Common Types of Insurance Fraud and How to Avoid Them
Insurance fraud is a significant issue in New Zealand, costing policyholders and insurers hundreds of millions of dollars annually. Understanding the different types of insurance fraud and knowing how to avoid them can help protect both individuals and the broader insurance system. This article explores the common types of insurance fraud in New Zealand and provides practical advice on how to prevent and address them.
Types of Insurance Fraud
Insurance fraud can be broadly categorised into two types: soft fraud and hard fraud. Both types have serious implications and can lead to severe consequences for those involved.
1. Soft Insurance Fraud
Soft insurance fraud is the most common type of fraud and typically occurs when individuals exaggerate legitimate claims or take advantage of opportunities presented by circumstances.
Examples of Soft Insurance Fraud:
- Exaggerating Claims: Claiming for items that were never owned or were not lost during an otherwise legitimate insurance claim.
- Inflating Value: Stating that items lost were newer, more expensive, or worth more than their actual value.
- Combining Claims: Reporting items lost in separate incidents as part of a single event to increase the total claim value.
- Misrepresenting Ownership: Claiming that one person in a shared living situation owned everything that was stolen or damaged, especially if others do not have insurance.
- Duplicate Claims: Submitting the same claim to multiple insurance policies or claiming for the same loss more than once.
Soft fraud is often rationalised by individuals who believe that they are entitled to more because of the premiums they have paid over the years or because they perceive it as a common practice. However, it is still illegal and can have serious consequences.
2. Hard Insurance Fraud
Hard insurance fraud involves deliberate and premeditated actions with the intent to deceive insurers for financial gain. This type of fraud is more severe and often involves criminal activities.
Examples of Hard Insurance Fraud:
- Staging Burglaries: Faking a burglary to claim for stolen items.
- Intentional Damage: Deliberately crashing a car or setting a house on fire to claim insurance money.
- False Claims: Damaging property, such as a smartphone, to claim for a newer model.
- Collusion: Getting friends, acquaintances, or relatives to participate in fraudulent activities, such as staging accidents or thefts.
Hard fraud is calculated and repeated, aiming to exploit the insurance system for financial benefit. It is treated as a serious criminal offence and can lead to severe legal consequences.
Consequences of Insurance Fraud
Committing insurance fraud can have serious repercussions, including:
- Declined Claims: Insurers may decline fraudulent claims, leaving individuals without compensation.
- Policy Cancellations: Insurers can cancel existing policies and refuse to provide future coverage.
- Insurance Claims Register: Individuals committing fraud may be flagged in the Insurance Claims Register (ICR), making it difficult to obtain insurance in the future.
- Legal Action: Fraudsters can face prosecution, resulting in fines or imprisonment.
According to the Insurance Fraud Bureau (IFB) of New Zealand, insurance fraud not only affects the perpetrators but also leads to higher premiums and longer approval times for genuine claims, impacting all policyholders.
How to Avoid Insurance Fraud
Preventing insurance fraud requires awareness and proactive measures. Here are some strategies to avoid falling into the trap of committing fraud, whether intentionally or unintentionally:
1. Understand Your Policy
- Read the Fine Print: Thoroughly read and understand your insurance policy, including coverage details, exclusions, and conditions.
- Ask Questions: If any part of the policy is unclear, seek clarification from your insurer or a professional advisor.
2. Maintain Accurate Records
- Keep Documentation: Maintain detailed records of all insured items, including receipts, photographs, and appraisals.
- Update Records: Regularly update your records to reflect new purchases or changes in the value of insured items.
3. Be Honest and Transparent
- Full Disclosure: Provide accurate and complete information when applying for insurance or filing a claim.
- Report Changes: Inform your insurer of any changes in circumstances that may affect your coverage, such as renovations or changes in property use.
4. Avoid Rationalising Fraud
- Understand the Impact: Recognise that even minor exaggerations or omissions can constitute fraud and have serious consequences.
- Stay Informed: Educate yourself about the legal and financial implications of insurance fraud.
5. Report Suspected Fraud
- Use Reporting Channels: If you suspect fraud, report it to the Insurance Fraud Bureau (IFB) through their website or by calling 0508 372 835. Reports can be made anonymously and are kept confidential.
- Protect Your Information: Ensure that any personal information provided during the reporting process is protected under the Privacy Act 2020.
Insurance fraud is a pervasive issue that undermines the integrity of the insurance system in New Zealand. By understanding the common types of fraud and taking proactive steps to avoid them, individuals can help maintain a fair and effective insurance market. Always be honest and transparent in your dealings with insurers, maintain accurate records, and report any suspected fraud to the appropriate authorities.
For more information on insurance fraud and how to prevent it, visit the Insurance Fraud Bureau (IFB) and the Insurance Council of New Zealand (ICNZ) websites. These organisations provide valuable resources and support to help combat insurance fraud and protect all policyholders.