Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Insurance fraud: what is it and what are its implications?
Even a white lies can have consequences
Insurance fraud comes in a few different shapes and sizes. Some types of fraud are done on purpose, some types involve small lies that may seem like they won’t matter, and some are committed without the person committing them even realising.
The cost of insurance fraud each year is big — it’s in the billions — and while it may seem easy to ignore these costs because they only affect insurance companies, the reality is that insurance fraud ends up costing you and others, be it in the form of higher premiums, higher excesses or policies with more things an insurer won’t cover — all of which are aimed at cutting down the increasing costs of fraud.
But what exactly is insurance fraud? And how can it be avoided?
What are the types of insurance fraud?
Insurance fraud generally falls into a few categories: non-disclosure, exaggeration and deliberate.
Non-disclosure can be both deliberate and inadvertent. Fraudulent non-disclosure basically means that you haven’t revealed information to an insurer that might affect their decision to insure you or to pay out a claim. For example, when applying for car insurance, you may neglect to mention a conviction for drink-driving or you may tell your insurer that your car is always parked in a secure garage overnight when, in fact, it’s typically parked on the street. It’s important to note that even unintentional non-disclosure is still fraudulent.
Deliberate fraud is premeditated and calculated in an effort to defraud an insurance company. That is, someone planned to commit fraud to make money. Common types of deliberate fraud include setting fire to property or faking a theft in order to receive an insurance payout.
Exaggeration is pretty straightforward and is mainly limited to when a person makes a claim — it involves exaggerating the amount of damage or the cost of the loss in order to increase the payout of a claim.
As you can see from the various types, insurance fraud isn’t limited to criminals. Even well-behaved people can often be tempted to leave out important information or inflate the value of a claim for their own personal gain, and it can also be the case that a person doesn’t realise they are committing a crime by exaggerating the facts or failing to disclose important information.
How can you avoid committing insurance fraud?
Obviously, if you are deliberately committing insurance fraud, then it’s quite easy to figure out how to avoid doing it. However, in order to avoid accidentally committing insurance fraud, there are a few things you can do:
- Always tell the truth — don’t sugar-coat anything and don’t inflate the value of something or the extent of the damage.
- Don’t leave information out — make sure you tell your broker or insurer you’re getting a quote for anything you think might be relevant to the claim.
- Read your PDS — it will detail what sorts of things will void your insurance. If you know what those things are, you can avoid doing them.
- If you use a broker, ensure you read the Duty of Disclosure; this will outline key information that should always be disclosed to your insurer.
What is the insurance industry doing about fraud?
Insurance companies are putting a lot of resources and money into combatting insurance fraud, and new technology and software is being used to identify it, along with specialist claims training and engaging with specialist investigators.
Additionally, the Insurance Fraud Bureau of Australia (IFBA) works with insurance companies to notify them of information relating to possible insurance fraud so that those companies can then investigate and act on these suspicions of fraud. The IFBA also works to help develop strategies that can be used across the industry to help stamp out insurance fraud and, as a result, protect honest consumers from having to bear some of the costs of insurance fraud.
The Insurance Council of New Zealand (ICNZ) have an online form along with a toll free number (0505 372 835) where the public are encouraged to call and report information about potential Insurance fraud cases.
ICNZ use the information submitted to make investigations with Insurers who may take further action if necessary.