Types of Insurance Fraud

Classification of insurance crimes

Crimes in the insurance industry have increased public danger , because impede or
block the execution of its basic tasks , associated with the formation at the expense of cash
contributions of the insurance trust fund , intended to compensate for possible
damage . Criminalization of the insurance market hampers the delivery of insurance such
important functions , as increased stability , limit the economic risks , encouraging
entrepreneurial initiative . The publications on this subject provide a fairly detailed multi-
stage classification of crimes in the insurance industry [1] .

In accordance with this classification, all crimes are divided into directed ( a ) against the
insurer and ( b ) against the insured . The first , in turn , are divided into intra-company crimes ,
the subjects of which are employees of the insurance company , and external crimes , their
subjects are insurance intermediaries and policyholders ( beneficiaries ). Crimes against the
insured can be committed both in the field of real insurance activity ( in this case, the
employees of insurance companies and insurance intermediaries are the subjects of
crime ), and in the sphere of fictitious insurance activity ( subjects are the creators and
participants of a fictitious insurance company ). Each subject is characterized by certain
types of crimes , and the range of these crimes is very wide :

• • fraud ( Article 159 of the Criminal Code );

• • abduction or damage to documents , stamps , seals ( Article 325 of the Criminal

Code );

• • abuse of authority ( Article 201 of the Criminal Code );

• • commercial bribery ( Article 204 of the Criminal Code );

• • misappropriation or embezzlement ( Article 160 of the Criminal Code );

• • official forgery ( Article 292 of the Criminal Code );

• • giving a bribe ( Article 291 of the Criminal Code );

 • • False business ( article 173 of the Criminal Code );

• • illegal business ( Article 171 of the Criminal Code ); et al .

Crimes against the insurer

According to Rosstrakhnadzor , annually Russian insurers lose up to 15 billion

rubles . from - for bad faith of customers and employees , with about 70% of all cases of
insurance fraud accounts for fraud in the field of motor insurance [2] .

Experts say the presence in Russia of three categories of insurance fraud : 1) criminal
groups and employees of insurance companies , trying to make money in the field of
insurance fraud ; 2) individual customers , which introduce the company
misleading ; 3) unintentional insurance fraud . The most common fraudulent activities in
respect of such security objects , like vehicles , especially cars , cargo , various property
companies and citizens , the life and health of citizens . Analysis of criminal cases
shows , that among the types of insurance , which are most often subject to fraudulent
actions on the part of the insured , are the following :

• • life and health insurance - 10.2% of the total amount of fraud , committed in the field
of insurance ;

• • insurance of motor vehicles - 62.4%;

• • pet insurance - 5%;

• • other types of property insurance - 22.4%.

Among the different types of fraud in the total amount of payments , obtained through
fraud , the largest share (60%) accounted for overstatement of the amount of damages for
property insurance of natural persons , and the lowest (5%) - on the double insurance of
property insurance of legal persons .

In motor insurance, the largest share (50%) falls on false claims for insurance
payments . The largest share ( by 15%) provided incorrect data at the conclusion of
contracts of insurance falls to property insurance of physical and legal entities . In case of
accident insurance, insurance fraud is resorted to in the form of false
claims (40%), overstatement of the amount of losses (30%).

Actions that allow fraud with the insured object are carried out in various ways,
depending on the object of insurance and the type of insured property ( with property
insurance ). Fraud with vehicles , in particular with cars , for the purpose of illegally
obtaining insurance compensation is carried out mainly through arson , fictitious
theft , staging accidents , staging theft , robbery , arson .

In terms of its method of committing insurance fraud is a very difficult act , because it
includes a whole range of actions of criminals , aimed at its implementation . According to
the rules of insurance, there is only one possibility for receiving insurance payment - the
occurrence of an insurance event . Thus, the persons , planning to commit crimes against
the material interests of the insurance companies have to artificially create an insurance
event , ie . e . to stage it . For the implementation of plans but the commission of fraud
against the insurer, three conditions are necessary : 1) conclusion of an insurance contract
and payment of an insurance premium ; 2) a staging of an insurance event in relation to the
insured property ; 3) filing an application for an insurance event . Crime , committed in
order to obtain insurance payment , are classified as very few in the whole structure of the
crime , where the staging is carried out in the commission of almost every act . Such
crimes , coupled with a thoroughly thought-out stage-setting of the insurance
event , criminal conspiracy , false testimony , require a highly professional level of detection
and investigation .

We can distinguish a certain sequence of fraudulent activities in the insurance industry . First
of all, fraudsters carefully think through and develop in detail the scenario of the " insurance
event ". The following actions may be attributed to the preparation of a dramatization of an
insurance event :

• • choice of insurance company ;

 • • search for insurance objects ;

• • choice of the place and time of the performance ;

• • conclusion of an insurance contract ;

• • the payment of insurance premiums and others .

Further, the fraudsters resort to the implementation of measures to stage the insurance
event . Such " events " will be :

• • movement of the insured property ;

• • creation of material traces of the insured event ;

• • creating perfect traces of the event ;

• • false statement ;

• • knowingly false readings .

Finally , the criminals have resorted to such methods for concealing the fact of
staging , like :

• • concealment of real value and real property owner ;

• • concealment of material traces of one's participation in the re-enactment of an insured

event ;

• • concealment of one's interest in an insurance event ;

• • promotion of your own alibi ;

• • concealment of the insured property itself , “ injured ” as a result of the insured

event .
 The classification of types of crimes , committed in order to illegally obtain insurance

payment

We can distinguish three groups of crimes , related to fraud in the insurance sector . The
first group comprises killing , qualifying claim . " h " Art . 105 Criminal
Code , t . e . murder , committed for mercenary motives ( in order to illegally obtain
insurance payment ). This type of crime , in turn , can be divided into the following
groups : a ) the murder of the insured person with a pretense of certain circumstances of the
insurance event ; b ) the killing of the insured person with a pretense of an accident ; c )
the murder of anthropological signs and issuing him as an insured ; et al . The second group
includes fraudulent actions in relation to the material interests of insurance
companies , qualified under Art . 159 of the Criminal Code . The third group consists of
crimes that are concomitant with the main charges and committed with the aim of illegally
obtaining insurance payments , for example, knowingly false denunciation ( Article 306 of
the Criminal Code ), false testimony ( Article 307 of the Criminal Code ), substitution of
documents ( Article 327 of the Criminal Code ).

Fraudulent activities , committed in order to illegally obtain insurance payment , are quite
diverse , so they can be characterized from different angles and positions . So , fraud can be
committed at the stages of conclusion and execution of an insurance contract : a ) upon
conclusion of an insurance contract ; b ) during the period of its validity ; c ) at the stage of
concluding an insurance contract after the occurrence of an insured event . Fraudulent
activities insurers can perform independently or in collusion with others , for
example , employees like insurance companies , and other organizations ( traffic police , the
registrar ). Sometimes such crimes are committed by organized crime groups .

Insured fraudulent activities can also be classified by type of insurance . In particular , at

the stage of concluding the insurance contract you can select different actions of
insurers , committed fraud by the insurer as a result of : a ) announcement of the sum
insured above the actual value of the insured object ; b ) multiple and simultaneous
insurance of the object with various insurers ( double insurance ); c ) failure to report all
circumstances that are important for determining insurance risk , contrary to the
requirements of the Civil Code .
 Fraudulent activities in order to illegally obtain compensation for the insured cargo
carried , as a rule , by falsifying documents about their loss , damage and so on . n .

Fraudulent actions against the insured and property of enterprises and citizens are
carried out by staging theft , robbery , arson . A typical example of such actions is arson as
a way to improve their financial affairs . According to foreign sources , about 15% of all
cases of damage resulting from a fire are deliberate arson attacks . Moreover, such crimes
are committed both to the assignment of the insured property and obtaining insurance
reimbursement , as well as for the " rehabilitation " of companies , who are at the opening
of bankruptcy proceedings ( bankruptcy ) [1] .

With personal insurance , t . e . life insurance and health of citizens , fraud to obtain
insurance coverage carried by the falsification of the insured event as a result of collusion
with employees of medical institutions and the falsification of documents , evidence of
mutilation .

Insurance Fraud Abroad

Overseas, insurance fraud is widespread in two areas : in the USA and Canada, it
prevails in medical and personal insurance , in Europe, unlawful acts are more often
committed in property insurance , including car insurance .

The US insurance market consists of more than 5 thousand . companies , whose assets
exceed 1.8 trillion dollars . This is one of the largest and most independent business sectors
in the country . Accordingly, the annual losses of insurers are estimated at
about $ 100 billion , which is about 1 thousand . dollars , for a family . The most common
crimes are committed in health insurance - $ 80 billion , auto insurance
- $ 14.5 billion , outage insurance - $ 1.3 billion , home insurance - $ 1.6 billion , life
insurance - $ 1.4 billion .

In Canada , experts estimate that insurance fraudsters inflict damage of at

least $ 1.3 billion annually . It is believed , that from 10 to 15 cents of every dollar prize goes
to insurance claims , initiated fraudulent claims . According to the calculations of the
Canadian Association against fraud in the insurance sector (Canadian Coalition Against
Insurance Fraud - CCAIF), unscrupulous insurers paid about 10 - 15% of the total volume
of collected insurance premiums annually .

The European Insurance Committee estimates the losses from fraud in Europe
at 8 billion euros , which is 2% of all insurance premiums in the EU countries [1] .

In Germany, damage from insurance fraud is estimated at 5 - 8% of the total number of

insurance payments . However, there is the view , the size of the abuse is actually much
more . In transport insurance alone, it reaches about 2.5 billion euros per year [2] . Most
crimes are committed in the auto insurance sector . The most common method of action by
unscrupulous customers of insurance companies is fake theft of vehicles . It should be
noted , that the fraudulent actions with vehicles distributed not only in Germany . So , in
early 1990 ies . the most typical example of this kind of action in France , the United States
and other countries was arson own car , insured on the amount , in excess of its cost .

Insurance fraud is carried out in the form of staging accidents with models or with
already damaged cars , as well as simulating accidents with the help of false
witnesses . Thus , a special commission of the Criminal Police Department of North Rhine-
Westphalia identified about 50 groups that had professional " emergency " drivers . These
groups owned sweatshops , where cars were restored , some of which fall into
the " accident " to ten times a year [3] . Similar fraudulent acts are currently being committed
in our country .

In the UK, insurance fraud is the most favorable risk-return type of criminal
activity , and its greatest danger lies in the fact , that the revenues , received from insurance
fraud , are used to fund other criminal activities . According to the Financial Services
Authority ( FSA), fraudsters in the UK account for about 10% of personal insurance
payments and about 15% for homeowners' property insurance . The insurance
company Norwich Union has recently published the results of a synthesis of
research , conducted by it on the basis of various reports on the extent of fraud in the
UK . According to company estimates , over 2004 g . economic losses from the actions of
insurance fraudsters amounted to 15.8 billion f . Art . In total , according to the
company , payments for insurance fraud cases amount to 1.4% of GDP per
year , or 650 p . Art . per UK household .
 In France, the losses , caused by dishonest customers of insurance
companies , estimated at around 3 billion dollars . According to official figures , only
disclosed cases of fraud account for a total of 10% of the insurance indemnity paid . Despite
this , there is a general conviction , that France is in the lead in Europe in terms of the
effectiveness of the fight with the insurance crime .

With regard to responsibility for insurance fraud , then , for example , in the United States
this issue is regulated at the state level . Due to this circumstance, operational exchange of
information , which , however , is possible only with clear guarantees of confidentiality , is
of particular importance . This is ensured by legislation on the confidentiality of information
of (1) the policyholder (Pri-vacy laws), which protects the rights of policyholders and
beneficiaries from the disclosure of confidential information , and (2) the insurer (Immunity
laws), which ensures the security of information exchange between insurers and
government representatives . Some states have legislation common to all types of
insurance , others only to certain types of insurance . Therefore, experts in insurance law
believe that it is necessary to expand these legislative acts . Bills are constantly being
developed in the United States , which involve improving the state legislation , directed
against insurance fraud .