General, Insurance

Common Insurance Scams in Pakistan & Their Consequences

Insurance fraud happens when an individual tricks an insurance company into giving them money or benefits they do not deserve. This can include lying on an application, making up events that never happened, overstating the bad situation, or giving false info to get paid for unreal or less serious losses. Examples of fraud are staging fake accidents, claiming stolen items that were never lost, or increasing repair costs for damaged property.

The FBI has identified common types of fraud, including misappropriating funds intended for insurance, staging accidents, billing for unnecessary services, claiming non-existent lost items, inflating repair costs, concealing assets, and engaging in fraudulent activities related to workers’ compensation. These deceptive claims contribute to the immense amounts lost each year due to fraud, a serious issue that the Government of Pakistan and several organizations are actively addressing.

Fraud can lead to severe consequences, such as criminal charges, difficulties in obtaining insurance, and even imprisonment. It adversely impacts society by wasting resources and increasing costs. Insurance companies work hard to process valid claims quickly, but fraud remains a significant concern. That is why they invest considerable money in detecting and avoiding fraud to safeguard their honest clients.

Most Common Scams

It is significant to know the multiple types of insurance frauds commonly committed in Pakistan. To raise awareness, we have broken down the most common insurance frauds, from staged burglaries to commercial fraud cases.

Staged Burglaries

Although it might appear like a scene from a film, it is comparatively typical for individuals with home insurance to stage a burglary to claim for ‘stolen’ objects. A few examples of these robberies include broad preparation and staged damage.

For improved validity, a landowner might stage the incident themselves or have a subordinate, colleague, or family member conduct it. The cruelty of these cases differs, but staging a burglary is a severe criminal offense.

There are many incidents where a real break-in happens, but the claim is overstated. This states that the stuff was stolen and that the owner hypothetically never even had it before.

Life Insurance

Life Insurance

Most life insurance fraud occurs during the application phase. Applicants falsify their well-being, income, and other private data to obtain a low premium. As more insurance adjustments can be made online or over the phone, recognizing theft has become a facilitating crime. This fraud can modify life insurance terms, like tallying a second stolen identity as a new receiver to profit the fraudster.

Life insurance may contain falsifying death to claim life insurance. Impostors may occasionally find a few years after dying, claiming memory loss. For instance, in case of Abdul Kareem, an ex-teacher and prison officer, resurfaced alive five years after he was claimed to have died in a canoeing accident. This happened once his family successfully obtained his life insurance.

Ghost Broker

A ‘ghost broker’ pretends to be an insurance broker, typically online, and illegitimately sells fake insurance policies. They deceive clients into paying for policies that don’t exist. As a result, clients end up without real insurance and cannot make claims when something happens.

This worries drivers who think they have car insurance or a motor trader policy from a ghost broker because driving without insurance is illegal. Many drivers do not realize they do not have any insurance until stopped by the police.

These scammers often target young or innocent drivers by offering deals that sound too good.

Arson

There are a few instances in which individuals set their homes at fire to make a major insurance claim. Sometimes, landholders eliminate valued objects from the house before starting the fire. They will then make a claim for the most expensive stuff.

Awkwardly for impostors, it is easy for detectives to evaluate whether the fire was started intentionally. In some instances, private investigators can even recognize whether the items claimed on the insurance were present in the property or not when the fire occurred.

Stolen Vehicles

Stolen Vehicles

Motorized insurance scams are among the most typical types of fraud in Pakistan. One typical way of committing these scams is by counterfeiting the theft of a vehicle. Criminal gangs often perform this fraud by vending the car to a body shop that can divide it into parts or export it to another country while the vendor falsely obtains a new car.

The most common form of insurance fraud involving vehicles that have been stolen is when a person vends a car to a foreign buyer directly but send the motor vehicle to another country without leading any paperwork, possibly using fake plates when they are shipped. Once it reaches its final destination, the original owner will claim it was stolen and either receive cash for the vehicle’s value or a new car.

Up-to-date machinery and CCTV in most city areas make this insurance fraud progressively hard to commit. Trackers make it hard to commit these thefts, but criminals always find smart ways to disable car computers and turn off alarms and trackers from a distance.

Personal Injury Claims

Personal Injury Claims

Another progressively typical form of insurance scam is staging car accidents at a minor level. One technique is ‘brake checking,’ where a driver unexpectedly stops to cause the car behind to hit their vehicle. This can damage both cars, particularly in slow traffic.

Sometimes, another driver can participate in the scheme, letting both drivers make fake insurance claims. When claiming for a car accident, people often also claim for personal injuries, like whiplash, because it is hard for doctors to negate these claims. Fraudsters sometimes file personal injury claims for people who were not in the vehicle during the accident. These people are called ‘phantom’ passengers.

Because these types of scams have become so usual, insurers have recently been putting extra inspection on cases involving claims for injuries like stroke. Medical tests are sometimes mandatory to precisely assess the severity of damage. However, this cannot be easily demonstrated with neck and back pain.

Fake User Registration and Multi-Accounting

As most insurers operate online, fraudsters can easily target them. Apart from the typical trials to validate claims, these companies must also give answer to the question, “Am I contacting a real person?”

You are undoubtedly dealing with a fraudster having multiple accounts if the answer is no. Creating lots of online accounts using whipped IDs is gradually easy. Impostors find groups of stolen or leaked IDs and register them in coverage accounts, using them to make claims. This works as:

  • A fraudster registers several accounts using a gadget insurer through stolen IDs.
  • They cover numerous devices and purposely damage or “lose” the device and make a claim.
  • They take the insurance money, erase the device, and resell it.

The fraudster will claim multiple fake documents and images. While proving that damage is voluntary is difficult, it is much more inconvenient to identify that they registered using a fake identity.

Commercial Fraud Cases

Many fraud cases mentioned earlier focus on personal fraudulent claims, but some involve larger-scale insurance fraud in businesses. These businesses typically need liability insurance to protect against claims from clients or employees who may get sick or hurt while working. Employers committing fraud may either overstate real accidents or concoct completely fictitious events.

Commercial accidents typically attract significant scrutiny from regulators and insurance detectives; these types of commercial insurance frauds are often detected fairly quickly, even when considerable planning has been involved in the scheme.

Consequences of Insurance Fraud

Consequences of Insurance Fraud

Insurance fraud can have severe penalties, including:

Criminal Charges: You can be charged with a crime and face imprisonment, fines, or community service.

Loss of Insurance: Your policy can be disregarded, and you may not be able to get insurance sooner or later.

Financial Penalties: You can be obligated to pay back any money paid out because of the fraud and legal costs.

Reputation Damage: Your reputation and trustworthiness could be affected.

Added to the Insurance Fraud Register: You could be added to the Insurance Fraud Register (IFR) for a long time.

Civil Lawsuits: Insurance companies can chase civil lawsuits against you.

Seized Vehicle: If you have a vehicle without insurance, the police can take hold of it.

What To Do If You Believe You Have Been Scammed?

If you think you are subjected to a scam, there are multiple things you can do based on the type of crime. You need to take these steps in such a case:

  • Contact your insurer
  • Update your passwords
  • Inform your bank
  • Update your anti-virus software