INSURANCE FRAUD

Question 1

Cash, Loan, and Dividend Cheques

Answer 1

company employee, without the knowledge of an insured or contract holder, requests
cash, a loan, or a dividend cheque, and either deposits the cheque into his bank account or
into a fictitious account. The employee, in order to minimise his chances of being detected
committing a fraudulent act, may change the company policyholder’s address of record to
either his address or a fictitious address. Once the cheque is issued, the address is then
changed back to the previous address.

Question 2

Settlement Cheques

Answer 2

Company employees can misdirect settlement cheques such as Matured Endowment, Paid
Up, etc., to the branch office, to their homes, or to fictitious addresses. The employee can
easily create a cheque defalcation by changing the address of record prior to the settlement
cheque issue date, thus misdirecting the cheque in question. Also, periodically an orphan
contract holder might be transferred to his agency affording the opportunity to improperly
request the issuance of a settlement cheque.

Question 3

An orphan contract holder is

Answer 3

a policyholder or contract holder who has not been assigned to a servicing agent or the whereabouts of this individual is unknown.

Question 4

Premium Fraud

Answer 4

An agent collects the premium, but doesn’t remit the cheque to the insurance company. The
insured has no coverage.

Question 5

Fictitious Payees

Answer 5

An agent or a clerk can change the beneficiary of record to a fictitious person and subsequently submit the necessary papers to authorise the issuance of a cheque.

Question 6

Fictitious Death Claims

Answer 6

An agent or employee obtains a fictitious death certificate and requests that a death claim
cheque be issued. The agent receives the cheque and cashes it.

The sales representative can also write a fictitious application and, after the contestable
period (two years), submit a phoney death claim form and obtain the proceeds. The agent,
by investing a couple of thousand dollars, can receive $50,000 or more in misappropriated
claims.

Question 7

Underwriting Irregularities Misrepresentation

Answer 7

Misrepresentation may occur if a sales representative makes a false statement with the intent to deceive the prospective insureds in order to knowingly obtain an unlawful gain.

Question 8

Underwriting Irregularities False Information

Answer 8

A company employee may submit the following false information to obtain unlawful
financial gain:
• Improper medical information to obtain a better insurable rate for the prospective
policyholder (for example, standard to preferred rate).
• Improper date of birth to obtain a cheaper premium on the new policy.
• Improper home address to obtain a cheaper premium for home or automobile
insurance.
• Improper driving history prior to purchasing automobile insurance to reduce the annual
premium or obtain insurance where normally the individual would have to apply through
the risk pool.

Question 9

Underwriting Irregularities Fictitious Policies

Answer 9

A salesman, in order to keep his position, submits fictitious policies to improve his writing
record. Also prior to an individual leaving the company he writes fictitious policies called
tombstone cases to improve his commission pool so that his compensation will be greater.
Tombstone means an agent literally takes names from tombstones in a cemetery and writes
new policies.

Question 10

Underwriting Irregularities Surety and Performance Bond Schemes

Answer 10

Surety and performance bonds guarantee that certain events will or will not occur. An agent
issues worthless bonds to the insured for high-risk coverage in hopes that a claim is never
made. If a claim is made, the agent may pay it off from agency funds, delay the payment, or
skip town.

Question 11

Underwriting Irregularities Sliding

Answer 11

Sliding is the term used for including additional coverages in the insurance policy without the
knowledge of the insured. The extra charges are hidden in the total premium and since the insured is unaware of the coverage, few claims are ever filed. For example, motor club memberships, accidental death, and travel accident coverages can usually be slipped into the policy without the knowledge of the insured.

Question 12

Underwriting Irregularities Twisting

Answer 12

Twisting is the replacement, usually by high-pressure sales techniques, of existing policies for
new ones. The primary reason, of course, is for the agent to profit since first year sales commissions are much higher than commissions for existing policies.

Question 13

Underwriting Irregularities Churning

Answer 13

Churning occurs when agents falsely tell customers that they can buy additional insurance for
nothing by using built-up value in their current policies. In reality, the cost of the new
policies frequently exceeds the value of the old ones

Question 14

Vehicle Insurance Schemes Ditching

Answer 14

Ditching, also known as owner give-ups, is getting rid of a vehicle to cash in on an insurance
policy or to settle an outstanding loan. The vehicle is normally expensive and purchased with a small down payment. The vehicle is reported stolen, although in some cases, the owner just
abandons the vehicle hoping that it is stolen, stripped for parts, or taken to a pound and
destroyed. The scheme sometimes involves homeowner’s insurance for the property that
was “stolen” in the vehicle.

Question 15

Vehicle Insurance Schemes Past Posting

Answer 15

Past posting is a scheme in which a person becomes involved in an automobile accident, but
does not have insurance. The person gets insurance, waits a little bit of time, and then
reports the vehicle as being in an accident, thus collecting for the damages.

Question 16

Vehicle Insurance Schemes Vehicle Repair

Answer 16

This scheme involves the billing of new parts on a vehicle when used parts were actually
replaced in the vehicle. Sometimes this involves collusion between the adjuster and the body
repair shop.

Question 17

Vehicle Insurance Schemes Vehicle Smuggling

Answer 17

This is a scheme that involves the purchase of a new vehicle with maximum financing. A
counterfeit certificate of the vehicle’s title is made showing that it is free and clear. The vehicle is insured to the maximum, with minimum deductible theft coverage. It is then shipped to a foreign port and reported stolen. The car is sold at its new location and insurance is also collected for the “theft.”

Question 18

Vehicle Insurance Schemes Phantom Vehicles

Answer 18

The certificate of title is a document that shows the legal ownership of a vehicle. Even though it is not absolute proof that a vehicle exists, it is the basis for the issuance of insurance policies. Collecting on a phantom vehicle has been shown to be easy to do.

Question 19

Vehicle Insurance Schemes Staged Accidents

Answer 19

Staged accidents are schemes in which an accident is predetermined to occur on a vehicle.
The schemes are organised by rings and the culprits move from one area to another. They
often use the same vehicle over and over, which sometimes causes their scheme to be
uncovered.

Question 20

Vehicle Insurance Schemes Two Vehicle Accident

Answer 20

Perpetrators cause an accident and then lead the innocent driver to believe it’s his fault.

Question 21

Vehicle Insurance Schemes Three or More Vehicle Accident

Answer 21

Perpetrators set up an accident in which all the drivers are involved.

Question 22

Vehicle Insurance Schemes Other Staged Accidents

Answer 22

Two drivers purposely collide where they will not be observed. Additional damage may be
added to the vehicles after impact. The cars are driven to a road or highway and arranged so
that the accident appears to have occurred there. The police are then notified.

Question 23

Vehicle Insurance Schemes SWOOP AND SQUAT

Answer 23

A victim of this scheme finds himself passed by two cars while driving. The car in the lead
cuts in front of the second, forcing it to stop abruptly. The victim rear-ends the second car
while the other driver speeds away. Victims often accept responsibility for the accident,
thinking it their fault for not paying attention. The rear-ended vehicle usually contains the
maximum amount of passengers, all with injuries.

Question 24

Vehicle Insurance Schemes Inflated Damages

Answer 24

The business environment and the competition for work in the automobile repair industry
have created a scheme where some establishments inflate the estimated cost to cover the
deductible. The insured is advised by the repair shop that the shop will accept whatever the
company authorises.

Question 25

Vehicle Insurance Schemes Vehicle Identification Number (VIN) Switch

Answer 25

VIN-switch fraud schemes are the work of professionals in which a wrecked vehicle is
reported as repaired and subsequently sold. The vehicle is not repaired, but the VIN plate is
switched with a stolen vehicle of the same make and model.

Question 26

Vehicle Insurance Schemes Rental Car Fraud

Answer 26

A person doesn’t need to own a vehicle to incur automobile fraud. There are several
schemes that can be perpetrated using rental cars. The most prevalent involve property
damage, bodily injury, and export fraud.

Question 27

Property Schemes Inflated Inventory

Answer 27

Property that is lost through fire is claimed on an insurance form. However, property that
does not exist also finds its way onto an inventory of the property claimed. Property claimed
may have been previously sold or never owned by the claimant.

Question 28

Property Schemes Phoney or Inflated Thefts

Answer 28

A home or car that has been burglarised is the basis for filing a claim for recoveries of
monies lost. However, as with items “destroyed” by fire above, the items never existed or
were previously sold.

Question 29

Property Schemes Paper Boats

Answer 29

A claim is filed for a boat that sank, but actually never existed. It is not difficult to register a
boat that is based on a bill of sale. After a period of time, a loss is claimed for the sinking of
the boat. It is difficult to prove that the boat didn’t exist or wasn’t sunk intentionally.

Question 30

Life Insurance Schemes Fraudulent Death Claims

Answer 30

To obtain reimbursement for life insurance, a death certificate is required. However, phoney
death certificates are not that difficult to obtain. The person might be very much alive and
missing, or the person might be dead, and the death is past posted. With small settlements,
death claims are not closely scrutinised and are paid relatively easily.

Question 31

Life Insurance Schemes Murder for Profit

Answer 31

A murder for profit scheme involves the killing (or arranging for the killing) of a person in order to collect the insurance. The death might be made to look like it was an accident or a random killing.

Question 32

Liability Schemes

Answer 32

n a liability scheme the claimant claims an injury that did not occur. The slip-and-fall scam is the most common, where a person claims to fall as the result of negligence on behalf of the insured

Question 33

“Red Flags” of Insurance Fraud. Insured

Answer 33

• The claim is made a short time after inception of the policy, or after an increase or change in the coverage under which the claim is made. This could include the purchase of a scheduled property or jewellery floater policy, or more than one during the time before the loss.
• The insured has a history of many insurance claims and losses.
• The insured earlier asked his insurance agent hypothetical questions about coverage in the event of a loss similar to the actual claim.
• The insured is very pushy and insistent about a fast settlement, and exhibits more than the usual amount of knowledge about insurance coverage and claims procedures, particularly if the claim is not well documented.
• Pressure for speed of handling—claimant wants to stop by the office to pick up his cheque “as we’re leaving for vacation in the morning.”

Question 34

“Red Flags” of Insurance Fraud Property&Documentation

Answer 34

• In a burglary loss, the claim includes large, bulky property, which is unusual for a
burglary.
• In a theft or fire loss claim, the claim includes a lot of recently purchased, expensive
property, or the insured insists that everything was the best or the most expensive
model, especially if the insured cannot provide receipts, owner’s manuals, or other
documentary proof of purchase.
• In a fire loss claim, property that would be personal or sentimental to the insured and
that you would expect to see among the lost property—photographs, family heirlooms,
or pets—is conspicuous by its absence.
• A large amount of the property was purchased at garage and yard sales and flea markets,
or otherwise for cash, and there are no receipts (the insured will usually be unable to
recall exactly where these sales took place or by whom).
• The insured cannot remember, or does not know, where he acquired the claimed
property, especially unusual items, and/or he cannot provide adequate descriptions.
• On the other hand, the insured already has receipts and other documentation, witnesses,
and duplicate photographs for everything; the claim is too perfect.
• Documentation provided by the insured is irregular or questionable, such as:
− Numbered receipts are from the same store and dated differently or sequentially.
− Documents show signs of alteration such as dates, descriptions, or amounts.
− Photocopies of documents are provided, and the insured cannot produce the
originals.
− Similar handwriting or signatures—or the insured’s apparent handwriting—appears
on different receipts, invoices, gift verifications, appraisals, etc.
− The amount of tax is wrong, either for the price of the property or for the date
appearing on the receipt.
− Receipts, invoices, or shipping documents do not have “paid,” “received,” or other
shipping stamps.
− In a theft or loss away from home, the insured waits an unusually long time before
reporting the theft to the police.
− The insured is able to give the police a complete list of lost property on the day of
the burglary or shortly after.
− The amount of the claim differs from the value given by the insured to the police.
− In a business inventory or income loss claim, the insured does not keep complete
books, or the books do not follow accepted accounting principles.
− The physical evidence is inconsistent with the loss claimed by the insured.
− In a burglary loss, there is no physical evidence of breaking and entering, or a
burglary could not have occurred unnoticed under the circumstances.
− In a fire loss:
∗ The apparent cause and origin of the fire is inconsistent with an accidental cause
and origin, or there is evidence of the use of an accelerant.
∗ The remains of the property do not match the claimed property.
− The premises do not show signs of having contained the claimed property, or the
amount of property will not fit into the space where the insured says it was
− Physical damage to the insured’s car is inconsistent with its having been in a collision
with an uninsured car
The insured has discarded the claimed damaged property before the adjuster can
examine it.
The cost of the claimed property, over the period of time it was allegedly acquired,
seems to exceed the insured’s financial ability to purchase it.
The insured refuses or is unable to answer routine questions.
The insured provides supporting evidence and documentation that cannot be
corroborated.

Question 35

“Red Flags” of Insurance Fraud Life Insurance

Answer 35

• Information on a life insurance application is very vague or ambiguous as to the details
of health history: dates, places of treatment, names of physicians or hospitals, or specific
diagnosis.
• Applicant fails to sign and date the application.
• Pertinent questions on the application are not answered, such as income, other insurance
carried, hazardous duties, or aviation or flying activity.
• The insured has “excess insurance,” either shown at the time of application or developed through an underwriting report of database information.
through an underwriting report of database information.
• Earned income does not warrant the amount of insurance being applied for.
• The applicant’s date of birth as shown on the application is much earlier than shown
with other carriers or in previous applications or policies.
• The agent is putting on a great deal of pressure to have the policy issued because of the
large amount applied for, but is going over the underwriter’s head in order to do so
(working out of the system).
• The physician’s report is very vague on details of past medical history and does not
coincide with the information shown on the application.
• A death claim is presented in which the death has taken place outside of the country.
• The signature on the application for insurance does not appear to be the same signature
as shown on an authorisation at the time of the claim.
• A claimant or claimant’s attorney attempts to limit the type of information to be related
by a signed authorisation, which is a standard authorisation used by the company.
• An attorney is immediately brought into a contestable death claim, attempting to
interfere with the investigation and to withhold information required by the company.
• A contestable death claim that is reported as an accidental death could possibly be a
suicide (fatal accident involving only one vehicle, a hunting accident, an accidental
shooting while cleaning a weapon or repairing same, etc.).
• An autopsy report discloses a different height and weight than what is shown on the
recent application (auto or house fire death). Dental records do not coincide with those
dental findings as shown by an autopsy report.
• Records are missing on a patient who was confined to a hospital, or records are missing
on a patient from a physician’s office.
• The death claim package sent to the insurance company is too well packaged and
complete in every detail with supportive documents. Documentation that was not
initially requested or required by the insurance company was voluntarily sent, such as
newspaper reports, burial certificates, or reports on the shipment of the body from one
country to the home country.
• The routine audit of a designated insured group shows a significant increase of added
employees whose names do not show up on the payroll.
• Gunshot wounds or stabbings were inflicted by the insured as the aggressor or were self-
inflicted.
• Police accident reports were submitted by the claimant.

Question 36

“Red Flags” of Insurance Fraud

Answer 36

A series of prescription numbers from the same drug store don’t coincide
chronologically with the dates of the prescriptions.
• An automobile fire occurred in a very remote rural area with no witness, but the driver
claims an electrical shortage in the engine compartment caused the entire car to be
gutted by flames.
• Preliminary information for a business fire loss or home fire loss indicates considerable
financial difficulties and financial pressures being brought upon the owner, and the fire is
suspicious in nature and/or origin.
• An employee within the claims operations of an insurance company is known to have a
drinking problem, drug problem, financial pressures, or is having serious marital
difficulties or having an affair, and irregularities start to appear.
• On burglary losses from a business or especially a home, the investigator observes that
the remaining contents at the scene are of much inferior quality than that which is being
reported stolen. There is no indication of indentation in the piling of the carpet where
heavy items of furniture or equipment were to have been placed. There are no hooks or
nails on the walls where valuable pictures might have been hung. Entrances or exits are
too small to take a large item through without laboriously disassembling it.
• Any information on a claim that has been filed if it is determined that there is deliberate
cover-up or false statements contained therein.
• A disability income protection claim is filed and it is determined that the claimant had
recently purchased numerous expensive items on credit and had them all covered by
credit A&H insurance coverage.
• Public transportation accidents in which there are more passenger claims filed than there
were passengers at the time of the accident.
• A witness to an accident or incident deliberately tries to hide from investigators rather
than come forth and tell the truth.
• An official document of findings is in complete conflict with the facts in the case and
there is no explanation for this conflict of facts. Photographs or other documents do not
substantiate the reported findings.

Question 37

Computer-Generated Detection Reports

Answer 37

Address Similarity Report
Address similarity reports electronically compare multiple cheques going to the same address. They are extremely useful because they may show a cheque defalcation or funds going to another insurance company, broker, or fictitious payee.

Electronic Confirmations
Confirmations for mailed disbursements in force or lapsed premiums, change of address, etc., can verify that company records agree with policyholder records.

Exception or Manual Override Reports
Computerised reports can be produced that list all exceptions to normal electronic processing. All human intervention can appear on a periodic management information report and can be test-checked by management. It is imperative that management review on an ongoing basis all exception reports for possible frauds

Question 38

Workers’ Compensation Fraud

Answer 38

premium fraud, agent fraud, claimant fraud, and organised fraud schemes.

Question 39

Premium fraud consists of

Answer 39

misrepresenting information to the insurer by employers to lower the cost of workers’ compensation premiums:
EMPLOYEE CLASSIFICATION
UNDERSTATEMENT OF PAYROLL
GEOGRAPHIC LOCATION OF THE INSURED’S OPERATION
HISTORY OF PAST LOSSES
CORPORATE GERRYMANDERING
FORGED DOCUMENTS

Question 40

Agent Fraud

Answer 40

POCKETING PREMIUMS

CONSPIRING TO REDUCE PREMIUMS

Question 41

Claimant Fraud

Answer 41

A claimant may misrepresent the circumstances of any injury or fabricate that an injury
occurred.
INJURY FRAUD
SECONDARY EMPLOYMENT

Question 42

Organised Fraud

Answer 42

The lawyer will entice the claimant into securing his services by promising a large settlement
from the insurance company.
Cappers, also known as runners, are used to recruit patients for the scheme.
The doctor is used to lend authenticity to the scheme, and
he is well compensated for his efforts

Question 43

Red Flags Workers’ Compensation Fraud

Answer 43

• Documents are obviously altered; white-out or erasure is evident.
• Documents are improperly filled out; entries are in the wrong place; information
provided does not make sense.
• Claims are filed where the carrier indicated no record of coverage.
• Poor quality photocopies of documents that should be original documents.
• Small payrolls are reported for large contractors or employee leasing operations.
• Payroll figures, reported to insurers, that disagree with payroll reported for other purposes.
• Claims for employee injuries are inconsistent with that employee’s classification.
• Industrial or construction enterprises with a work force are reported to be in low-rate categories.
• “New” corporations are participating in ongoing jobs.
• Most of the employees from an employer with a high experience suddenly become employees in a new business.
• The agency employs large numbers of support staff and only has one licensed agent.
• The agent only accepts cash or money orders for premiums.
• No policy is received after an extended time.
• No bill is received for premiums.
• An employer review of the application indicates that it is inaccurate.
• Individual employees are reclassified into a lower classification.
• The employer begins to declare a smaller payroll.
• Claimants:
− Are disgruntled, soon-to-retire, or facing disciplinary action or layoffs.
− Are involved in seasonal work that is about to end.
− Take unexplained or excessive time off prior to claimed injury. − Take more time off than the claimed injury seems to warrant.
− Have no witnesses to the accident.
− Have accidents that occurred in an area where the employee normally would not be
working (especially if it’s a high-risk area).
− Delay the reporting of an accident.
− Are new on the job or have a history of short-term employment.
− Have a history of injuries.
− Have inappropriate or a lack of medical treatment for injuries.
− Are experiencing financial difficulties.
− Change physicians when a work release has been issued.
− Frequently change medical providers.
− Have demands for quick or early settlement.
− Are never at home after a “serious” injury or can only be reached by return
telephone calls.
− Are unusually familiar with workers’ compensation procedures.
− Are consistently uncooperative.
− Receive mail at a post office box or at an address different from employment or
driver and vehicle licensing.
− Have soft tissue injuries that are hard to prove.
− Are incapacitated, but seen in activities that require full mobility.
− Have independent medical exams that reveal conflicting medical information.
− Have a history of self or family employment; have a trade or work in a cash business.
− Have injuries that occur in an area where the employee would normally not be
working.
− Have injuries that would not normally be the type the employee should have.
− Have injuries that occur on a late Friday afternoon or are reported on a Monday
morning (if injuries are reported Monday morning, the injury could have resulted
over the weekend).
− Are actively involved in contact sports or physically demanding hobbies.
− Have dates of disability or absences from work that do not coincide with the
physician’s date of disability or dates of treatment.
− Have unprofessional diagnostic terminology.
− Have misspelled medical terminology throughout the medical report or hospital
record.
− Have a pattern of accident claims by an individual or family members.
• Claimant repeatedly does not show up for his requested independent physical xaminations or is not home when the regularly scheduled nurse stops by for therapy.
• The claimant’s attorney is known for handling suspicious claims.
• Attorney reports his representation began on the day of the reported incident.
• Same doctor and attorney are known to handle these types of cases.
• Claimant complains to the insurance company’s CEO in order to press for payment.
• The attorney threatens further legal action unless a quick settlement can be made.
• The attorney inquires about a settlement early into the life of the claim.
• Wholesale claim is handled by law firms and multiple class action suits.
• Dates of the accident are vague or contradictory.
• Treatment for the injury follows previous first-time visits to a provider.
• Same provider always bills for extra time or extra consideration on a claim.
• Provider is working through an attorney.
• Provider is reluctant to communicate with the insurance company.
• Provider shares the same patients with the same colleagues.
• Provider refers patients to specific other providers.
• Provider prescribes unnecessary supplies and/or care by a specific provider.
• Medical records are “canned.”
• Medical records are out of sequence and missing dates of service.
• Different handwriting appears on documentation with same dates of service.
• Records are reported as lost, burned, or stolen when requested.
• Progress notes consistently reflect that the patient has a high degree of pain, yet his
condition is improving or progressing as planned.
• Diagnosis is inconsistent with the treatment rendered.
• Provider bills on a holiday or Sundays.
• The medical reports are conflicting.
• Claims are photocopied.
• Claims for other patients are identical.
• The claimant bills or harasses the insurance company for payment.
• The claimant’s address is different on the claim form than it is on the enrolment file.

Question 44

Investigation Tips

Premium Fraud

Answer 44

• Review the application for coverage for completeness and accuracy.
• If the business is claiming to be new, verify that it is indeed new and no mod factors
have been established.
• Review the underwriting of the application for suspicious activity. If the company is a large company and has a small payroll, verify the number of employees, as well as their
classification.
• Review claims to determine if they are consistent with the type of employment reported
and the number of employees claimed.
• Conduct an on-site audit of their payroll and related records for the policy period and
determine where their principal place of employment is located.
• Observe if there are too many clerical employees or other low risk occupations that
make up the calculation leading you to believe that the records are misstated.
• Analyse the financial statements, when available, to determine what payroll expenses
actually are compared to what is reported.
• Review accident and injury reports for suspicious activities.
• Conduct surveillance as needed to observe and document various activities.
• Document findings and report the results of the activity as required.

Question 45

Investigation Tips Claimant Fraud

Answer 45

• In spite of the possible indicators of fraud, medical treatment must be secured
immediately, but an investigation should be opened immediately if there is a suspicion of
fraud.
• The manager who is responsible for the area where the injury occurred should initiate an
investigation on each reportable accident.
• As soon as possible, the accident should be discussed with the employee.
• A signed statement from the employee should be obtained as soon as the employee is
able to do so.
• In obtaining a signed statement, the following questions should be answered, as
applicable:
− What was the employee doing just prior to the accident, and after the accident?
− Was he carrying out his regular duties and were they conducted in their normal
manner?
− Had the employee been properly instructed as to how to safely perform the duties?
When, and by whom?
− Did they work in accordance with these instructions?
− Did another employee cause the injury?
− Was the equipment or machinery used properly guarded and in good condition?
− Was the equipment suited for the purpose it was being used?
− Was the workplace properly lighted?
− What were the housekeeping conditions in the area? − Did the work being done by the injured employee differ in any way from that being
performed by other employees?
− Is there a safer way that this operation can be performed?
− Was the injured employee in good health when he reported to work on the date of
the accident?

Have an independent medical examination performed to document the illness. The person
performing the exam should photograph the patient, obtain a copy of the patient’s photo
identification such as a driver’s licence, and obtain the patient’s signature.

The following questions should also be asked:
• Are you disabled from working?
• Are you now working part-time, full-time, or not at all?
• What are your daily activities?
• What is your activity level with regards to your ability to walk, jog, run, drive, swim, or
participate in sports activities or hobbies?