Category: Insurance

Don’t Let Your Hard Work Get Washed Away

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Just because you don’t live anywhere near a body of water doesn’t mean you don’t need flood insurance. No one’s home is flood-proof. In fact, the Federal Emergency Management Agency (FEMA) says that 25 percent of all flood insurance claims are paid to homeowners in low or moderate risk areas. That’s because it doesn’t take a body of water, or even a major storm, to cause a flood. Anything from a broken sewer line to a slow moving rainstorm can be a culprit.

Flood damage isn’t covered under your homeowner’s policy, so you must purchase a separate flood insurance policy. FEMA is the only provider of this type of coverage; however, they make it available to the public through insurance companies. That means you can purchase a policy from the same insurance agent that wrote your homeowner’s insurance.

There are two types of coverage:

  • Standard Flood Insurance Policies – If your home is in a high-risk zone, you need this policy. The cost starts at about $500 a year but can run to almost $1,500, depending on a number of factors.
  • Preferred Risk Policies – If your home is in a low or moderate risk zone, your may qualify for a low-cost Preferred Risk Policy. Premiums start at just under $119 a year.

To get specific information about premiums, you can log on to the FEMA web site at https://www.floodsmart.gov/floodsmart/.

Flood insurance policies provide two types of coverage: one for the structure and another for its contents. They can be purchased separately or together, and the FEMA website will show the premiums if you buy them individually or in combination. There is a 30-day waiting period before both of the coverages take effect.

The structural coverage is “replacement cost” coverage, which means the insurer will pay what it costs to replace or repair the structure with materials similar in type and quality to what was originally used when the structure was built, without deducting for depreciation. The maximum amount of structural coverage available for one-to-four family homes is $250,000.

Contents coverage is “actual cash value,” which means the insurer will pay what the item is worth after it has deducted depreciation. The maximum amount of contents coverage is $100,000. Renters can also purchase contents coverage.

In addition to purchasing flood insurance to protect the contents of your home, you can also protect your valuables by taking individual photos of each item, or by taking a video of your home and zooming in on everything of value. This is extremely important if you need to provide your insurer with a detailed list of your possessions.

Keep the photos or video, along with any receipts you may have for the merchandise, in a safe location outside of your home, like a bank safe deposit box. This will ensure that your documentation isn’t lost if a flood or other natural disaster destroys your home.

Stop and Think Before Purchasing Insurance Online

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Online shopping has become an American pastime, and can be an exciting adventure. For nearly everyone, it is enjoyable to receive surprising new packages and offers in the mail. But would you want your insurance coverage to be a surprise? You may want to ask yourself some essential questions before making the decision to buy insurance online:

  • What questions should I be asking before making the purchase?
  • Am I certain about exactly what coverages I need?
  • Have I researched the insurance company, and are they legitimate?
  • Will the personal information I provide online be secure?
  • Will there be real savings in both time and money by making an on-line purchase?

When buying insurance, it is important to be confident about exactly what coverages you need. Since insurance varies widely from state to state, it is necessary to have a knowledgeable resource that understands your individual needs. If you need to file a claim, you want to be certain that the insurance you purchase will protect you. If you make the decision to use an online company that does not personally involve themselves with your insurance needs, you run the risk of being left without coverage. Take the time to ask questions. Additionally, an online insurance company should be asking questions of you, to ensure they are recommending the proper coverage.

Buying insurance online could endanger your personal security. You will be required to fill out long forms providing personal information about you and your family, including social security numbers and personal property information. The forms are sent over the Internet where there is a risk that they may fall into the wrong hands, especially if the online company does not take proper security precautions. Furthermore, how will you verify that the insurance company you select is legitimate? Despite the fact that one must have a license to sell insurance, there is no license required to establish a website that is designed to sell insurance online.

After studying insurance information such as your state insurance regulations, coverages you will require, and the security and legitimacy of an online company, you obviously will not be saving much time in making an online purchase. And, there is no guarantee that you will save money either. It may be convenient for the insurance company since they will not have to meet with you, but they will still need to provide you the proper coverage for the dollar amount of protection you need.

An insurance purchase should take place only after careful consideration, and should not include surprises. The decision to shop online may result in uncertainty about what you really get. Selecting a professional agent to prepare a personal insurance policy is a more reasonable choice. When you work with an independent insurance agent, you receive the benefit of their expertise and their industry knowledge. An independent insurance agent will help you get the protection you need based on your individual requirements, rather than taking a one-size-fits-all approach.

Uncovering Common Misconceptions About Flood Insurance Coverage

Posted on by shasha insurance

According to the National Flood Insurance Program (NFIP), flooding is this country’s most prevalent natural disaster. In the years between 1995 and 2004, flood losses in the U.S. averaged $867 million annually. There are about 4.7 million citizens who have taken advantage of the government’s flood insurance protection, however large numbers of at-risk Americans still refuse to find coverage.  After hurricane Katrina last summer, when nearly 80% of New Orleans was underwater, it is surprising that people would not seek such coverage, since their homeowner’s policies do not insure them against floods.

Part of the problem stems from the innate sense that if it’s offered by the federal government, applying for it must be: a) tied up in red tape, and b) too complicated due to all the exclusions. Both of these statements, however, are not true. Let’s examine some of the commonly held beliefs about flood insurance:

·   You can’t buy flood insurance if you are in a high-risk area.  Flood insurance is available to all homeowners and businesses in any community that participates in the NFIP. You can check to see if your community participates by visiting https://www.fema.gov/fema/csb.shtm. The only issue which would prevent you from obtaining flood insurance is if you reside in a Coastal Barrier Resource System location, or a location that is designated as an Otherwise Protected Area. Land that falls under these two categories are undeveloped areas along coastlines. The flood insurance program doesn’t provide coverage in these areas to discourage settlement where there is an extreme risk not only for flooding, but potential loss of life.

·   You can only get flood insurance if you are a homeowner.  Condominium/co-op owners, apartment dwellers, and commercial/non-residential building owners can purchase NFIP coverage. There is a maximum of $250,000 worth of coverage on a one-family residential building. The maximum per-unit coverage limit on a residential condominium/co-op association building is also $250,000. Contents coverage for any residential building is limited to $100,000. Commercial/non-residential structures can be insured for a maximum of $500,000. You can also insure the contents of commercial buildings up to $500,000.

·    You have to wait 30 days for flood insurance protection to take effect. Usually there is a 30-day waiting period from the time a policy is purchased until you are covered. However, there are some exceptions. There is no waiting period if you already have a flood insurance policy, but need more coverage to increase, extend or renew a loan, such as a second mortgage, home equity loan, or refinance. Coverage is effective immediately, as long as you pay the premium at or prior to loan closing. There is a one-day waiting period when additional coverage is requested because of a map revision. This applies when the NFIP revises the map so that a non-Special Flood Hazard Area becomes a Special Flood Hazard Area. Coverage must be purchased within 13 months following the map revision to be applicable for the reduced waiting period.

·   You can get Federal Disaster Assistance even if you don’t have your own flood insurance policy.  The Federal Disaster Program will only provide coverage to uninsured individuals or businesses if the affected area is declared a federal disaster area, which occurs less than 50% of the time.  Statistics show the awards average about $4000 dollars and most are made in the form of a Small Business Administration Loan, which must be paid back with interest.  Furthermore, the award recipient must carry flood insurance for the duration of the loan.

To learn more about the terms of flood insurance coverage, log on to https://www.floodsmart.gov/floodsmart/pages/faq_policy.jsp.

Source: FEMA Publication F-216 (08/04) and www.floodsmart.gov

Does Your Builders Risk Policy Cover Soft Costs?

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Work on the new office complex was progressing on schedule. The owner had lined up tenants for two-thirds of the space and was in talks with several others. The general contractor expected to finish construction on time. All that changed when fire broke out on the first floor late one afternoon. It spread from a stack of drywall awaiting installation to a pile of scrap plywood, where the wind picked up the flames and carried them to the structure. Drywall, insulation and plastic wiring all soon ignited. Firefighters were able to contain the blaze and limit the damage. However, it would now take an additional two months to complete the project because the contractors would have to clean up the debris from the fire and ensuing water damage, order replacement materials, and re-do much of the first floor’s construction. The owner faced the certainty of thousands of dollars in lost rents and additional interest on the construction loans.

The owner and general contractor had purchased a builders risk insurance policy to cover damage to the project. They would have coverage for the lost rents and interest expenses if the policy included special protection known as “soft costs coverage.”

Soft costs are costs or reduced income resulting from a delay in a project’s completion. They include expenses such as:

* Lost rents

* Additional interest on loans

* Additional real estate taxes

* Additional advertising costs

* Additional insurance premiums

Some builders risk policies have this coverage built in, while others provide it only if the insurance company adds it and charges an additional premium. The insurance covers the named insured for loss of income and additional expenses that result from direct physical loss of or damage to the covered property. There is no coverage unless the peril causing the loss is one that the policy covers for direct damage. For example, the policy will cover losses caused by fire but not losses caused by faulty workmanship. The lost revenue and extra expenses must accrue during the period starting a specified number of days after construction would have been complete if no loss had occurred and the date construction actually was complete. Some policies limit this period to no more than six or 12 months.

Soft costs coverage may provide one limit of insurance that applies to all covered losses, or it may have separate limits for different types of losses. For example, one company’s policy defines “soft costs” as loss of rental income, loss of gross earnings, additional interest and finance expenses, and additional expenses. The policy could have separate limits for each of these categories. A waiting period deductible applies, though some policies may apply a dollar deductible to losses that occur in a lump sum, such as legal fees. Some policies may also set a maximum amount that they will pay for any one month. They do not cover certain types of losses, such as those caused by strikes, breach of contract, design errors and omissions, lack of funds for repair or reconstruction, building laws and ordinances, and others.

The insurance company will determine the value of a loss by calculating the actual amount of income lost or extra expenses incurred during the delay period because of the delay. It will pay the amount of the loss or the amount of the insurance purchased, whichever is less.

A contractor should work with a professional insurance agent or broker experienced in arranging builders risk insurance. To make sure that the coverage terms and limits are appropriate, the contractor and broker should review the building contract, financing agreements, construction schedules, and other related documents. The type and amount of coverage will vary from one project to another, so it is important to give careful attention to each job’s particular circumstances.

The Impact of Moving Violations and Driver’s License Points on Your Insurance Premiums

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Americans love to hear about point systems. After all, many involve us earning desirable rewards, discounts, and freebies. However, not all point systems are about earning something desirable.

In most states, you earn points on your driver’s license after being ticketed for moving violations like running a red light or stop sign, illegal u-turns, unsafe lane changes, and so forth. While no driver relishes the thought of paying moving violation tickets, the financial implications are actually much broader when the points accumulate. This could be in the form of higher insurance premiums or even the suspension of your driving privileges. The details of the point system vary by state. For example, some states assess points to drivers that are at fault in an auto accident. That said, most point systems will assess points one of two ways:

1. One point per basic moving violation, with two points being assessed for speeding violations that involve the driver substantially exceeding the posted speed limit. Drivers assessed either eight points over three years, six points over two years, or four points over one year will have their license suspended.

2. Two points for incidences like slightly breaking the speed limit, an illegal turn, or other minor driving violation. Drivers with more serious moving violations, such as running a red light or stop sign, will be assessed three to five points. Drivers that are assessed 12 points within a three year period will have their license suspended.

Should you get a moving violation ticket, you’ll want to look for the vehicle code violation number on the front of your ticket and contact your state department of motor vehicles. Be sure to ask the number of points, if any, the violation carries; how many points you already have; and how many points will result in a license suspension.

These points can cause your insurance premiums to increase by 20% to 30%. Most insurers will regularly review the driving records for all their customers. Depending on your insurer’s policy and state’s laws, some insurers may be able to raise your premiums for just a single point. Most insurers will allow one moving violation every couple of years before they raise your premiums, but check with your insurer to determine their specific policy.

Can I Avoid/Remove Points?

You can contest the ticket. This may be especially prudent if your points are nearly suspension levels. Keep in mind that contesting the ticket is an iffy proposition in that avoiding the point will depend on you being successful.

An option that offers more certainty in avoiding the point is paying the ticket and attending traffic school. However, some jurisdictions will not allow anyone ticketed for driving fifteen m.p.h. or more over the speed limit to attend traffic school. If you’re eligible, then you may need to attend anywhere from once a year to once every two years, depending on your jurisdiction. Some states will require a court appearance or visit to the court’s clerk to enroll in the class, while other traffic schools are completed online. Some traffic schools give you the basic information with a splash of humor to make it less boring, while others may require you to sit through eight hours of lecture and films on gruesome accidents. In any case, it shouldn’t be too big a sacrifice when you consider the alternative higher insurance premiums from the point(s) going on your record.

Driver education courses, such as a defensive driving class, can help you remove existing points from your license. The department of motor vehicles for your state can give you a listing of applicable options.

In closing, insurers typically either avoid risk or charge exorbitant premiums to take it on. Having a number of moving violations is a strong indicator that you have habits that could lead to costly accidents and claims, and would therefore be a risk to insure. Most insurers do understand that humans err occasionally, but you’ll have the best chance at keeping your rates down by avoiding traffic violations altogether. 

Taking the Mystery Out of Surplus Lines

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It is probably safe to say that most people do not know the difference between “surplus” (also referred to as Non-Admitted, E & S or Excess & Surplus) and “admitted” lines.  However, understanding the important similarities and differences will help make you an informed insurance consumer.

Many insurance consumers are completely untouched by the surplus lines marketplace.  Still others purchase coverage from surplus lines carriers unaware of that fact.  If you buy coverage from a Lloyds of London syndicate, you may think you are simply buying from a foreign insurer, but in fact, you may be buying coverage from a US based subsidiary of a large insurance company. 

Surplus lines insurers operate in hard and soft markets, but they thrive when admitted companies withdraw from the marketplace leaving them to fill the void in certain coverage lines.  According to the National Association of Professional Surplus Lines Offices, Ltd.(NAPSLO), while the property/casualty industry grew by 11% during 2001, the surplus lines portion of the industry grew by nearly 35%, reflecting the hardening of the market and the contribution of the events of 9/11.    

Following are a few highlights of the differences between surplus lines and admitted:

·        Admitted insurers usually have to file and receive approval for their rates and policy forms in most states in which they operate.  Some states only require that rates be filed, others require only forms.  Some require the insurer to withhold a product from the marketplace until they have received approval. Other states allow what is called “use and file” meaning the insurer is free to use the form and rates, but must file them with the state and if necessary, make any changes that the state requests in order to comply with its rules and regulations.  Surplus lines insurers do not have to go through this rigorous process and can react more quickly to changing internal and external conditions and events.

·        Surplus lines insurers must work with surplus lines brokers to comply with certain state required filings such as surplus lines taxes, which vary, but usually range between 2 – 4% of the premium.  Surplus lines brokers also file affidavits acknowledging what is called a diligent search that states the insured risk was submitted to the admitted market but received declinations from those specific carriers.  Admitted insurers bear the responsibility of paying whatever state taxes are required.  These taxes are figured into their pricing models so the premium you pay includes any tax payable to the state.  In the case of surplus lines, all taxes and fees are built on top of the basic premium.

·        Admitted carriers must comply with state requirements for policy language, most notably, cancellation and non-renewal requirements.  While most admitted policies require a 30 or 60 day notice to the insured if the carrier intends to cancel or non-renew the policy, most surplus lines insurers reserve the right to cancel or non-renew for any appropriate reason.  Despite this difference, and the language to this effect built into the admitted policy, surplus lines insurers are in many states required to adhere to the same standards. Despite the freedoms they enjoy, there are a myriad of rules and regulations that surplus lines insurers must contend with, including a rigorous and costly state licensing system that puts the insurer on the map as a “white-listed” carrier.

·        Probably the most noticeable difference between the two insurance types is the availability of funds to pay for claims should the carrier become insolvent.  If you buy a policy from a surplus lines insurer, you should be aware that the state guaranty funds will not apply should your carrier’s insolvency leave you stranded when a claim occurs.  Not so with admitted carriers.  However, NAPSLO points out that in 2002, as has been the case in previous years, the median Best’s Rating for surplus lines carriers was A, versus the industry as a whole, which maintained a median rating of A-.   Naturally, it becomes more important to monitor your carrier’s rating with a surplus lines policy.

While the differences are many, the nuts and bolts of both types of policies are virtually identical.  Different compliance endorsements attached to admitted or surplus lines policies will be the only differences you notice.  While the preference, all other things being equal, should always be admitted, there are many reasons to feel comfortable with a surplus lines policy, particularly if it is backed by a financially sound and stable insurance company.  Many surplus lines companies have been paying claims for decades, and in some cases, centuries!

Just Because You’re a Renter Doesn’t Mean You Don’t Have Insurance Needs

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Many renters mistakenly believe that they don’t need renter’s insurance or view it as an expensive luxury. However, insurance needs aren’t negated just because one happens to be renting their home.

For those not familiar with renter’s insurance, it’s an insurance coverage that protects the renter from property losses from damages like water and fire. It also provides protection for liability risks, such as lawsuits brought by the landlord of the property, pet attacks, falls and slips, and guest accidents. This type of coverage is available in most areas and has an average $20 monthly premium rate for around $500,000 dollars worth of liability coverage and $20,000 dollars worth of property coverage.

Trusted Choice, a network of financial and insurance service firms, recently found in a survey that almost 25 million American home renters didn’t have any insurance coverage to protect themselves from losses and that most renters have limited, if any, knowledge of renter’s insurance.

Eight percent of the respondents without renter’s insurance had never heard about renter’s insurance before. Meanwhile, 17% said they weren’t aware that they needed renter’s insurance and 26% percent felt that renter’s insurance was too costly.

According to the study, some renters also mistakenly believed that their insurance needs were covered under the insurance policy held by their landlord. In reality, landlords don’t typically insure anything other than the building and infrastructural elements like HVAC systems and elevators. Other losses incurred will be directly on the renter’s shoulders. Even negligent actions caused by one tenant, such as a fire, that affects other innocent tenants in the building aren’t typically covered by the landlord’s insurance.

Other key findings of the study included:

* Fifty percent of the surveyed renters owned pets. Thirty-two percent of the non-pet owners had renter’s insurance. Although renters that own pets have a higher liability exposure than renters without pets, a mere 26% of the pet owners had renter’s insurance.

* Eighty-nine percent of the surveyed renters owned at least one expensive electronic device, such as a computer, camera, digital recorder, or home theater system. This group was more likely to have a renter’s insurance policy than those that didn’t own such devices.

* Fifty-three percent of the surveyed renters owned at least one form of exercise or sports equipment, such as a skis, bicycles, or a home gym system. This group was more likely to own renter’s insurance than those that didn’t own such equipment.

* Only thirty-one percent of the renters operating a home business from their apartment, condo, or other type of rental unit had renter’s insurance.

What Should You Consider When Shopping for Lawyer’s Professional Liability Insurance?

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Controlling expenses is an important consideration in the management of any law firm, so it isn’t unusual that a firm shopping for liability coverage would take premium rates into consideration. However, even though rates are important, they shouldn’t be the overriding factor in your decision to purchase a particular policy. There are a number of other aspects you should consider to ensure you receive the best coverage for your premium dollar.

The first of these considerations is whether your policy has eroding coverage.  In some liability policies, the coverage limits include defense costs. When you file a claim, the amount of coverage for settling the claim or paying a judgment against you decreases as you incur defense costs. This type of policy is referred to as having defense costs “inside” the policy. There are policies in which the defense costs are “outside” the policy, which means they are not subtracted from the amount of coverage. In some cases, policies with outside defense costs have a cap after which the defense costs are subtracted from coverage limits.

The second consideration is whether the policy deductible includes defense costs. If the deductible is only applied to liability, the insured firm doesn’t have to pay it until there is a settlement/judgment. However, if the deductible includes defense costs, the insured pays as soon as defense expenses begin to mount until the deductible is paid in full.

Another condition that you will want to note is whether your carrier can settle a claim without your consent. Some policies have what is known as a “hammer” clause that prevents the insurance company from settling without the consent of the insured. There is an extenuating circumstance to this clause in that, if the insured refuses to consent, the carrier is only liable for the amount for which it would have settled.

You also need to determine if your policy gives you the right to select your own defense counsel. More than likely, if you are a small firm your carrier will retain the right to choose your defense counsel. This doesn’t mean that you won’t have any input at all. Most insurance companies have a panel of defense attorneys and generally allow the insured to select from this panel. Larger firms can typically select their own counsel but the carrier must approve.

All current Lawyer’s Professional Liability policies are issued as “claims-made” policies, which means that a claim must be made and reported to the carrier within the life of the policy. To prevent coverage gaps if your firm is changing policies, you should select a new policy that has a “prior acts coverage” clause. This will extend your coverage so that any claims that existed before the new policy started will be covered. If you don’t have prior acts coverage, your former claims-made policy will not cover claims that developed after it expired and your firm will be without coverage for those claims.

A number of changes in both federal and state court procedures have made sanctioning more commonplace. The cost to defend your firm against a sanction or to pay the monetary penalty associated with it can be extremely expensive. That’s why you will want to ensure your liability policy provides coverage for these occurrences.

The final consideration is whether the policy requires a new deductible if there are multiple claims made in the same policy year. Some policies only require the deductible to be applied to the first claim made in a given policy year. Other policies treat the deductible on an aggregate basis. The policy will stipulate a specific deductible dollar amount per claim, with a cap on the total deductible dollar amount in the aggregate that the insured will have to pay before coverage begins. If neither of these scenarios is spelled out in your policy, your coverage most likely requires applies deductible for each claim.

Don’t Forget Insurance for Your Organization’s Cyber Risks

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The federal Internet Crime Complaint Center received over 330,000 complaints in 2009, and more than a third of them ended up in the hands of law enforcement. The damages from those referred to the authorities totaled more than a half billion dollars. The Government Accountability Office estimated that cyber crime cost U.S. organizations $67.2 billion in 2005; that number has likely increased since then. With so much of business today done electronically, organizations of all types are highly vulnerable to theft and corruption of their data. It is important for them to identify their loss exposures, possible loss scenarios, and prepare for them. Some of the questions they should ask include:

What types of property are vulnerable? The organization should consider property it owns, leases, or property of others it has in its custody. Some examples:

* Money, both the organization’s own funds and those it holds as a fiduciary for someone else

* Customer or member lists containing personally identifiable information, account numbers, cell phone numbers, and other non-public information

* Personnel records

* Medical insurance records

* Bank account information

* Confidential memos and spreadsheets

* E-mail

* Software stored on web servers

Different types of property will be susceptible to various threats, such as embezzlement, extortion, viruses, and theft.

What loss scenarios could occur? The organization needs to prepare for events such as:

* A fire destroys large portions of the computer network, including the servers. Operations cease until the servers can be replaced and reloaded with data.

* A computer virus infects a workstation. The user of that computer unknowingly spreads it to everyone in his workgroup, crippling the department during one of the year’s peak periods.

* The accounting department discovers a pattern of irregular small funds transfers to an account no one has ever heard of. The transfers, which have been occurring for almost three months, were small enough to avoid attracting attention. They total more than $10,000.

* A vendor’s employee strikes up a casual conversation at a worker’s cubicle and stays long enough to memorize the worker’s computer password, written on a post-it note stuck to her monitor. Two weeks later, technology staff discover that an offsite computer has accessed the human resources database and viewed Social Security numbers, driver’s license numbers, and other personal information.

In addition to taking steps to prevent these things from happening, the organization should consider buying a cyber insurance policy. Several insurance companies now offer this coverage; while no standard policy exists yet, the policies share some common features. They usually cover property or data damage or destruction, data protection and recovery, loss of income when a business must suspend operations due to data loss, extra expenses necessary to maintain operations following a data event, data theft, and extortion. However, each company may define these coverages differently, so reviewing the terms and conditions of a particular policy is crucial. Choosing an appropriate amount of insurance is difficult because there is no easy way to measure the exposure in advance. Consultation with the organization’s technology department, insurance agent and insurance company may be helpful. Finally, all policies will carry a deductible; the organization should select a deductible level that it can afford to pay and that will provide it with a meaningful discount on the premium. Once management has a thorough understanding of the coverages various policies provide in relation to the organization’s exposures, it can fairly compare the costs of the policies and make an informed choice.

Computer networks are a necessary part of any organization’s environment today. Loss prevention and reduction techniques, coupled with sound insurance protection at a reasonable cost, will enable an organization to get through a cyber loss event.

The Many Colors of Insurance Fraud – And How to Prevent It

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According to the Coalition Against Insurance Fraud, a division of the Insurance Resource Council, one in five Americans or 45 million people say it is okay to defraud an insurance company in certain circumstances.  Furthermore, according to a 2008 Four Faces study by the IRC, consumer tolerance of of specific insurance schemes has increased over the past ten years. To be more specific, the study says there is a decline in the number of Americans who believe it is unethical to:

  • misrepresent facts on an insurance application to lower their premiums (82 percent today, down from 91 percent in 1997);
  • file a claim for damage that occurred before the damage was covered (85 percent, down from 91 percent);
  • inflate a claim to cover the deductible (84 percent, down from 91 percent); and
  • misrepresent an incident in order to be paid for an uncovered loss (84 percent, down from 92 percent).

Insurance fraud comes in many different shapes, colors and sizes.  The one common denominator is that, regardless of the form it takes, it costs insurers, and ultimately you, the consumer, billions of dollars per year.  What are some of the different types of fraud that take place and what can be done to prevent it?

Insurance fraud cuts a broad swath through the insurance industry and can occur anywhere in the insurance transaction from fraudulent applications for coverage to fraudulent filing of claims.  Insurance fraud is not only committed by the insurance buyer, but by attorneys, physicians, and other third parties to the insurance transaction.  Even insurance company employees have been caught bilking their employers. Following are some sobering statistics:

  • Fraudulent and abusive auto-injury claims are a costly problem. Fraud and “buildup” added $4.8 billion to $6.8 billion in excess payments to auto injury claims in 2007. That means 13-percent to 18-percent increases in payments under private-passenger auto policies from 2002. (Insurance Research Council, Nov. 2008)
  • Auto insurers lost $16.1 billion due to premium rating errors in private-passenger premiums in 2007. Premium rating errors account for 10 percent of the $166 billion in personal auto premiums. Fraud accounts for a portion of these losses. Some drivers will seek to lower their premiums by schemes such as deliberately misrepresenting mileage driven, how the vehicle is used and where it’s registered. (Quality Planning Corporation, 2008)
  • More than $2.4 billion in recoveries for fraud, waste and abuse in federal healthcare programs are expected for the first half of FY 2009 (October 2008 through March 2009). Some 1,415 individuals and organizations also were excluded from federal programs for fraud abuse; 293 criminal actions were brought, as were 243 civil actions. (Semiannual Report to Congress, Office of Inspector General, Department of Health and Human Services, Office, 2009)
  • Medicare and Medicaid lose an estimated $60 billion or more annually to fraud, including $2.5 billion in South Florida. (Miami Herald, August 11, 2008)
  • Medical identity theft comprises about 3 percent (249,000) of 8.3 million overall victims of identity theft. (Federal Trade Commission, Identity Theft Survey Report, 2007)

With the advent of the Internet, an aging population, and other trends making insurance fraud a lucrative business, it will be difficult to completely eradicate the problem. Federal and state authorities, insurers, and consumer watchdog groups are all working diligently to stem the tide of insurance fraud.  Here’s what you can do:

  1. First, and most obvious is to not commit fraud.  The temptation to lie on an insurance application to get a better rate, an example of what is called soft fraud, should be tempered by the fact that it increases the risk of insurers canceling or even rescinding coverage upon evidence of the fraud, not to mention the legal implications.
  2. Ask for detailed medical and repair bills and examine closely for unusual or suspicious charges.
  3. If you are involved in or witness an accident that appears to be of a suspicious nature, and you feel that it may have been staged, report the incident to local law enforcement.
  4. Report fraud when you become aware of it.   If your state does not have a hotline, your insurance company probably does.  So does the National Insurance Crime Bureau.  A hotline exists for Medicare and Medicaid, and you can go on the Coalition Against Insurance Fraud’s website for further information on reporting fraud (www.insurancefraud.org).
  5. As with credit card and social security numbers, guard your insurance identification card numbers and report any theft.