such as home or car, to regain the money that was lost during the incident. Sometimes, the properties may never have been in existence, or the property was sold, as cases in inflated inventory. Paper boats also dominate the property insurance schemes, such that a claim is filed for a boat that sank, which in reality, the boat never existed. As for this case, it becomes difficult to investigate the truth because investigation may even be much costly.
There is also a case where a fire is set deliberately to bring down a building or blaze a property to obtain money falsely (Whitaker, 2019 p. 5-6).
The last and amongst the typical insurance fraud schemes is in life insurance. Health insurance appears at the top in this category. As medical practitioners, it is expected of them to bind by the highest status of integrity, which they fail incredibly. In such, the practitioners may be involved in false billing or inflating of treating cost to gain extra pennies. Also, some have been found as an accomplice in arranged accidents. Compensation of workers is another area where fraud takes place. In schemes involving the benefit of workers, insurance is forged as a claim for compensation of a worker who was injured or involved in an accident during the working period. In schemes involving profits following murders, the people required deliberately commit murder or plan for the murder of a person for them to acquire profit from the insurance. Many a time, the murder cases are made to appear real as per the stipulations of the policies. Lastly, is the case where death certificates are forged in return for life insurance reimbursement. This is notoriously common as forging, and obtaining a death certificate is very easy. As insurance institutions are not into making such investigations, then a lot of frauds are committed through this channel (Whitaker, 2019 p. 6)
Detecting and mitigating insurance frauds
Adjusters take the role of detecting frauds that arise from any suspicious activities by either the insurer or the insured. One of the prettiest ways to detect fraud is how the case is reported (Whitaker, 2019, p. 8; Clarke, 1989, p.15). Most fraud cases are reported after a short period, usually about six months after signing the policy. Often, peculiarities arise in the way the lawsuits are filed or the explanations are given, resulting in the loss. Mostly, such frauds will be detected as the insured is new to the sector and is unaware of how such cases are handled (Clarke, 1989 p.15). Also, the criminal may file more than one policy a little time after the inception of the first policy regarding loss or damage to individual property (Whitaker, 2019 p. 8). Another red flag is when a fraudster seeks quick settlement for the damages without seeking how long the procedures may take more, especially in poorly documented procedures. In detecting fraud in burglary, the vast property is usually filed, which may cause the adjusters to begin doubting. In losses due to fire or theft, the insured files for very high-end properties claiming they were costly. Sometimes, doubts may arise on the detection of perfection in filing cases such as a copy of receipts and passports. For death cases, the fraudster files of death having taken place outside the country, because such an investigation may never take place as they are costly. To some extent, the witness to the cases is not willing to comply to be interviewed as witnesses (Whitaker, 2019 p. 10-11).
The good news is that there are formulated means that have been put in place to mitigate insurance fraud. The most employed means is setting a strict warning against deception. The driving force behind the mandatory warnings is to shape peoples’ behaviors. Given that different people will react differently to these warnings, then making the warnings crystal clear will prevent the people from ignorance. The states in Columbia have set an exemplary example in how they have stipulated their warnings against insurance fraud crimes (Parker, 2019 298-299). There is also improvement in information intelligence in recent years, which has helped resolve fraud cases. The capabilities of the new technology have enhanced detection and investigation tools that quickly detect doubts on fraud. It easily identifies gaps and causes the investigation teams to make a follow-up. However, this can only work on the detection program that is set to work as per the policies of the company (Whitaker, 2019 p.23, 25). In this way, people become aware that their activities will be noticed and hence take an alert not to be caught or refrain from engaging in fraudulent activities.
Summative, insurance fraud is one of the highest committed crimes among white-collar crime cases. Usually, insurance fraud is committed by the insurer, insured, or a third-wheel party. Life insurance, property, and automobile schemes are the prominent areas under which fraudsters take an opportunity to commit the crimes. Under a majority of these schemes, fire is the common ground that many fraudsters take to a pillar in filling their cases. The effects are adverse just from analyzing how fraudsters commit the crimes in those schemes. There is limelight as there are stipulations that signal a red flag for these fraudulent activities. Also, there is an advantage that there are steps that have already been put in place to curb against these criminal activities. However, the detecting capabilities are too shallow and need improvement to do away with insurance frauds.`