Think the death claim you paid was legitimate just because you had a death certificate or other form of proof? Think again. 

The FBI recently charged 23 people of various acts that involve submitting fraudulent applications for coverage, and then tricking the insurance companies into believing the insureds had died. Part of the schemes involved switching the identity of deceased people to the identity of the insureds on the fraudulent applications thus allowing the perpetrators to easily collect the death benefits. The take: $26 million, and this is just one example. Diligence is proud to have been involved in many of the investigations that led to the arrests. (Read Story Here)

In another high-profile case, 50 people were indicted in a $33 million scheme to defraud insurance companies using elderly or sickly people as insureds. One of the defendants was an agent who admitted to submitting hundreds of fraudulent applications, inflating income and net worth to get higher-dollar policies. (Learn More Here) Most often, the insureds are unaware of the coverage being taken out on their life.

Reliance on death certificates and even credit bureau records is not sufficient to identify fraudulently procured policies or fraudulent claims. And with the push today for digital applications, accelerated underwriting, and claim automation, the number of fraudulent claims will grow. We have seen the new paradigm be a catalyst that has embolden organized crime groups known for fraudulent insurance activity, and it has also bred a whole new group of fraudsters who have not been associated with this type of crime before. Ultimately, the consumer will pay a higher price, but so will the insurance company that does not do its due diligence to keep these fraudulent risks off their books.

The best time to defeat fraud is before the policy is issued. Confirming the identity of the applicant - and their awareness of the coverage - will stop many fraud attempts.  Once the policy is issued, fraudsters just have to sit back and wait until the contestable period expires. Many companies do not take advantage of the fraud defense outside of the contestable period, and fraudsters know this. While insurers are barred from rescinding a policy for material misrepresentations such as health issues, nearly all states will allow fraud as a defense in cases where the insured was not a party to the contract or in cases of clear intent to defraud the company. 

Some key steps to defeating these schemes:

  • Properly vet new agents and monitor the activity of existing agents
  • Positively confirm the identity of the applicant and application data
  • Review all deaths reported within five years for suspicious characteristics in the claim that do not match the application such as the insured’s age, occupation, lifestyle, location, next of kin, and beneficiary information.
  • Once a fraud is found, regardless of the age of the policy, conduct a review of your book of business for similar cases (same agent, similar addresses, etc.)
  • Investigate suspicious claims or claims that have characteristics that match a pattern that could be deceit
  • Report all suspected fraud to the state fraud bureaus

The insurance industry has undergone major changes in how it accepts risks, and all change can have unintended consequences and gaps for illicit actors to get through. Fraudsters and criminal organizations are smart. They know the insurance industry and where our gaps are.  Make sure you know where those gaps are and that you have the right partners who specialize in insurance and fraud detection to ensure your company doesn’t get a targeted.

Diligence International Group, LLC, is a global provider of data verification and investigation services specializing in the insurance industry.  Diligence provides services to assist insurance companies including services to vet new agents, quickly and absolutely confirm the identity of applicants, conduct comprehensive background checks, perform link analysis for claims, and verify deaths domestically and internationally.  For more information and services provided, please contact Kevin Glasgow at [email protected] or call 972-660-4202.

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Understanding Fraud in International Death Claims
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