Insurance fraud: What is it and what are the consequences?

Making an insurance claim can be stressful, particularly if you are worried about your claim being accepted.

Insurance companies employ claims officers and assessors to work out if your claim falls within the rules of your policy, and how much you should be compensated for your loss. Sometimes your claim may be investigated further by a separate team or company if there are perceived discrepancies. In some cases, this may be because they suspect there’s a possibility of insurance fraud. This is how the Financial Rights Legal Centre explains it: “Insurers are always on the lookout for fraud. The insurer will usually not tell you they suspect you of fraud. Instead you will often be told that your claim is being investigated. If you are being investigated, get legal advice immediately.”

Let’s look at what insurance fraud is, and what to do if you are being investigated.

What is insurance fraud?

According to the Insurance Council of Australia (ICA) says that insurance fraud is a “deliberate dishonest act” that leads to someone obtaining a benefit out of the insurance process they otherwise would be not entitled to. This type of fraud typically falls into one of three broad categories:

1. Opportunistic fraud: the exaggeration of otherwise legitimate claims.
2. Premeditated fraud: such as arson, theft or staged incidents with the deliberate fabrication of a claim.
3. Fraudulent non-disclosure: misrepresenting “facts material to the insurance policy”. Examples include giving deliberately misleading information to support a claim, as well as not disclosing a criminal conviction.

Fraud can not occur at any stage of the insurance process–from applying through to making a claim.

What is the impact of insurance fraud on Australians?

Insurance fraud can impact Australians in many ways. It makes insurance more expensive for everyone, and it is illegal.

• Makes insurance more expensive for everyone

Insurance fraud is certainly costing the industry dearly, with estimates suggesting that “anywhere from 4% upward of claims made involve some form of insurance fraud,” an ICA spokesperson told Canstar.

“Insurance fraud is not a victimless crime. It is not a case of insurers having significant funds to pay for claims, including exaggerated claims,” the spokesperson said.

“The cost escalation … [is] passed on to law-abiding consumers in their insurance premiums.”

• It’s illegal

You can go to jail for insurance fraud. Opportunistic fraud is the most common type of insurance fraud, the ICA spokesperson told Canstar. But, any type of insurance fraud is illegal.

“Regardless of whether the fraud is committed on a one-off basis (opportunity) or is a series of frauds committed by a professional criminal (premeditated), it is still considered at law to be a serious indictable offence where the penalties can be imprisonment for up to 10 years or a substantial fine or both”, the spokesperson said.

What is opportunistic fraud?

So, what could opportunistic fraud look like when it comes to insurance? The ICA spokesperson said that sometimes people can make mistakes when claiming, but opportunistic fraud is something entirely different.

“Opportunistic fraud, in opposition to honest mistakes in making a claim, is a conscious, understood action seeking to obtain financial (cash and/or property) benefit through deception,” the spokesperson said.

Here is a list of hypothetical examples of what opportunistic fraud could look like:

Home insurance

• Exaggerating the value of an item, such as deliberately misrepresenting the true cost of a jewellery item that you are reporting stolen and using altered valuation certificates or documents.
• Adding an item that you no longer own to the list of things stolen in a robbery.
• Exaggerating the amount of food a fridge contained before a power blackout led to the food being spoiled.

Car insurance

• Claiming dents were caused by hail, when you know they were actually caused by something you are not insured for.
• Adding items to a list of things stolen from a car, such as a pair of sunglasses or floor mats, when they were not stolen.

Health insurance

• Overstating expenses or claiming for treatment or services that haven’t been provided.

What happens if an insurance provider suspects fraud?

The ICA states that each insurance provider generally has their own policies and procedures for reviewing claims, identifying suspected cases of fraud, and investigating them. If you are faced with the prospect of being investigated, you are entitled to ask for information about the process and to also seek legal advice.

How does the insurance investigations process work?

While insurance providers may have their own investigation procedures, a typical process could be:

• you make a claim
• the company reviews it
• you could then be notified that it’s under further review or investigation
• you may be asked for further information or permission for other parties to access your information
• you may be asked to attend a formal interview
• there could be further investigations (such via a specialist investigator or surveillance)
• the insurance provider, when they have enough information, may decide to approve or reject your claim (or part of your claim)

The General Insurance Code of Practice (GICOP) is a voluntary code introduced by the ICA. It sets standards for general insurance (for those companies who have adopted the code), and includes claims investigation standards. It could be a wise idea, if you are being investigated, to familiarise yourself with this code. Below is a summary:

1. Discussion: Before they start investigating your claim, a trained employee of the insurance company is required to discuss with you the reasons why the company thinks it should be investigated.
2. Notification: Before an investigation begins, the insurance company has to tell you verbally and in writing certain information, such as what the claims investigations process involves, who is investigating you and how you can contact someone for information. They also need to tell you when you can expect to hear from any investigators and how often they will update you on their progress, your rights and responsibilities; as well as how you can make a complaint if you are not happy with how the investigation is being conducted.
3. Investigation: The company will investigate. The code states that they are required to update you about progress at least every 20 days. They may ask you for your permission to grant other parties access to your information, and explain why they want to do so. Insurers who employ contract investigators also have to adhere to a range of requirements. If the insurer decides that the investigation requires surveillance of you, there are also guidelines that must be adhered to, such as having a reasonable belief that a claim could be fraud and where you can be surveilled.
4. Formal interview: If they want to conduct a formal interview with you, the insurer has to tell you in writing: the purpose of the interview, your rights and responsibilities, who will conduct the interview, how long it is expected to take, that you have the right to have a legal representative or support person with you (but they can’t answer for you), and if the interview is to be recorded and by what method. They also need to suggest several possible convenient locations, including your home, and allow you to suggest another location. They also need to tell you that you can schedule the interview for a time and date that suits you. A single interview sitting can only last for up to 90 minutes; after which another interview cannot be scheduled without at least a 24 hour break (unless otherwise agreed).You can also obtain a transcript of the interview or a digital copy of the recorded interview free of charge.

What happens if an investigation uncovers possible fraud?

What happens if an insurance provider’s investigation uncovers possible fraud depends on a few things, including what evidence they have and the extent of the suspected fraud. It could be a good idea to seek legal advice if an insurance provider tells you they suspect you of committing fraud or that an investigation is underway.

If an insurance provider decides there is a reasonable belief that a claim is fraudulent, the claim will typically be denied.

The GICOP sets out a list of things insurance providers (which have adopted the code) are required to do in this case, like letting you know why they denied your claim and giving you information about how to dispute their findings. If you disagree with their decision, you can make a complaint to the Australian Financial Complaints Authority (AFCA) or, if it’s about health insurance, contact the Commonwealth Ombudsman.

Committing fraud is illegal and insurance providers may decide to take further action than just denying a claim, such as to report the issue to police, who could consider criminal charges.

Being investigated for insurance fraud may damage your ability to get insurance in the future. That’s because, according to the ICA, you will have to disclose that you’ve been under investigation every time you apply for a new policy. You may even have to let your current insurance providers know, which could jeopardise your current insurance coverage and could impact how much you have to pay in premiums.

“Committing opportunistic insurance fraud may seem to some to be a victimless crime – it is not.  It may seem to provide a short-term financial windfall or relief in financial difficulty – that action may have significant, serious forward implications for the perpetrator.”

Cover image source: Who Is Danny/Shutterstock.com
This is an update of an article originally written by Amanda Horswill.