If you are in the market for an insurance policy, we recommend you take a few steps to make sure you get what you are paying for. According to the FBI,1 the majority of insurance fraud schemes are perpetrated by bad faith agents or brokers against ordinary individuals trying to buy insurance for their home, car, or business. In essence, these schemes involve tricking a customer into paying for coverage that doesn’t exist – either because the policy itself is fake, or because the agent selling the policy is embezzling the customer’s premiums and letting coverage lapse. Not only do these scams harm the unsuspecting purchaser of the fake policy, who pay premiums without getting any coverage – they also leave third parties holding the bag when they try to make a claim on the policy.
While most insurance agents and brokers are honest, the old adage “trust but verify” is a wise practice for those buying a product as important as an insurance policy. Here are two common insurance scams consumers face and our advice on how to avoid them.
The most common insurance fraud scheme, according to the FBI, is when insurance agencies simply pocket a policyholder’s premium payments for personal use and fail to turn them over to the underwriting insurance company. Simply put, the scheme constitutes theft of a consumer’s insurance premiums and is a criminal offense.2
Known as Ghost Brokers, these unauthorized insurance agents sell fabricated policies. A Ghost Broker typically operates on the internet, offering enticingly low premiums to cash-strapped motorists desperate for an affordable policy. In some cases, the policies are legitimately sourced from an underwriter, only to be cancelled by the Ghost Broker after several months of premiums are paid up front. So, if you see miraculously cheap premiums advertised on social media, don’t reflexively pull out the credit card. At least not until following the steps below.
Preventative Measures We Recommend
Because an insurance customer is unlikely to realize they have been defrauded until they attempt to make a claim on their policy, we advise those shopping for insurance to take the following preventative measures:
- Before buying a policy, contact the Louisiana Department of Insurance to verify the licensure of the broker or agent trying to sell you a policy. In the case of a ghost broker, the LDI will be able to tell you definitively whether the purported agent is even licensed to sell insurance policies.
- Don’t pay your premiums in cash – pay with a check, or, if you pay online, keep track of your payment receipts so you can prove you paid the charged premiums. Always insist on getting a receipt.3
- Be organized. Maintain all documents related to the coverage you’ve bought, including the policy itself, any endorsements or declarations, and any correspondence between you and the agent and insurance company.
- If possible, write your premium checks to the insurance company itself rather than the agency. This creates an obstacle for an unscrupulous agent looking to embezzle your premiums.
If You Believe You Have Been Defrauded in Insurance Scams
- Go over the agent’s head and call the insurance company who underwrites the policy. If an insurance company finds out they have been unwittingly used to defraud customers, there is at least a small chance they will help you cover your claim even if no policy is in effect.
- Contact the Louisiana Insurance Department and report the suspected fraud so appropriate law enforcement agencies can conduct a criminal investigation.4
- Call a lawyer to find out if civil remedies are available.
JJC Law is a New Orleans law firm representing plaintiffs in a variety of issues related to insurance claims and coverage. Call (504) 513-8820 if you have questions you would like to discuss with an attorney.
1See FBI Report on Insurance Fraud, https://www.fbi.gov/stats-services/publications/insurance-fraud
2See “Pensacola Insurance Company Owner Arrested on Wire Fraud Charges; FBI Seeks Victims of Potential Fraud”, U.S. Department of Justice Press Release, June 7, 2021. https://www.justice.gov/usao-ndfl/pr/pensacola-insurance-company-owner-arrested-wire-fraud-charges-fbi-seeks-victims
3See “Investigating Insurance Fraud”, FBI News Release, January 31, 2012. https://www.fbi.gov/news/stories/investigating-insurance-fraud
4See “Louisiana Department of Insurance Serves Two Producers with Cease and Desist Orders, Summary Suspensions, Fines and License Revocations Notices”, LDI Press Release, June 11, 2021. http://www.ldi.la.gov/news/press-releases/6-11-21-ldi-serves-two-producers-with-c-d-orders