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Insurance Fraud: What You Need to Know

Tony Royall, a Virginia State Police officer, talks about how to protect yourself from insurance fraud.

For many of us, insurance seems inscrutable and unnecessarily complicated. But insurance fraud is the second most costly white-collar crime in the United States, and the victims are all of us. It’s important to know what steps to take to protect yourself. But the good news is that it’s not as difficult as you might think.


See Tips to Avoid Insurance Fraud with Tony Royall for a complete transcript of the Easy Prey podcast episode.

William “Tony” Royall has been with the Virginia State Police since 1986. He spent thirteen years working the roads, during which he was certified as an accident reconstruction expert. After a year and a half working on narcotics cases, Tony applied for a position in the insurance fraud unit. He initially applied because the narcotics unit had him working away from home and he wanted to be closer to his family. But insurance fraud piqued his interest, and he has been working insurance fraud cases for the past 22 years.

The Most Common Type of Insurance Fraud

The most common type of insurance fraud are staged claims on auto insurance, such as staged car accidents and staged car thefts. Often these are staged by organized rings of insurance fraudsters doing multiple staged accidents. (These “organized rings” are not organized crime. They are usually just a few people who agree to work together to stage an accident for an insurance payout.)

Staged car accidents are one of the most common kinds of insurance fraud.

Tony recently prosecuted a case with a ring of people committing insurance fraud through staged accidents. The core group of people in the ring was a woman, her older son, and her son’s friend. They would stage accidents by actually running cars together, then putting the woman’s younger children into one of the wrecked cars and claiming they were all in the vehicle. They did this over and over again, even altering and fabricating medical bills to make the claims bigger. One accident resulted in an insurance payout of $41,000. Tony ended up using her modified and forged medical bills to convict her federally on charges of healthcare fraud.

If we have staged accidents that are insurance fraud, it’s usually people who are complicit who are working together.

Tony Royall

In Virginia where Tony works, most staged accidents involve both parties working together for the purpose of committing insurance fraud. But this isn’t true everywhere. In California, for example, some people attempting to commit insurance fraud will pull out in front of a victim and slam on the breaks, while a collaborator in another car will drive next to the victim so they can’t move out of the way. The goal is to force the victim to rear-end them so they can get the insurance payout.

Insurance Fraud Against Businesses

Tony very rarely sees business owners trying to commit insurance fraud. More often it’s a crime of opportunity. A person sees an opportunity to pretend they were injured on business property, and they think they can use that to get a big insurance payout. Slip-and-fall cases are the most common, and they are very hard to disprove.

A few years ago, Tony looked at a case where a man had filed thirteen previous slip-and-fall injury claims against businesses. Injury can be very difficult to disprove, so Tony couldn’t find a way to convict him by disproving the injury. The man had filed for compensation for lost wages, and eventually Tony discovered that the business he claimed he lost wages from never existed and so could convict him on that.

Some people when opportunity presents itself take advantage of it.

Tony Royall

Convenience stores are an especially popular target for slip-and-fall insurance fraud. Most convenience stores have soda fountains, and those tend to leak. It seems like the perfect opportunity for those wanting to commit insurance fraud. Although there doesn’t always have to be a great opportunity. Tony has seen security footage of a woman pouring liquid on a Target floor, laying down, and screaming that she fell. It can be difficult for business owners to protect themselves from insurance fraud, but security cameras can definitely help.

When the Insurance Agent is the Fraudster

Tony has prosecuted a number of insurance professionals for insurance fraud. This happens more often in rural areas where everyone gets their insurance through one local insurance agent. Not every case is like this, however, and it can happen anywhere. And, of course, most insurance agents are not committing insurance fraud – but occasionally you get bad apples.

Sometimes an agent mishandles the insurance premium and puts it in the wrong account. Sometimes they just take the money and don’t bind the policy, or put the policy into effect. The victim ends up paying the premiums but having no insurance policy. Since the victim trusts the insurance agent, they don’t think to verify their coverage – until they need it and don’t have it.

A Unique Case of Insurance Agent Fraud

In Virginia, funeral directors can be appointed as insurance agents. One funeral home director was offering prepaid insurance for funeral expenses. Buyers could pay the insurance cost up front, and then their loved ones would have the insurance payout to cover their funeral. This funeral director helped his clients fill out the application and collected the payments, but never turned in the paperwork or payments to actually bind the policy, or put the policy in effect.

The insurance fraud wasn’t discovered until the son of one of his victims died. The victim inquired about her insurance policy to see if it had anything to cover her son’s funeral, and she discovered that she had no insurance at all. All of the victims had paid the premiums – around $10,000 apiece – for an insurance policy to pay for their funeral, and they all had no insurance whatsoever.

Tony thinks that case of insurance fraud was particularly heinous because it took advantage of elderly people. The funeral director was sentenced to ten years in prison, but the victims won’t be able to get that money back.

It’s NOT a Victimless Crime

Many people think that insurance fraud doesn’t hurt anyone. They reason that insurance companies have plenty of money. Spending a little of it on a fraudulent claim won’t actually hurt anyone. But that is not correct. The real victims of insurance fraud are all of us.

A lot of people think insurance fraud is a victimless crime … but the victims are you and me.

Tony Royall

Insurance companies are businesses. They have to show a profit. When we pay our insurance premiums, we’re paying into a pool of money. That pool of money is there in case the worst happens and we need money to deal with it, and it’s also where the insurance company’s profits come from. For every fraudulent claim the insurance company has to pay, our premiums go up.

The Coalition Against Insurance Fraud previously calculated that insurance fraud steals $80 billion dollars per year. They recently updated that number to $300 billion per year. This adds up to $200 to $1000 per month in increased premiums for us. Insurance fraud is not a victimless crime. The cost of the crime is just spread out. Instead of one victim paying the whole amount of the loss, thousands of victims – all of us – pay a small amount of it.

Insurance fraud is the second most costly white collar crime in the United States, behind tax evasion.

Tony Royall

What You Can Do to Protect Yourself

For many of us, insurance is complicated and inscrutable. Protecting yourself from insurance fraud seems like something way beyond the ordinary person’s abilities. But it’s not as difficult as you might assume. Tony has a few simple tips for reducing your risk.

Read and Understand Your Policy

Tony’s number one top tip for protecting yourself from insurance fraud is reading and understanding your insurance policy. It’s about as fun as watching paint dry, but it’s important. Find out what’s in it, what’s covered, and what’s not covered. Many insurance policies have similar provisions, but different states have different rules or exclusions that might be relevant to you.

Reading and understanding your insurance policy is Tony's #1 tip for protecting yourself from insurance fraud.

As an example, most policies have a low limit for personal property like expensive jewelry, artwork, and furs. If you have a lot of expensive jewelry and it’s lost or stolen, your insurance will only pay the policy limit. You could lose thousands of dollars if you have $15,000 worth of jewelry but only $2,500 in coverage. Adding a personal article rider can increase your coverage on those specific items. But you wouldn’t know you needed one unless you read your policy.

Make an Inventory

Make an inventory for things around your home. Especially document expensive or high-end items. Include the serial number, date of purchase, and receipt (or picture of the receipt) if you can. That way you have documentation in case the worst happens. Insurance companies love documentation. If something happens to your home, documentation will make your claim on your homeowners’ or renters’ insurance go much smoother.

Confirm Your Coverage

Occasionally insurance fraud is perpetrated by an insurance professional. An unscrupulous insurance agent could be taking your premiums but not binding your policy. If you are concerned about this, you can call and check with the insurance company directly. They will be able to confirm whether or not you have coverage. You may not be able to get your lost money back, but you will be able to catch the problem early and avoid losing more money.

Always follow up and verify everything; do your research on every contract.

Tony Royall

Protect Your Business

If you are a business owner, cameras are always a good decision. Make sure to have them in any areas that could seem like good spots for a fraudulent slip and fall. Keeping your premises clean is also an important step. It can be difficult for business owners to protect yourself from insurance fraud, but try to be as diligent as possible.

Be Wary of People at the Door

If you are a homeowner, be wary of unscrupulous contractors or self-proclaimed “public adjusters.” Tony calls them “storm chasers” because they go around after storms, tornadoes, or other weather events. They knock on your door, say that they see you have damage, and say that they can help you. Be very wary of anyone at your door offering services that you haven’t requested. It’s probably a scam.

Document Car Accidents

If you get in a car accident, document as much as you can. Make notes and take pictures. Document damage to your vehicle and the other vehicle. Get a picture of the other driver if you can – some insurance fraud cases involve confusion about who was driving. Note how many people were in the car when the accident happened. If you can, take pictures of the surrounding area and get information from witnesses. Write down as much as you can remember as soon as possible after the accident. More documentation is always helpful. You can politely ask the police officer who responds to note things on their report, but make sure you have your own documentation in case they don’t.

Never give the other driver money in exchange for them not making a claim against you. If they are a fraudster, they will take your money and make a claim against you anyway. And your insurance company might argue that you giving them money must mean you’re at least somewhat at fault. It’s always better to work it out through official channels.

Think Like an Insurance Company

The best way to deal with an insurance company and reduce the risk of insurance fraud is to think like an insurance company. Document everything. Take notes, take photographs. The more documents you have, the easier it is to work with your insurance company. And if it is a case of insurance fraud, the more documentation you have, the easier it is for Tony and other insurance fraud units to prove a case.

For more information on insurance fraud, you can visit stampoutfraud.com, a Virginia State Police site that has information and extra tips. For nation-wide resources, check out Coalition Against Insurance Fraud at insurancefraud.org. You can also report incidences of insurance fraud on both websites.

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