It’s Consumer Protection Week, and even though that’s not exactly on par with Christmas season or even the NCAA basketball March Madness playoffs on America’s social calendar, it does provide a great reminder how important it is to protect one’s identity.
That’s especially so for financial consumers, who leave plenty of risk on the table when they downplay or ignore identity theft.
“Scammers often use the Internet, phone, email and pop-ups in an illegal attempt to defraud millions of consumers,” says Steve Trumble, president and CEO of American Consumer Credit Counseling, in Newton, Massachusetts. “Understanding all the different outlets and mechanisms used by scammers, and how to best guard against fraud can help consumers avoid falling for common traps.”
See also: 5 top mobile insurance apps
Financial fraud is growing, and at a robust pace. The Federal Trade Commission reports 2.58 million consumer fraud complaints in 2014, a 16% hike on a year-to-year basis.
The impact batters the insurance industry and its customer base alike. This from the Center For Insurance Policy and Research:
The insurance industry is an essential part of the financial services sector, a fundamental pillar of the economy and vital for the society and the well-being of its citizens. Insurance promotes the efficient spreading of risks and financial losses and, therefore, is at the core of the risk and financial management strategies of businesses and people. The presence of insurance fraud, estimated at more than $100 billion, not only imposes costs on insurance companies and threatens their competitiveness and future viability, but it is also financially damaging to consumers and detrimental to the economy and society as a whole. Particularly disconcerting is an observed trend of suspected cases of fraud increasing in the years following the great financial crisis, recording a 56% jump between 2008 and 2012, as persisting adverse economic conditions may be fueling insurance fraud.
Insurance fraud hammers companies, consumers
For insurance consumers, though, identity theft is particularly a thorny issue, even as it is a windfall for successful scammers.
“Insurance is intended to have your back in the event that something goes wrong, but some individuals have found loopholes in the system, effectively turning insurance companies into their own personal banks,” warns Leah Gilady, a spokesperson for SaferVPN.com, a data security services firm.
Insurance fraud can also lead to higher prices and premiums – even for consumers who stay within the rules. “One of the reasons why insurance rates have skyrocketed is due to fraudulent claims,” notes Bruce Kestenbaum, general manager at Elder Insurance Services in Tampa, Florida. “It’s been known that people cause incidents such as slamming on brakes in a car to get a claim.”
For example, a driver who slams on brakes on purpose does so to fraudulently file a personal injury claim, and while the other driver was innocent, the insurance company still pays the claim, adds Kestenbaum. "A lot of people feel that insurance companies have deep pockets, but the truth is, policy holders are victims in general when people abuse the system."
Three insurance-fraud scams to watch out for
That begs the question: Ehat are the most common forms of insurance fraud that should be on the radar screen of not only insurance companies, but consumers, too? Here’s a quick snapshot:
1. Premium diversion
According to the FBI, premium diversion – the embezzlement of insurance premiums – is the most common form of insurance fraud. “Generally, an insurance agent fails to send premiums to the underwriter and instead keeps the money for personal use,” the FBI states. The Bureau also advises consumers to watch out for premium diversion fraudsters who sell insurance without a license, rake in the premiums and do not pay out claims to consumers.
2. Fee churning
The FBI also taps fee churning at the top of the list of consumer insurance scams. By definition, fee churning involves insurance “intermediaries” who take commissions through reinsurance agreements. “The initial premium is reduced by repeated commissions until there is no longer money to pay claims,” the FBI reports. “The company left to pay the claims is often a business the conspirators have set up to fail.” It’s easy to fall victim to fee churning fraud – few consumers recognize repeated commission charges until it’s too late. “When viewed alone, each transaction appears to be legitimate – only after the cumulative effect is considered does fraud emerge.”
3. Medical fraud
Scammers who falsely issue insurance claims and sue businesses and the government for emotional stress and lost-earning damages represents $70 billion in fraudulent claims annually, according to the National Insurance Crime Bureau. The Affordable Care Act has fueled the problem of medical fraud. Praying on the lack of education about the ACA among consumers, fraudsters call up individuals and ask them to sign up for an Obamacare card (which doesn’t exist), and grab their Social Security number and bank number – and even credit card numbers, in the process.
Tips to combat insurance fraud
For consumers, keeping tabs on all of their insurance accounts and charges is the best way to combat insurance fraud. The worst way is doing nothing at all, which can lead to serious financial damage.
“Fixing one can cost you up to a couple of thousands of dollars, not to mention the many hours needed to repair any damages done,” notes Robert Siciliano, a best-selling author and data security expert.
Siciliano proposes that insurance consumers take six steps to combat insurance fraud:
- Keep tabs on your account.
- Use strong and different passwords.
- Use anti-malware and firewall.
- Don't open or click on fishy emails, websites or popups.
- Take precautions when using public hotspots.
- Encrypt your connection with a VPN (virtual private network).
If you’re vigilant there’s really no need to fall victim to insurance fraud. Recognize the red flags and take regular, concrete steps like the ones noted above to protect all of your insurance and financial data. Do that and the bad guys will stay away, thus keeping your personal data safe and secure.
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How we calculate the penalties:X
For 2015, the penalty calculation is the greater of a) 2% of your household income that is above the tax return filing threshold for your filing status, or b) your family's flat dollar amount which is $325 per adult and $162.50 per child, limited to a family maximum of $975. The maximum penalty for an individual is $2,595. The maximum penalty for a family of five or more is $12,974.
For 2016, the penalty calculation is the greater of a) 2.5% of your household income that is above the tax return filing threshold for your filing status, or b) your family's flat dollar amount which is $695 per adult and $347.50 per child, limited to a family maximum of $2,085. The maximum penalties for individuals and families in 2016 are indexed for an estimated premium inflation rate of 6%.