How dishonest insurance agents leave a path of destruction

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With the nation's economy in a lingering recession, there has been a rise in the number of insurance agents attempting to commit fraud against policyholders.

How? By collecting your premiums with no plans to pay your claims.

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 numbers.

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 protection.

Crooked insurance 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 life insurance policies so they can be sold new life insurance products they don't truly need.

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, non-insurance product.

"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 in cash.

"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 policies.

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.

 

 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Insurance

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