Insurance fraud has always been present, and it pays BIG returns. Life insurance fraud is unique in many ways from other types of fraud or criminal activity, and it is a lucrative business. Life payments in the U.S. have gone up over 25% in just a couple of years, and there is no question that COVID related deaths have been a significant part of the increase, but a large portion is also due to policies being issued to unhealthy people in wagering contract schemes. As someone once told me “Why would anyone ever rob a bank when perpetrating life insurance fraud is so easy and rewarding.” Why is life insurance fraud so lucrative?
First, life insurance policies are extremely inexpensive compared to the payout. A few years of premium payments pales in comparison to the payout. Perpetrators can easily pay premiums beyond the two-year contestable period and reap rewards that no other investment can match.
Second, there is a very low risk of getting caught, and if one does get caught, there are generally no punishments. More often than not, the results are that the premiums paid are refunded to the perpetrator. Rarely does the life insurance industry prosecute people for attempting insurance fraud.
Thirdly, our industry paradigms have shifted such that the industry is relying less on traditional tools and more on digital tools that fraudsters can manipulate. To be sure, the new digital tools used in underwriting have their place and are great at speeding the purchase process. They are generally effective in finding innocent misrepresentations by an applicant, but fraudsters know how to circumvent many of these tools. Combine that with the increased pressure on claims departments to pay claims faster with little to no validation has created the perfect environment for the fraudster – issue fast, pay fast. Unfortunately, at Diligence we see cases assigned to us by companies that turn out to be fraudulent only to learn that other companies have already paid with little to no real verification.
And finally, the economic and social environmental trends are working against insurance companies. Struggling economies put more pressure on people to seek alternative forms of income, and schemes usually seen in specific communities are spreading. Identity theft and the creation of synthetic identities are steadily increasing making it easier for perpetrators to either steal the identity of an unhealthy individual or simply create an identity to use for fraudulent purposes. The belief that these types of schemes don’t exist because they take too much time and effort to perfect are pure fallacy. People can and do take the time – often years – cultivating the means to defraud insurance companies.
Diligence has unique digital tools to assist underwriters in identifying wagering contracts before they are issued. When claims occur, we have a skilled and dedicated staff globally and domestically to partner with companies in identifying fraudulent claims. Let us be a partner to your SIU and claims staff to protect your company from those that invest in life insurance fraud.
