What are the three most common types of insurance fraud?

| May 13, 2021 | Criminal Defense |

Many companies and people throughout California depend on various types of insurance. Whether you’re insuring a company or automobile, insurance can provide protection and peace of mind. However, some people seek to game this system by committing insurance fraud.

How does insurance fraud work?

Whenever someone attempts to exploit insurance contracts, they’re committing insurance fraud. Instead of protecting against risks, a person who commits this type of fraud is trying to unlawfully make money via an insurance provider.

Either a policyholder or policy issuer can be a guilty party in a case of insurance fraud. It is possible for a policy issuer to be guilty of insurance fraud, typically when they exaggerate a claim to get a large sum of money. However, the majority of criminal defense cases regarding insurance fraud will involve a policyholder.

The most common types of insurance fraud

There are a few common ways that people or companies commit insurance fraud. The first scheme is a premium diversion, which involves a business or person selling insurance with no license and not paying claims.

Sellers can also commit fraud through fee churning. Fee churning occurs when intermediaries take commissions to dilute premiums so much that no money is available to pay for a claim.

It’s also possible to commit fraud through asset diversion. This involves the theft of an insurance company’s assets. An example of asset diversion would be utilizing borrowed money to buy an insurance business and using the assets of this company to pay off debt.

As you can see, insurance fraud is a crime that comes in many forms, and the penalties can be severe. If you’re facing charges for insurance fraud, it would be a good idea to contact a criminal defense attorney.