Common types
Insurance fraud is an illegal act in which someone lies or intentionally misrepresents facts about insurance for financial gain. Knowing the common types of insurance fraud can help you recognize and prevent it.
- Unlicensed insurance: It is illegal to sell insurance in Texas without a license. Unlicensed companies usually don't meet the state's financial requirements and may not have the money to pay claims. Consumers and small businesses who have difficulty affording coverage are usually the victims of these schemes. You can learn a company's or agent's license status by calling our Help Line at 800-252-3439 or by visiting our website.
- Health care provider fraud: Doctors and hospitals commit fraud when they over-bill insurance companies for services they provided, bill for services they didn't provide, or perform unnecessary tests and procedures.
- Agent fraud: Insurance agents commit fraud when they sell fake policies, lie on an insurance application, or keep your premium for their personal use.
- Homeowner fraud: People commit homeowner fraud when they exaggerate or pad claims or file fake claims, including burglary and arson claims.
- Auto accident fraud: People commit auto accident fraud by padding their claims or filing a claim for an accident or theft that never occurred. Causing an accident and making it look like it was someone else's fault is also fraud.
- Mortgage fraud: Residential mortgage fraud occurs when borrowers make false or misleading statements to get mortgage loans. Mortgage fraud also includes diverting escrow funds at settlement.
Common schemes
Consumer schemes
- Staged vehicle accidents
- Swoop and squat: The "squat" vehicle slows down in front of the victim's vehicle. The "swoop" vehicle changes lanes in front of the "squat" vehicle as it comes to a sudden stop. The victim vehicle is unable to stop and rams the "squat" vehicle. The "swoop" vehicle leaves the scene. Popular targets are vehicles perceived to be fully insured, luxury cars, female or elderly drivers, and single occupant vehicles.
- Drive-down or wave-on: The suspect waves to the victim to proceed (e.g. out of a parking space) then purposefully drives into the victim's vehicle, making it appear the victim is at fault.
- Sideswipe: Suspect intentionally drifts into the outer lane while turning left from the inner lane of a dual-turn highway, causing the victim to hit his vehicle.
- Hit and run: Using a pre-damaged vehicle, the suspect falsely reports being involved in a hit and run accident.
- Backing: Victim’s vehicle collides with the suspect’s vehicle while backing out of a driveway or while backing out of a parking space in a parking lot.
- Phantom vehicle: Solo vehicle crashes due to vehicle of unknown origin/description.
- Paper accidents: Fabricating an accident report to collect insurance money for pre-existing damage.
- Vehicle theft / arson fraud
- Owner give-up: Vehicle owner files a false vehicle theft claim to collect insurance money. Common reasons include costly mechanical problems or inability to make monthly payments.
- Vehicle switch: An older or damaged vehicle is purchased at a modest price. Photos of a newer, undamaged vehicle are provided to purchase insurance. Within 6 months the vehicle is reported stolen and a claim is filed with the insurance company. The claim is paid, resulting in a huge profit.
- Personal injury and health care fraud
- Slip and fall: Hot spots for faking injuries include grocery stores, department stores and government facilities.
- Exaggerated injury: May result from a staged or caused collision or fabricated accident.
- Identity theft: Using another person’s identity to secure health care benefits.
- Disability or workers’ compensation: Person works while receiving benefits.
- False burglary and theft reports
Person falsely reports items lost in burglary or theft. The property may have been removed before the report. False police reports are made to substantiate the claim. Receipts for missing property are altered or fabricated. Multiple policies may be purchased to cover the same loss.
Health care provider schemes
- Health care provider bills for services and/or supplies not provided.
- Provider deliberately performs medically unnecessary services, claiming they were medically necessary.
- Clinic or hospital bills for services provided by an unlicensed provider.
- Durable medical equipment provider bills for new equipment when used parts were utilized or bills for equipment that was never provided.
- Cross border billing - Texas provider bills for services provided in Mexico.
- Third party administrator bills for services not performed or bills with a reimbursement code for a complicated procedure rather than the simple procedure provided.
Insurance company and agent schemes
- Deceptive agent practices
- Agent application fraud: Agent forges an insurance application using information from an unsuspecting person to obtain commissions.
- Clean sheeting: Agent conspires to acquire life insurance without disclosing life-threatening illness.
- Conversion: Agent retains customer premiums, provides the customer with fictitious insurance documents and issues fraudulent liability insurance cards. May involve the conversion of annuity funds.
- Churning: Agent induces customer to use cash value of existing policy to purchase a new policy, resulting in another commission for the agent.
- Fraud by company officials
- Submission of falsified financial statements.
- Misuse of company funds.
- Unauthorized insurance
- Insurance plans not authorized by the Texas Department of Insurance.
- Individuals not licensed to do the business of insurance in Texas.
- Fraudulent health plans.
Learn more about insurance fraud schemes and tips to prevent fraud in our Insurance fraud guide for consumers.