What Happens If An Insurance Agent Steals Your Premium Payments?
Just 13% of Americans put a high level of trust in insurance salespeople—only 1 percentage point above members of Congress—according to a 2019 Gallup survey. (Nurses rank the highest for ethics.)
Unfortunately, there’s a valid reason for this mistrust. Embezzlement of insurance premiums, typically by insurance agents, ranks as the most common type of insurance fraud in the U.S., according to the FBI.
The FBI calls this crime “premium diversion.” In many cases, it involves an insurance agent collecting premiums but failing to send the money to the insurance company that underwrites the policy. Instead, the agent pockets the money for their own use.
For an unscrupulous insurance agent, this sort of fraud can be lucrative.
For example, a Kansas insurance agent was convicted in February 2020 of insurance fraud and related charges in a scheme that netted her more than $100,000. Among other things, the agent collected premiums but never obtained coverage for the customers or never submitted premium payments to insurers. In May 2020, a judge sentenced the agent to 45 days in jail followed by 36 months’ probation, and levied a $11,500 fine.
In a similar case, an insurance agent in Iowa faces three felony charges and one misdemeanor charge for allegedly creating fake insurance policies and documents for clients, and then accepting premium payments even though coverage wasn’t in place. The state insurance regulator already has revoked the agent’s insurance license for five years, and has ordered him to pay a $3,000 civil penalty and $55,000 in restitution.
“The biggest moral and financial hazard that insurance consumers face when dealing with an agent is theft of their premiums, which leaves them dangerously uncovered in case they have a catastrophe that could essentially wipe out their bank account. These are very serious crimes with a very serious potential impact on consumers,” says Jim Quiggle, a spokesperson for the Coalition Against Insurance Fraud.
How Does This Kind of Scheme Work?
Quiggle says an insurance agent might steal premiums by collecting money from a customer and issuing fake documents that make it appear a customer has a valid policy when, in fact, there is no policy. Or the agent might rip off a client by accepting premium payments for a legitimate policy but then depositing them into their personal account instead of a business account.
In these cases, a customer typically writes a check to the insurance agent rather than the insurance company that underwrites the policy (like Allstate, Geico or State Farm), Quiggle says, and the money never gets sent to the insurer.
Many of the agents who carry out this sort of scam are barely scraping by financially, so they prey on the trust they’ve built with their clients to steal premium dollars and help make ends meet, Quiggle says. This often happens in small towns where insurance agents are “deeply embedded” in the community, he notes.
“The majority of agents are ethical and honest. You can trust their word,” Quiggle says. “A small but disturbing minority loses their moral compass and steals client premiums as an easy bailout when they fall on hard times.”
An insurance agent who’s stealing a client’s premiums usually is acting out of desperation, according to Quiggle. In some cases, a traditional insurance agency might be feeling competitive pressure from digital insurance options that don’t rely on agencies, he says.
“They’re fiddling with their clients’ financial well-being in exchange for short-term gains to help prop up an agency that likely is on the borderline or is failing,” Quiggle says. “They’re cornered and they see no other way out, so they reach for the first money honeypot they can find, which is their clients’ premiums.”
How Do You Know if Your Insurance Agent is Stealing Your Premiums?
Unfortunately, an insurance customer likely won’t realize that an agent has been stealing premiums until they try to file a claim, according to Quiggle.
“That’s when the client first finds out that they’re completely naked and have no protection for what might be a catastrophic claim, such as a total loss of a vehicle or a house fire,” he says.
At this point, the customer might learn that their policy was canceled because premiums weren’t paid or that they never had coverage to begin with.
A major warning sign of potential premium fraud is if the insurance agent keeps stalling when you ask for copies of your policy or other insurance documents, says Quiggle. Be wary of repeated excuses like, “We had a computer glitch” or “There’s been a bureaucratic problem.”
What Should You Do if You Suspect Your Agent is Stealing Your Insurance Premiums?
Quiggle recommends that if you suspect your agent is stealing insurance premiums, you should contact the insurance company directly. If this discovery is made when you’re trying to file a claim, the insurer may work with you to cover the claim even though a policy might not be in place. “You have no guarantee,” Quiggle says, “but sometimes companies will be very understanding that a crime has been committed.”
Another suggested step: Notify the insurance regulator in your state.
“Insurance regulators are very sensitive to agent scams that take place on their watch,” Quiggle says. “The last thing they want is an agent who’s defrauding residents of the state. Because if they’re defrauding you, then there’s every chance that they’re defrauding potentially dozens of other clients.”
How Can You Avoid Being Ripped Off by an Insurance Agent?
Quiggle says you can make several moves to help prevent becoming the victim of an insurance agent’s premium fraud:
- Check with your state insurance regulator to make sure your agent is licensed. In some instances, customers unknowingly buy coverage from someone posing as an insurance agent but who has no license to sell insurance.
- Keep track of your coverage. Take detailed notes about all discussions you have with your agent and any promises they’ve made.
- Get the paperwork. Obtain all of the official documents associated with your coverage. This includes the policy along with any endorsements and declarations that outline your coverage.
- If you use a check or money order to pay your insurance premium, be sure it’s made out to the insurance company, not an individual agent or the agent’s business. Always ask for a receipt when you make a payment.
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