How To Catch Auto Insurance Agent Fraud & Prevent Gaming

Insurance agent fraud is nothing new. But if your agents were “gaming” the system, would you see it coming?

Fraud continues to evolve and affect the auto industry, resulting in billions of wasted dollars every year. While we’d like to believe the majority of fraudulent transactions start with applicants on ‘the outside’, recent employee fraud and risk prevention data suggests that large percentages of fraud are actually coming from inside the walls of auto insurance companies.

Insurance companies need to be aware that their internal and distributed agents often act in their own best interest, and it comes at a high cost.

In this article, we’ll cover the types of insurance agent fraud to look out for, where to find it, and what the future of detecting fraud holds.

Common Types of Auto Insurance Fraud

As you know, there are a lot of steps between setting up an insurance policy and then filing a claim on the other end. So where does insurance fraud usually happen?

For starters, insurance fraud can be separated into two categories: hard fraud and soft fraud.

Hard Fraud in Insurance

Hard fraud in insurance refers to deliberate and premeditated attempts to commit fraud, such as staging an accident or deliberately causing damage to property. Here are some examples of hard fraud in insurance:

Staged accidents: This is when individuals or groups intentionally cause an accident or collision in order to file a fraudulent insurance claim for property damage or bodily injury.
Arson: This is when an individual sets fire to a property to collect insurance money.
Faked theft: This is when an individual falsely reports a theft or burglary in order to collect insurance money.
False identity theft claims: This is when an individual falsely claims that their identity has been stolen and files a claim for losses related to the theft.
Medical billing fraud: This is when healthcare providers or individuals submit false medical bills or inflated bills for treatments that were never provided or were unnecessary.
Premium diversion: This is when an insurance agent or broker collects premiums from policyholders but diverts the money for their own use instead of forwarding it to the insurance company.

Soft Fraud in Insurance

Soft fraud in insurance refers to intentional misrepresentations or exaggerations made by policyholders or claimants to obtain benefits or coverage they may not be entitled to. Some examples of soft fraud in insurance include:

Exaggerated loss or injury claims: This is when a policyholder or claimant exaggerates the extent of their loss or injury to obtain a higher claim payout.
Concealment of pre-existing conditions: This is when a policyholder fails to disclose pre-existing medical conditions or prior losses when applying for insurance coverage, in order to get a lower premium.
Falsifying information: This is when a policyholder or claimant provides false information, such as a fake address or driver’s license, to obtain insurance coverage or benefits.
Non-disclosure of relevant information: This is when a policyholder fails to disclose relevant information, such as a change in their driving habits or occupation, which could affect their insurance premiums.
Phantom or staged accidents: This is when a policyholder or claimant stages an accident or files a false claim for an accident that never occurred.
Double-dipping: This is when a policyholder or claimant submits the same claim to multiple insurance companies to obtain multiple payouts.

It’s important to note that any form of fraud is illegal and can result in serious consequences, including fines, imprisonment, and loss of insurance coverage.

Who commits auto insurance fraud?

Insurance fraud can be committed by different types of people involved in the insurance process, including applicants/customers, underwriters, and agents. Here are some examples of the types of people who commit insurance fraud:

Applicants/Customers: Individuals who apply for insurance coverage or file claims can sometimes commit fraud. For example, they may exaggerate the extent of their loss or injury, conceal pre-existing conditions, or provide false information on their insurance application.
Underwriters: Underwriters are responsible for evaluating risk and determining whether to approve an insurance policy. In some cases, underwriters may commit fraud by approving policies for high-risk individuals without proper underwriting, in exchange for a bribe or kickback.
Agents/Brokers: Insurance agents and brokers are responsible for selling insurance policies and providing guidance to customers. However, some agents and brokers may engage in fraudulent activities, such as collecting premiums from customers but failing to forward them to the insurance company, or creating fake policies to collect commissions.
Healthcare providers: Healthcare providers can also commit insurance fraud by submitting false or inflated bills for treatments or services that were not provided or were unnecessary. This type of fraud is known as medical billing fraud.
Organized crime rings: In some cases, organized crime rings may target the insurance industry for fraudulent activities, such as staging accidents, filing false claims, or operating fake insurance companies to collect premiums.

Why do insurance agents commit fraud?

There are several reasons why insurance agents might commit fraud. Here are some possible explanations:

Financial gain: One of the most common reasons why insurance agents commit fraud is for financial gain. They may receive commissions or bonuses based on the number of premiums they collect, and committing fraud can increase their earnings. For example, an agent might sell fake policies or collect premiums from customers but fail to forward them to the insurance company.
Pressure to meet sales targets: Insurance agents are often under pressure to meet sales targets set by their companies. If an agent is struggling to meet their targets, they may be tempted to engage in fraudulent activities to boost their numbers.
Lack of ethics or integrity: Some insurance agents may lack ethics or integrity and be willing to engage in fraudulent activities for personal gain, regardless of the consequences.
Competition with other agents: Insurance agents may face competition from other agents or brokers in their area, and may feel pressure to engage in fraudulent activities to stay competitive.
Misunderstanding of insurance policies or regulations: In some cases, insurance agents may not fully understand insurance policies or regulations, and may unintentionally commit fraud by providing incorrect or incomplete information to customers or insurance companies.

How to Prevent Agent Fraud

Real-time intent data can be used to prevent insurance agent fraud by providing insights into agents’ behavior and identifying potentially fraudulent activity. Here are some ways that real-time intent data can be used to prevent agent fraud:

Monitoring agent activity: Real-time intent data can be used to monitor agents’ activity and identify any behavior that deviates from normal patterns. For example, if an agent suddenly starts submitting a large number of claims or policies that seem out of line with their previous activity, this could be a red flag for potential fraud.
Identifying high-risk behavior: Real-time intent data can be used to identify high-risk behavior that is associated with insurance fraud or policy manipulation. For example, if an agent is submitting a high number of quotes that churn quickly, or continuously editing and resubmitting quotes to receive a lower premium, these could be indicators of malicious behavior.
Identifying patterns of fraud: Real-time intent data can be used to identify patterns of fraud across multiple agents or policies. This can help insurance companies identify and prevent fraudulent activity before it becomes widespread.

In summary, real-time intent data can be a powerful tool for preventing insurance agent fraud by providing insights into agent behavior and identifying potential fraud before it becomes widespread.

ForMotiv’s Agent Fraud Solution

ForMotiv uses unique, first-party behavioral data points and dozens of predictive models to understand agent behavior in ways that were previously impossible, making it possible to detect if your agent is displaying genuine or high-risk behaviors.

Predict the Risk

ForMotiv is able to proactively predict when risky behavior is occurring, in real-time, so carriers can prevent it before it occurs. Malicious behavior can be as simple as changing answers after a quote has been issued to something more severe like ghost broking, misrepresenting an application, clean sheeting, churning, or premium diversion.

React in Real-Time

What’s the point of predicting something if you can’t react to it? ForMotiv enables real-time intervention when malicious behavior is occurring. If an agent is displaying suspicious behavior, carriers can instantly flag the policy for manual review, or bar the application from being submitted without managerial approval, to name a few examples.

Want to see it in action? Schedule a call to see it for yourself — no commitments necessary.