With the nation's economy in a lingering recession, there has
been a rise in the number of
attempting to commit fraud against policyholders.
How? By collecting your premiums with no plans to pay your
State insurance regulators and consumer groups across the
country are issuing warnings about dishonest or bogus insurance
agents and their efforts to separate you from your money.
The National Association of Insurance Commissioners (NAIC), for
example, says that phony insurance companies and their "agents" may
offer fake policies at below-market prices. The New York State
Insurance Department warns that you should watch for red flags that
may signal insurance fraud. They include high-pressure sales
tactics, door-to-door sales and TV ads that offer toll-free
Any offers that sound too good to be true probably are.
Types of fraud
Recently, California Insurance Commissioner Dave Jones announced
that an insurance agent had pleaded guilty to one count of grand
theft in a scheme that included robbing the agency where she was
cheating policyholders out of premium payments by not sending the
payments to the insurers. The agent was sentenced to 90-days and
ordered to pay $6,100 in restitution to the victims.
"Bilking Californians out of their premium payments leaves
consumers extremely vulnerable and potentially without coverage
should they get into an accident, have a health issue or suffer
damage to their home and it will not be tolerated," Jones said in a
written warning to consumers.
Con artists also victimize people who try to find affordable
health insurance, says the Coalition Against Insurance Fraud. False
or dishonest insurance agents typically market full-benefit
coverage but deliver bare-bones policies that offer little
agents often cover up thefts by issuing fake policies or other
false evidence of coverage. Often consumers don't learn they have
been cheated until they attempt to file a claim. Such frauds can go
undetected for extended periods and cost consumers large sums.
Another scheme: Instead of selling you a fake policy, a
dishonest agent may sneak unwanted coverage into your policy to
raise his or her commission. In another scam, agents convince the
elderly to cash out
policies so they can be sold new life insurance products they don't
The passage of federal health reform legislation in 2010 led to
a surge in health insurance fraud against consumers. The NAIC warns
that companies selling health discount plans may say they are
selling "insurance" when they really are selling an unregulated,
"Agent fraud has been around since insurance has been around,"
says Amy Bach, executive director of the United Policyholders
consumer organization. "The Internet brought a whole new round of
scams because it is pretty easy to hide your identity and
location." By the time you realize that you have been swindled, the
insurance agent you were dealing with is nowhere to be found.
Cash payments signal trouble
Brandt Minnich, vice president of marketing for the Mercury
Insurance Group, says you should beware of agents who want to deal
"When I have seen agent fraud perpetrated, it has been situation
where customers have been making payments in cash and not getting
receipts," he says. "Agents were taking the money and pocketing it.
The vast majority of agents are very upstanding, but there are
those bad apples who are out there."
Check insurance agent credentials
Patricia Lombard, spokeswoman for the Independent Brokers and
Agents of the West trade group, says state departments of insurance
are your best resource for checking agent backgrounds and
credentials. Typically you can do this on the website of your
state insurance department
. You can look up individual agents and make sure that their
licenses are valid before you sign any applications for
Your state department of insurance also may post warnings about
local insurance scams and information about recent enforcement
actions. If you believe a product you are offered isn't legitimate,
your state insurance department will want to hear about it.
You can increase your chances of working with a reputable
insurance agent by asking for references from past customers and
following up on them. Be sure to do your homework. Ask past and
present customers about their experiences and whether they received
help with problems stemming from insurance claims.