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Questionable Insurance Claims Rise as Economy Sputters

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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So-called questionable claims increased seven percent in the first three quarters of 2011, compared to the same period in 2010, according to a new report from the National Insurance Crime Bureau (NICB).

Most of this year’s increases were associated with workers compensation and casualty lines (bodily injury).

Vehicle claims were largely flat, though “hail damage” increased 103 percent from the third quarter of 2010.

Insurance money has always been a target of unscrupulous individuals and/or companies. We’ve all seen the movie in which a struggling business owner burns down his restaurant in order to collect insurance money to stave off bankruptcy…and gets caught.

While those situations represent obvious fraud, the insurance industry also tracks “questionable” claims to identify industry-wide trends. This information helps insurance companies determine their future rates, which means the costs are passed on to us consumers.

Not surprisingly, as the U.S. economy continues to suffer, you might expect questionable insurance claims to increase overall. While there may or may not be a direct correlation between the two, our money is on “yes.”

What is a Questionable Claim?

A questionable claim may be any insurance claim where the “facts” don’t add up according to the insurance adjuster. There are literally millions of potential scenarios, but we will highlight just a few based on the results of the study.

Casualty – This type of questionable claim may be very common in the form of personal injury protection coverage in Florida, and is usually associated with “soft tissue” damage that results from an auto accident – or staged auto accident. For example, a casualty claim may be flagged as questionable if an insured claims to have soft tissue injury as a result of a 3 mph fender bender in a parking lot. While it’s certainly possible, it is highly unlikely that an individual would suffer any injury from this type of accident.

Workers Compensation – Again, this type of insurance is an easy target for fraudulent claims due to the potential for soft tissue damage. A worker may have a minor slip and fall at work and then claim to be unable to work for six months. While there may have been no verifiable bodily injury (broken bones, swelling, torn ligaments) an individual may claim they are unable to perform their duties at work based on “pain” that cannot be verified.

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Final Word

Insurers record and evaluate every discernable data point they can get their hands on in order to protect their bottom line. Their pricing models are based on previous loss experience for every type of claim that has been filed and tracked.

The main goal is to be able to offer the cheapest insurance possible while still making a profit. The cheaper their insurance, the more policies they sell.

Insurance fraud leads to higher prices for everybody. The cost of claim payments is passed on to the consumer in every instance. The only people who win are the ones that commit insurance fraud and get away with it. Everyone else loses.

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