Hard Fraud

Deliberately causing or faking loss:

Examples:
- Faking death (stranger or John Doe)
- Staged accidents
- Arson for profit
- Phantom claims (no loss occurred)
- Intentional injury
- Murder for insurance proceeds

Characteristics:
- Premeditated
- Organized
- Criminal intent
- Serious penalties
- Felony charges

Soft Fraud (Opportunistic Fraud)

Exaggerating legitimate claims:

Examples:
- Inflating injury severity
- Padding expenses
- False additional damage
- Claiming unrelated items
- Exaggerating symptoms

Characteristics:
- Opportunistic
- "Everyone does it" mentality
- Still illegal
- Misdemeanor to felony

Suspicious indicators:

Policy-related:
- Recently issued (days/weeks)
- Large face amount
- Recent increase in coverage
- Multiple policies from different companies
- Recent beneficiary change
- Premium paid in lump sum

Death circumstances:
- Suspicious death (drowning, disappearance)
- Body not recovered
- Death occurred abroad
- Conflicting accounts
- Questionable cause of death
- Suicide made to look accidental

Beneficiary behavior:
- Immediate claim filing
- Pushy for payment
- Uncooperative with investigation
- Inconsistent statements
- Knowledge of death before reported
- Recent relationship with insured
- Financial motive

Application issues:
- Misrepresentation discovered
- False medical history
- Concealed pre-existing condition
- Impersonation at medical exam
- Forged signatures

Initial Review

Every claim screened:
1. Policy validity check
2. Premium status
3. Contestable period status
4. Beneficiary verification
5. Death certificate review
6. Red flag assessment

Enhanced Investigation

When red flags present:

Special Investigation Unit (SIU):
- Specialized fraud investigators
- Law enforcement background
- Advanced training
- Authority to investigate thoroughly

Investigation steps:
1. Document review:
- Application analysis
- Medical records
- Financial records
- Public records

1. Interviews:
2. Beneficiary
3. Family members
4. Attending physicians
5. Witnesses

6. Agent (if suspicious activity)

7. Third-party verification:

8. Coroner/medical examiner
9. Police reports
10. Hospital records

11. Employer verification

12. Surveillance (if warranted):

13. Background checks
14. Financial investigation
15. Social media review

16. Asset searches

17. Expert consultation:

18. Medical experts
19. Forensic specialists
20. Accident reconstructionists

Stranger-Originated Life Insurance (STOLI)

Investors buy policies on strangers:
- Find elderly person
- Offer money to apply for insurance
- Investor pays premiums
- Investor profits at death
- Lacks insurable interest
- Illegal in most states

Premium Fraud

Agent schemes:
- Collecting but not remitting premiums
- Fake policies
- Counterfeit receipts
- Embezzlement

Identity Theft

Fraudulent applications:
- Using stolen identity
- Impersonation at exam
- False documents
- Beneficiary identity theft

Staged Death

Faking own death:
- Disappear
- False identification of body
- Death abroad (hard to verify)
- Collect through beneficiary
- Reappear later with new identity

Mandatory Fraud Reporting

Most states require:
- Insurers report suspected fraud
- To state fraud bureau
- Within specific timeframe
- Criminal and civil penalties for non-reporting

National Insurance Crime Bureau (NICB)

Industry organization:
- Tracks insurance fraud
- Database sharing
- Assists investigations
- Partners with law enforcement

MIB Group (Medical Information Bureau)

Fraud prevention database:
- Codes from past applications
- Identifies inconsistencies
- Prevents shopping for coverage
- Detects non-disclosure

Required on applications:

Example statement:

"Any person who knowingly presents a false or
fraudulent claim for payment of a loss or benefit
or knowingly presents false information in an
application for insurance is guilty of a crime and
may be subject to fines and confinement in prison."

Variations by state:
- Different wording required
- Must appear prominently
- On application and claim forms

For Perpetrators

Criminal penalties:
- Felony charges
- Prison time (5-10+ years)
- Fines ($50,000+)
- Restitution
- Civil liability

Civil penalties:
- Claim denial
- Premium forfeiture
- Treble damages (3× amount)
- Attorney fees
- Court costs

For Agents

If agent involved:
- License revocation
- Criminal charges
- Civil liability
- Restitution orders
- Reputation damage
- Career ending

Agent responsibilities:
- Know your client
- Report suspicious activity
- Accurate applications
- Don't ignore red flags
- Cooperate with investigations

Insurer practices:
- Thorough underwriting
- Application verification
- Medical exam requirements
- Database checks (MIB, Rx)
- Background investigations
- Agent training
- SIU departments

Agent practices:
- Verify applicant identity
- Meet face-to-face
- Complete applications accurately
- Report suspicious circumstances
- Document everything
- Know anti-fraud laws

• Hard fraud: Deliberately faking loss - premeditated, criminal
• Soft fraud: Exaggerating legitimate claims - opportunistic
• Both illegal: All fraud is illegal, regardless of type
• Red flags: Recent policy, large amount, suspicious death, pushy beneficiary
• SIU: Special Investigation Unit - specialized fraud investigators
• Contestable period: First 2 years - enhanced investigation allowed
• STOLI: Stranger-Originated Life Insurance - investors buy on strangers, illegal
• Mandatory reporting: Must report suspected fraud to state authorities
• NICB: National Insurance Crime Bureau - industry fraud tracking
• Fraud warning: Required on applications and claim forms
• Penalties: Criminal (prison, fines) and civil (treble damages, restitution)
• Agent liability: License revocation, criminal charges if involved
• Prevention: Thorough underwriting, verification, database checks, training