What is Insurance Fraud?
Companies, agents, adjusters, doctors and hospitals, or consumers commit insurance fraud when they lie or misrepresent facts for financial gain.
Since companies divide the costs of claims among policyholders, fraudulent insurance claims drive premium costs up. Each year, insurance fraud costs consumers an estimated $150 billion, an average of almost $1,000 per family in additional insurance premiums.
This publication can help you protect yourself by explaining common types of fraud.
Insurance Fraud Schemes
It is illegal to sell insurance in Texas without a license. (The only exception is for surplus lines carriers, which are out-of-state companies that insure unusual or hard-to-place risks. Surplus lines carriers must still register with the Texas Department of Insurance to do business in Texas, and they must be licensed in their home state or country.)
Unlicensed companies usually don’t meet the state’s minimum financial requirements and may not have the money to pay claims. The company will collect your premiums and might even pay a few small claims so you’ll continue paying your premium. Then, when you have an expensive claim, the company could vanish and leave you with no coverage and expensive bills to pay.
Consumers and small businesses who have trouble finding or affording insurance are vulnerable to these schemes.
Make sure your agent or company is properly licensed or registered to sell insurance in Texas. If you have health coverage through your employer – especially if you work for a small employer – it’s still a good idea to make sure your insurance company is licensed. You can learn an agent or company’s license status by calling the TDI Consumer Help Line or by viewing company profiles on our website
463-6515 in Austin
When you check a company’s license status, be sure you know the company’s exact name. Unlicensed companies often use names that are similar to the names of licensed companies. If you find even a small difference between the name a company provides and the name TDI has on record, please tell TDI immediately.
Health Care Provider Fraud
Doctors and hospitals commit fraud when they over-bill insurance companies for services they provided, bill for services they didn’t provide, or perform unnecessary tests and procedures.
- Ask questions to make sure the treatment your doctor recommends is necessary.
- Be skeptical if a doctor recommends any new, unusual, or experimental procedure.
- Review your bills and the explanation of benefits (EOB) statement from your insurance company to make sure that you were only charged for services you received. If you find a difference in the bills and the services you received, contact your insurance company.
Auto Accident Fraud
People commit auto accident fraud by padding their claims or filing a claim for an accident or theft that never occurred. Another scheme is to intentionally cause a collision and make it look like it was your fault.
One of the most common types of caused accidents is called the swoop and squat. This scheme involves two partners in separate vehicles. The squat car positions itself directly in front of you and begins to slow down. The swoop car comes up from behind, passes, and then swerves in front of the squat car. The squat car brakes quickly, forcing you to rear-end it, as the swoop car drives off.
- Insist on calling the police if you are in an accident.
- Get information from the other driver. Make sure you get the person’s name, address, phone number, license plate, exact insurance company name, and policy number.
- Ask for the names of everyone in the other vehicle.
- If you have a camera or a cell phone camera, take pictures of your vehicle’s damage.
- Don’t follow vehicles too closely. This will help avoid the swoop and squat.
Fraud against Seniors
Seniors are often targets of insurance fraud, particularly life and health insurance fraud. Seniors are more likely than others to feel they need these coverages, and many worry that they’ll become a burden to family if they don’t have enough insurance.
Be wary of agents who
- Contact you unsolicited. The salesperson probably got your information through a mailing list. Not all agents who contact you are dishonest, but it’s a good idea to be cautious.
- Use high-pressure tactics. Common tactics include offering a “last-chance deal” or appealing to your emotions. You should take your time when making a decision to buy insurance and base the decision on your financial needs.
- Urge you to cash in an existing annuity or life insurance policy to buy a new annuity, life insurance policy, or other investment. Annuities and life insurance are generally worth more the longer you keep them. Changing to a new annuity or policy can usually cause you to lose money over the first three to five years.
- Claim to be from Medicare, Social Security, or another government agency. The government doesn’t sell insurance. Agents who say they’re with the government are breaking the law.
Fraud against Businesses
Businesses with risks that are hard to insure and small businesses that have trouble affording coverage are vulnerable to insurance fraud.
Unlicensed companies often try to sell fraudulent insurance policies to businesses. An unlicensed insurance company might say that it’s associated with a trade union, trust, or multiple employer welfare agreement (MEWA). MEWAs are organizations that allow small companies to pool their resources to purchase inexpensive health plans. Like insurance companies, MEWAs must be licensed to legally do business in Texas.
A fraudulent company might also say its plan is exempt from state regulation because it’s a self-funded or ERISA plan. ERISA plans are plans authorized by the federal Employee Retirement Income Security Act. While it’s true that ERISA plans are exempt from most state laws, businesses and organizations create them to cover only their own employees or members. Your business will almost never be sold a valid ERISA plan from an outside company or agent.
Business insurance fraud also often involves workers’ compensation coverage. In most cases, employers with a valid workers’ compensation policy are legally protected from being sued by injured workers. Policies sold by unlicensed or fraudulent companies are not considered workers’ compensation under state law and don’t provide this protection.
Unlicensed insurance company might also try to sell the following types of polices:
- medical malpractice
- commercial general liability
- contractor performance bonds
- auto liability coverage for truckers.
- Beware of unsolicited offers or offers to upgrade coverage.
- Verify with TDI the license or surplus lines registration status of the companies you’re considering.
- When buying health insurance, request that the plans provide you with references of other enrolled employers. Ask employers about benefit payment history and claim turn-around time.
Workers’ Compensation Fraud
Employees commit workers’ compensation fraud when they lie about a work-related injury or illness to receive medical and income benefits.
Common schemes including reporting a nonwork-related injury, exaggerating the extent of an injury, or getting a second job while continuing to collect benefits. Attorneys and doctors can take part in the fraud by submitting bills for unnecessary services or services that they never provided.
- Talk to your workers about safety in the workplace. Conduct trainings or develop fliers to educate employees about safety measures that make the workplace safer and prevent accidents. Learn more about workplace safety on our website at www.tdi.texas.gov/wc/safety/index.html.
- Develop a return-to-work program. Programs reduce workers’ compensation costs and fraud opportunities and allow employees to be productive while recovering. Learn about the Division of Workers’ Compensation’s Return to Work Program at www.tdi.texas.gov/wc/rtw/index.html.
- Stay in touch with employees. Follow the progress of employees’ recovery while out of work.
Residential mortgage fraud occurs when borrowers make false or misleading statements to get mortgage loans. Mortgage fraud also includes diverting escrow funds at settlement.
Title agent and escrow officers should look for the following warning signs to detect possible mortgage fraud:
- Excessive or undocumented repair bills, consulting fees, or marketing fees to be paid before or after closing
- Sales price increased shortly before closing with the difference to be paid in a note to the seller
- Request to ignore lender’s closing instructions or to disburse funds differently than shown on the settlement statement
- Last minute power of attorney without explanation
- No funds due from buyer, or cash paid to buyer
- Buyer required to use a particular broker or lender, or chain of title includes broker or lender
- Get referrals for real estate and mortgage professionals. Check the licenses of industry professionals with state, county, or city regulatory agencies.
- Be wary of agents who make unsolicited contacts or use high-pressure sales tactics.
- Look at written information, including recent comparable sales in the area and tax assessments to verify the value of the property.
- Understand what you are agreeing to and signing. Review all documents carefully. Ask an attorney for assistance if there’s something you don’t understand. Make sure the name on your application is your correct legal name.
- Review the title history to determine if the property has been sold multiple times within a short period. It could mean that the property has been flipped and the value falsely inflated.
- Know and understand the terms or your mortgage. Check your information against the information in the loan document to ensure they are accurate and complete.
- Never sign any loan documents that contain blanks. This leaves you vulnerable to fraud.
- Review your credit report annually. You can obtain a free credit report by calling AnnualCreditReport.com at 1-877-322-8228 or visiting www.annualcreditreport.com.
Additional Tips to Prevent Fraud
- Beware of really low premiums. Many schemes promise extensive coverage at a very low price. You can usually save money by shopping carefully, but be cautious of any plan or policy that costs significantly less than others you’ve priced.
- Get agent and company information from TDI. In addition to license status, TDI can provide you with an agent and company’s complaint index and financial ratings. The complaint index and financial rating help indicate whether a company provides good customer service and is financially stable.
- Take your time. Take as much time as you need when buying any type of insurance. Don’t let an agent or company representative pressure you into making a decision. If an agent is evasive when you ask about prices, coverage, or payment arrangements, be suspicious. Legitimate agents will respond to your questions and concerns and allow you all the time you need to make your decision.
- Always pay by check or credit card. Check and credit card payments can usually be traced and verified. If you pay by credit card, the credit card company might reimburse you in the event of fraud. If you must pay cash, be sure to get a receipt that shows the name of the company, the date, and the amount paid.
- Be cautious of policies sold door to door or over the phone. Unauthorized companies often use these methods to market their products. Insist on knowing a company’s physical address, and make sure you check that the company and agent are licensed. Even though policies sold in person or over the phone are sometimes legitimate, their rates are often higher and they provide less coverage than policies sold by traditional agents.
- Be as careful buying insurance on the Internet as you would for any insurance purchase. Many honest companies have websites that allow you to purchase insurance online. This can make shopping for insurance easy and convenient. But there are also many dishonest companies that use the Internet as a way to hide their bad practices. Be cautious of any emails trying to sell you insurance.
- Keep and protect your insurance documents. In addition to the actual policy, keep a copy of any paperwork you and the company send each other, such as advertisements, receipts, and claim information. Also keep notes of any telephone or in-person contacts with the company, including the name and title of the person you spoke with, the date, and what was said. Good recordkeeping can protect you in the event of a broken promise.
Reporting Suspected Fraud
Texas law requires you to report insurance fraud within 30 days. The law protects you from any retribution or liability as a consequence of reporting fraud.
If you think you’ve been a target of insurance fraud or you become aware of a fraud operation, report it to the TDI Fraud Unit. You can report suspected insurance fraud online or by calling our toll-free Consumer Help Line at 1-800-252-3439.
You can also report fraud online:
- For companies: www.tdi.texas.gov/fraud/frsiufrrpt.html
- For consumers: www.tdi.texas.gov/fraud/onlinereport.html
Report fraud complaints involving Medicare, Medicaid, or drug or health care discount programs to the Texas Attorney General’s Consumer Protection Hot Line
475-4413 in Austin
For answers to general insurance questions, for information about filing an insurance-related complaint, or to report suspected insurance fraud, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website
463-6515 in Austin
For printed copies of consumer publications, call the 24-hour Publications Order Line
305-7211 in Austin
To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hot Line
The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.
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