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Published: April 01, 2008
How to Avoid Becoming a Victim of Insurance Fraud
A Consumer Guide for Asian Americans
An illustrated brochure describing the warning signs of insurance fraud, with some concrete steps you can take to avoid becoming a victim. Though written specifically to help Asian Americans, this brochure contains information helpful to all consumers. It details several types of insurance fraud, such as: fake policies, premium fraud, unlicensed agents, unnecessary services, and insurance scams. It also describes how to get your money back and where to complain about insurance fraud.
- This publication is not currently associated with any training series.
- Web Version Only
Table of Contents
Insurance fraud costs billions of dollars every year. Insurance fraud includes a number of illegal activities involving the sale of insurance, and often involves criminal schemes.
One kind of insurance fraud targets unsuspecting policyholders. Many individuals are deceived when they buy worthless insurance policies. When disaster strikes, and policyholders seek reimbursement for damages, they find they have no coverage.
The 1992 riots in Los Angeles resulted in widespread vandalism and fire damage. Many business owners thought they had insured their stores and businesses against such unforeseen destruction. They paid regular payments--or premiums--to insurance companies in the belief that they were insured.
But following the riots, hundreds of Korean business owners found out that their policies were worthless. These victims learned the hard way that immigrant groups are becoming targets of fraud in increasing numbers nationwide. In a 1994 survey, state insurance commissioners from 12 states ranked fraud against recent immigrants as a significant problem.
Insurance fraud is sometimes committed by con artists who specifically target victims of the same culture, language or religious or ethnic background as their own. Gaining the trust of the victim unfortunately makes the scam work better.
Some real-life stories
Here are some real-life scams that made immigrants and limited-English-speakers into victims of insurance fraud.
- A Laotian woman in Sacramento, Calif., was arrested and charged with fraud for selling fake life insurance policies to at least 971 people in eight states through a mass mailing operation known as the Asian Assistance Center. The woman targeted members of her own ethnic community, whose cultural traditions require an elaborate burial ceremony. Potential policyholders were told they would receive benefits of $3,000 to $30,000 after their death to pay for funeral expenses. More than $400,000 in membership dues and life insurance premiums was collected from victims. The so-called Asian Assistance Center, never licensed to sell insurance in California or any other state, was shut down by law enforcement authorities.
- An Omaha insurance broker was charged with selling worthless car insurance policies to Omaha residents who spoke little English. Victims gave the broker a down payment and in return were issued insurance cards as evidence of coverage. The broker never validated the policies by forwarding the applications and the premiums to the insurance company. Because the cards were valid for a few days, victims were able to use them to register their cars. According to authorities who uncovered the scheme, most buyers thought they had purchased a legitimate car insurance policy.
Confusing the victim
Con artists can take advantage of their victims' lack of English, cultural traits and deep-seated habits. Recent immigrants from Asian countries do not realize that unscrupulous individuals purposely set out to confuse people who don't speak English well.
Insurance contracts are complicated. They are usually written in English. Newcomers probably have little or no knowledge of insurance laws and regulations. Scam artists prefer to prey on unsophisticated consumers.
The trust factor
It's natural for newcomers to feel more comfortable around people of the same background, and to trust people who speak the same language. Almost everyone prefers to do business with someone who has been referred to them by a relative, friend or co-worker.
But no matter who referred you to an insurance agent or company, it's important that you check them out. If you take a few steps outlined here, you can limit the odds of becoming a victim of insurance fraud. It's up to you to protect yourself!
Many types of fraud
Asian Americans and other immigrants have been victimized in a variety of insurance-related scams:
- Fake policies. If an insurance policy is issued by a company that is not licensed to do business, any paperwork or policies that it hands out are probably not worth the paper they are printed on.
Warning sign: The broker does not give you adequate information about the company underwriting the policy. At the very least, you should be given the name of the insurer, its address and a phone number for its customer service department. How to avoid: Before signing up for coverage or making any payment, check to make sure the insurance company is licensed with your state department of insurance. Also check the company's financial stability with one of these free insurance rating services: Standard & Poor's at (212) 208-1529; Moody's at (212) 553-0377; or Duff & Phelps at (312) 368-3157. Ask about the highest ratings each service gives and for how long the insurer has had its current rating. Stick to companies that have had the highest ratings for five or ten years.
- Premium fraud. This happens when agents or brokers keep the money paid by policy holders, instead of sending it to the insurance company. This results in no policy being issued--or it may cause existing coverage to be canceled.
Warning sign: After you sign up for insurance and pay a down payment, you do not receive a policy in the mail. Or you receive a notice of cancellation on your insurance when you know you paid the premium.
How to avoid: Make out your check or money order for the down payment payable to the insurance company-not the agent. Ask for a copy of all documents. Legitimate companies will bill you directly at your home or business address. Don't pay premiums in cash--use a check or a credit card instead. Cash transactions make it easy for con artists to steal your money, because there is no way to trace the payment or to prove you made it.
- Unlicensed agents. It is illegal to operate as an insurance agent or broker without the proper credentials.
Warning sign: If the agent is hard to contact, does not have an office or is seldom there, or does not sell insurance full time.
How to avoid: Most states require that insurance agents display their licenses where they can be seen by the public. A call to your state insurance department or other licensing agency will assure you that the license is real and up-to-date.
- Unnecessary services. Unscrupulous and/or unlicensed agents might encourage you to upgrade existing policies unnecessarily or to purchase additional coverage or buy financial products you don't need. The broker makes money off these transactions, at your expense.
Warning signs: You are contacted about an existing policy and told that it is insufficient for your needs. The broker is pushy and seems anxious to replace your existing coverage. When you go to buy coverage, you are told you must take other services you don't want in order to purchase a policy.
How to avoid: Read all fine print on all offers and ask what charges you will be liable for. If you are being asked to upgrade a life insurance policy, ask if the change will affect the current cash value of your policy. Ask the broker to put the reasons for his or her recommendations in writing to you so that you can show them to a friend.
- Insurance scams. There are many criminal activities designed to get money from insurance companies. These include faking auto accidents and billing for medical procedures that were never performed. Giving false information to insurance investigators is illegal and could result in cancellation of your insurance policy, as well as criminal prosecution, large fines and/or a prison sentence.
Warning signs: You are asked to be part of a fake auto accident or to say that you received medical care you did not receive. It could even be a lawyer or doctor or someone connected to them who asks you to participate. They may tell you that this is legal. No matter what the organizers of the scam tell you, lying about an insurance claim is illegal.
How to avoid: Never provide false information on insurance documents or lie to insurance investigators. Don't be tricked by promises of rewards. Do not get involved with anyone who tells you that it is legal to do this.
- Insurance is very complicated. You may have need of life insurance, health insurance, homeowner's insurance and auto insurance. There are many variations on all of these types of insurance. Agents are licensed to sell specific types of insurance, so make sure the agent has a license for the kind of insurance you need.
- Take the time to shop around. It will help you understand the different types of insurance. Compare the types of policies and descriptions of insurance offered by a few companies. With such an important purchase, it pays to get price quotes and descriptions of policies from at least two or three companies and compare them. Thoroughly investigate all policies and the company before you pay any money.
- Ask yourself if you need a certain type of coverage or amount of coverage. If your car is old and has very little value, you probably don't need collision insurance. For your house, don't let an insurance company sell you a policy with a higher replacement value than it would cost to rebuild it.
- If you misrepresent the facts about the property you are covering, or your health in the case of medical coverage, there can be a complete denial of coverage. If you are advised by anyone to put false or exaggerated information on an application, don't do it. You are the one who may lose the protection you are paying for.
Take a 'free look'
Most legitimate companies will allow you to have some time to look at any policy you buy, usually ten days after you receive your copy of the policy in the mail. If you don't understand the policy, ask someone you trust to go over it with you. You can change your mind--if you decide to cancel the insurance during this time, the company should give you a full refund of any premium paid.
Speaking your language
Insurance contracts are complicated legal documents. Even native English speakers have trouble understanding them. If your command of the English language is limited, look for companies that provide service in the language you speak. Ask for the help of a family member or a friend who is fluent in English.
Ask the right questions
When you are shopping for insurance with an agent, be sure to ask these questions. Always check the answers with your state insurance department--before you make any payments.
- Are you licensed to sell the type of insurance I need?
- Do I really need this type of insurance?
- Is this insurer licensed to sell policies in this state?
Getting your money back
It may be difficult or impossible to get your money back if you have been a victim of insurance fraud. Even trying to get your money back--and there are no guarantees--will take persistence and patience on your part.
You may decide to hire a lawyer. If you cannot afford an attorney, you may be able to get help from your local legal aid organization or a community group that offers free or low-cost legal aid.
You can look into filing a suit in Small Claims Court. As a fraud victim, your chances of winning a judgment are favorable. However, it may be very difficult to collect on the judgment, especially if the company or individual who defrauded you is not licensed.
Because it can be so difficult for victims of insurance fraud to get their money back, it's most important to do all you can to avoid becoming a victim in the first place.
Who to complain to about insurance fraud
- If you are a victim of insurance fraud, contact the appropriate law enforcement agencies. Their phone numbers can be found in the government sections--local, state and federal--in the front of your "white pages" telephone directory. Start with your state insurance department. Most state departments have a fraud investigation unit that will advise you.
- Another agency that may be able to help is your state attorney general's office.
- You can also contact your city or county district attorney's office. Many have special units that investigate consumer fraud and attempt to help victims of fraud recover lost funds.
- If your loss was very large, or if you get the sense that you have been victimized by an organized group of criminals, you may also contact the local office of the Federal Bureau of Investigation (FBI).
Contact the media
Almost every community has a TV or radio station that runs a special "action line" to help consumers. The media can be very responsive to stories about scams and rip-offs. Even if the station does not put your story on the air, action line staff members may offer some ideas to help resolve your complaint.
Consumer and community groups
The following groups can advise you on your complaint, and to refer you to the appropriate agencies in your area:
- Consumer Action, a nationwide non-profit consumer education and advocacy organization, offers a free complaint referral switchboard in San Francisco and Los Angeles. Staff members who speak Chinese, English and Spanish will help you locate government agencies and other non-profit groups to help with your insurance concern or complaint. (For contact information, see the end of this document.)
The following California-based groups offer multilingual referral services:
- Asian Law Alliance: This San Jose, Calif.-based group has multilingual volunteers who can answer questions and make referrals to attorneys. Call (408) 287-9710.
- Asian Law Caucus: This San Francisco based group holds a weekly legal advice clinic. Multilingual staff members can assist Chinese, Tagalog and Vietnamese speakers. Call (415) 391-1655.
- Asian Pacific American Legal Center: This Los Angeles based group provides multilingual legal assistance to low income individuals. Call (213) 748-2022.
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