Simply 13% of People put a excessive degree of belief in insurance coverage salespeople—just one share level above members of Congress—in line with a 2019 Gallup survey. (Nurses rank the very best for ethics.)
Sadly, there’s a sound motive for this distrust. Embezzlement of insurance coverage premiums, sometimes by insurance coverage brokers, ranks as the commonest sort of insurance coverage fraud within the U.S., in line with the FBI.
The FBI calls this crime “premium diversion.” In lots of instances, it includes an insurance coverage agent amassing premiums however failing to ship the cash to the insurance coverage firm that underwrites the coverage. As a substitute, the agent pockets the cash for their very own use.
For an unscrupulous insurance coverage agent, this type of fraud may be profitable.
For instance, a Kansas insurance coverage agent was convicted in February 2020 of insurance coverage fraud and associated costs in a scheme that netted her greater than $100,000. Amongst different issues, the agent collected premiums however by no means obtained protection for the shoppers or by no means submitted premium funds to insurers. In Could 2020, a choose sentenced the agent to 45 days in jail adopted by 36 months’ probation, and levied a $11,500 wonderful.
In an analogous case, an insurance coverage agent in Iowa faces three felony costs and one misdemeanor cost for allegedly creating faux insurance coverage insurance policies and paperwork for purchasers, after which accepting premium funds regardless that protection wasn’t in place. The state insurance coverage regulator already has revoked the agent’s insurance coverage license for 5 years, and has ordered him to pay a $3,000 civil penalty and $55,000 in restitution.
“The largest ethical and monetary hazard that insurance coverage shoppers face when coping with an agent is theft of their premiums, which leaves them dangerously uncovered in case they’ve a disaster that would basically wipe out their checking account. These are very severe crimes with a really severe potential influence on shoppers,” says Jim Quiggle, a spokesperson for the Coalition Towards Insurance coverage Fraud.
How Does This Form of Scheme Work?
Quiggle says an insurance coverage agent may steal premiums by amassing cash from a buyer and issuing faux paperwork that make it seem a buyer has a sound coverage when, actually, there is no such thing as a coverage. Or the agent may rip off a shopper by accepting premium funds for a reliable coverage however then depositing them into their private account as a substitute of a enterprise account.
In these instances, a buyer sometimes writes a examine to the insurance coverage agent quite than the insurance coverage firm that underwrites the coverage (like Allstate, Geico or State Farm), Quiggle says, and the cash by no means will get despatched to the insurer.
Most of the brokers who perform this type of rip-off are barely scraping by financially, so that they prey on the belief they’ve constructed with their purchasers to steal premium {dollars} and assist make ends meet, Quiggle says. This usually occurs in small cities the place insurance coverage brokers are “deeply embedded” in the neighborhood, he notes.
“Nearly all of brokers are moral and sincere. You may belief their phrase,” Quiggle says. “A small however disturbing minority loses their ethical compass and steals shopper premiums as a simple bailout after they fall on arduous occasions.”
An insurance coverage agent who’s stealing a shopper’s premiums normally is performing out of desperation, in line with Quiggle. In some instances, a conventional insurance coverage company could be feeling aggressive stress from digital insurance coverage choices that don’t depend on businesses, he says.
“They’re twiddling with their purchasers’ monetary well-being in change for short-term positive factors to assist prop up an company that probably is on the borderline or is failing,” Quiggle says. “They’re cornered they usually see no different manner out, so that they attain for the primary cash honeypot they will discover, which is their purchasers’ premiums.”
How Do You Know if Your Insurance coverage Agent is Stealing Your Premiums?
Sadly, an insurance coverage buyer probably gained’t notice that an agent has been stealing premiums till they attempt to file a declare, in line with Quiggle.
“That’s when the shopper first finds out that they’re fully bare and haven’t any safety for what could be a catastrophic declare, similar to a complete lack of a car or a home hearth,” he says.
At this level, the client may be taught that their coverage was canceled as a result of premiums weren’t paid or that they by no means had protection to start with.
A serious warning signal of potential premium fraud is that if the insurance coverage agent retains stalling whenever you ask for copies of your coverage or different insurance coverage paperwork, says Quiggle. Be cautious of repeated excuses like, “We had a pc glitch” or “There’s been a bureaucratic drawback.”
What Ought to You Do if You Suspect Your Agent is Stealing Your Insurance coverage Premiums?
Quiggle recommends that in the event you suspect your agent is stealing insurance coverage premiums, it’s best to contact the insurance coverage firm immediately. If this discovery is made whenever you’re attempting to file a declare, the insurer may go with you to cowl the declare regardless that a coverage won’t be in place. “You don’t have any assure,” Quiggle says, “however generally firms will likely be very understanding {that a} crime has been dedicated.”
One other advised step: Notify the insurance coverage regulator in your state.
“Insurance coverage regulators are very delicate to agent scams that happen on their watch,” Quiggle says. “The very last thing they need is an agent who’s defrauding residents of the state. As a result of in the event that they’re defrauding you, then there’s each likelihood that they’re defrauding doubtlessly dozens of different purchasers.”
How Can You Keep away from Being Ripped Off by an Insurance coverage Agent?
Quiggle says you may make a number of strikes to assist stop turning into the sufferer of an insurance coverage agent’s premium fraud:
- Verify along with your state insurance coverage regulator to ensure your agent is licensed. In some situations, prospects unknowingly purchase protection from somebody posing as an insurance coverage agent however who has no license to promote insurance coverage.
- Hold observe of your protection. Take detailed notes about all discussions you could have along with your agent and any guarantees they’ve made.
- Get the paperwork. Acquire the entire official paperwork related along with your protection. This consists of the coverage together with any endorsements and declarations that define your protection.
- Should you use a examine or cash order to pay your insurance coverage premium, be certain it’s made out to the insurance coverage firm, not a person agent or the agent’s enterprise. All the time ask for a receipt whenever you make a cost.
