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Insurance fraud costs New Zealanders around 62 million per year. That equates to approximately $62 per household.
Insurance fraud is nothing new, but it is a serious problem. Both insurers and policyholders commit fraud and when discovered they are fined heavily and even imprisoned. If you are planning to take out an insurance policy, beware of the traps that might ensnare you and have you running for the assistance of an insurance fraud lawyer.
What is Insurance Fraud?
Insurance fraud is committed when an insurance company or insurance broker intentionally denies payment to a policyholder who is entitled to the compensation as stipulated in the person’s insurance policy. A policy holder (you) commits insurance fraud when inaccurate or misleading information is presented on an insurance claim.
Insurance fraud isn’t confined to a specific type of insurance. People commit car insurance fraud, health insurance fraud, medical insurance fraud, and many more types of fraud. Insurance companies hire insurance fraud investigators to help them uncover situations where fraud has or is currently taking place.
The Insurance Council of New Zealand keeps a register called the “Insurance claims register” (ICR). The insurance claims register allows insurance companies to check the accuracy of the data submitted with policy applications and insurance claims.
The insurance claims registers is like a giant database of all insurance claims logged with participating insurance companies. The Insurance Council of New Zealand is comprised of 20 member companies. These member companies account for 95% of New Zealand’s general insurance business. The member companies protect around half a trillion dollars in assets.
Participating insurance companies have access to the claims history of a client. This assists them when underwriting new business (evaluating the risk and price for the policy) and when processing claims. They do this for the specific purpose of checking for insurance fraud. This system works in a similar way to the credit reporting facility, Baycorp.
Some individuals have concerns around their privacy. Customers who object to this background check can always apply for insurance with companies not affiliated with the Insurance Council of New Zealand. Customers can also object to the information held on the Insurance Claims Register if the privacy disclosure was not on the renewal form or proposal. On the grounds of this objection, the company will not submit the information to the Insurance Claims Register.
Customers can obtain a copy of their information from the Insurance Claims Register and seek changes if warranted. Only authorized personnel from participating insurers have access to the information. Each insurer can access the Insurance Claims Register by using security passwords. Any access to information is registered and can be traced using electronic footprints.
Insurance fraud is also committed when an individual applying for insurance lies or withholds required information. Below are some basic examples of insurance fraud:
- Supplying false facts, incidents that never took place, or reporting incidents which were intentionally orchestrated
- Exaggerated claims or inflated values for lost or stolen articles
- A policyholder fails to disclose his full medical history when purchasing a health insurance policy
- A policyholder does not reveal previous rejections from other insurance companies
- A policyholder omits information of past criminal convictions
It is also insurance fraud if the non-disclosure of facts leads the insurance company to approve an application, which it would otherwise have rejected.
Key Facts You Need to Know About Insurance Fraud
- According to a survey on insurance fraud in 1998 conducted by the Insurance Council of New Zealand (ICNZ), insurance fraud is costing New Zealand households approximately $62 per year.
- 15-20% of all claims have an element of fraud. People frequently commit home and contents fraud, travel insurance fraud, car insurance fraud, and health insurance fraud.
- A 1996 survey on attitudes to insurance fraud commissioned by the Insurance Council of New Zealand showed four out of five policyholders had heard of cases of insurance fraud and one in five actually knew someone who submitted an exaggerated or false insurance claim.
- Seven out of ten policyholders understood the implications of fraudulent claims and 84 percent knew that honest policyholders are the hardest hit by insurance fraud.
- 95% of policyholders agreed that exaggerating an insurance claim represented fraud.
- 76% of policyholders interviewed supported the idea of publicizing the results of serious fraud cases.
Insurance fraud is committed by insurance providers as well. Heath insurance fraud and car insurance fraud is committed by healthcare and car maintenance service providers when astronomical bills are charged. If you suspect a service provider is inflating the repair or replacement costs, you should contact the Insurance Ombudsman or Insurance Council immediately.
Examples of Insurance Fraud
Here are several examples of the type of fraudulent claims insurance companies receive.
- Derek and Jodi faked Derek’s drowning to get $1,000,000 in life insurance cover. The scam was foiled by an insurance fraud investigator when it was discovered that Nicholson took out a life insurance policy just four days before the “fateful” incident. They were both convicted and were sentenced to five years imprisonment.
- John Magno of Toronto set his house on fire hoping to cash in on a $35,000 insurance policy. Fifty families had to be evacuated on Christmas morning of 2008. He is awaiting trial for arson and insurance fraud.
- John claimed damages to his ute claiming that he left it in a school parking lot overnight only to find extensive damage on the right side of his car when he returned in the morning. Insurance fraud investigations concluded that the damages were caused not by an impact but by repeated blows. His alibi didn’t stack up either. His insurance claim was declined and John now faces serious insurance fraud charges.
- A Nigerian national bought health and accident insurance before his trip to Nigeria. He filed two separate insurance claims. After the first claim was paid, the insurer was doubtful of the second claim because all details were identical. It was discovered after an insurance fraud investigation by an investigator that the policyholder never underwent any medical treatment. He was charged with insurance fraud.
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