frauds in insurance industry
TRANSCRIPT
Name :- Gaurav Gopal Savlani. Std :- TYBBI
Roll No. :- 49.
Topic Name :- Frauds In Insurance
Industry.
Thaught By :- Mohina Madam.
College :- M.M.K. College (Bandra)
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Frauds In Insurance Industry.
1)What Is A Fraud? A Fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction.
Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud.
2)Types of Fraudulent Acts. Fraud can be committed through many media, including
mail, wire, phone, and the Internet (computer crime and Internet fraud). International dimensions of the web and ease with which users can hide their location, the difficulty of checking identity and legitimacy online, and the simplicity with which hackers can divert browsers to dishonest sites and steal credit card details have all contributed to the very rapid growth of Internet fraud. In some countries, tax fraud is also prosecuted under false billing or tax forgery. There have also been fraudulent "discoveries", e.g., in science, to gain prestige rather than immediate monetary gain.
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3)What Is A Insurance Fraud ?
Insurance fraud occurs when any act is committed with
the intent to fraudulently obtain some benefit or advantage to which they
are not otherwise entitled or someone knowingly denies some benefit that
is due and to which someone is entitled. False insurance claims are
insurance claims filed with the intent to defraud an insurance provider.
Insurance fraud has existed ever since the beginning of insurance as a
commercial enterprise. Fraudulent claims account for a significant portion
of all claims received by insurers, and cost billions of dollars annually.
Types of insurance fraud are very diverse, and occur in all areas of
insurance. Insurance crimes also range in severity, from slightly
exaggerating claims to deliberately causing accidents or damage.
Fraudulent activities also affect the lives of innocent people, both directly
through accidental or purposeful injury or damage, and indirectly as these
crimes cause insurance premiums to be higher. Insurance fraud poses a
very significant problem, and governments and other organizations are
making efforts to deter such activities.
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4)Causes.
The “chief motive in all insurance crimes is financial profit.” Insurance contracts provide both the insured and the insurer with opportunities for exploitation.Often, those who commit insurance fraud view it as a low-risk, lucrative enterprise. Drug dealers who have entered insurance fraud think it’s safer and more profitable than working street corners. Compared to other crimes, court sentences for insurance fraud can be lenient, so scammers may try to take advantage of the system. Though insurers try to fight fraud, some will pay suspicious claims, since settling such claims is often cheaper than legal action.
Another reason that this opportunity arises is in the case of over-insurance,
when the amount insured is greater than the actual value of the property
insured. This condition can be very difficult to avoid, especially since an
insurance provider might sometimes encourage it in order to obtain greater
profits. This allows fraudsters to make profits by destroying their property
because the payment they receive from their insurers is of greater value
than the property they destroy.
Insurance companies are also susceptible to fraud because false insurance
claims can be made to appear like ordinary claims. This allows fraudsters
to file claims for damages that never occurred, and so obtain payment with
little or no initial cost.
The most common form of insurance fraud is inflating of loss.
5)Losses Due To Insurance Fraud.
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It is hard to determine the exact value for the amount of money
stolen through insurance fraud. Insurance fraud is designed by
fraudsters to be undetectable, unlike visible crimes such as robbery or
murder. As such, the number of cases of insurance fraud that are
detected is much lower than the number of acts that are actually
committed. The best that can be done is to provide an estimate for the
losses that insurers suffer due to insurance fraud.
The Coalition against Insurance Fraud estimates that in 2006 a total of
about $80 billion was lost in the United States due to insurance
fraud. According to estimates by the Insurance Information Institute,
insurance fraud accounts for about 10 percent of the property/casualty
insurance industry’s incurred losses and loss adjustment
expenses. The National Health Care Anti-Fraud Association
estimates that 3% of the health care industry’s expenditures in the
United States are due to fraudulent activities, amounting to a cost of
about $51 billion. Other estimates attribute as much as 10% of the total
healthcare spending in the United States to fraud—about $115 billion
annually.
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6) Insurance Fraud.
Hard Fraud Soft Fraud
Insurance fraud can be classified as either hard fraud or soft fraud.
Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to receive payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.
Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in a collision an insured person might claim more damage than was really done to his or her car. Soft fraud can also occur when, while obtaining a new insurance policy, an individual misreports previous or existing conditions in order to obtain a lower premium on their insurance policy
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7) Types Of Insurance Fraud.
Life Insurance Health Care Insurance Automobile Insurance
7.1) But What Is Life Insurance Fraud ?.
Life insurance fraud may involve faking death to claim life
insurance. Fraudsters may sometimes turn up a few years after
disappearing, claiming a loss of memory.
An example of life insurance fraud is the John Darwin disappearance
case, which was an investigation into the act of pseudocide committed by
the British former teacher and prison officer John Darwin, who turned up
alive in December 2007, five years after he was thought to have died in a
canoeing accident. Darwin was reported as "missing" after failing to report
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to work following a canoeing trip on March 21, 2002. He reappeared on
December 1, 2007, claiming to have no memory of the past five years.
Another example is former British Government minister John
Stonehouse who went missing in 1974 from a beach in Miami. He was
discovered living under an assumed name in Australia, extradited to
Britain and jailed for seven years for fraud, theft and forgery.
7.2) What Is Health care Insurance Fraud ?.
Health insurance fraud is described as an intentional act of
deceiving, concealing, or misrepresenting information that results in health
care benefits being paid to an individual or group.
Fraud can be committed by both a member and a provider. Member fraud
consists of ineligible members and/or dependents, alterations on
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enrollment forms, concealing pre-existing conditions, failure to report other
coverage, prescription drug fraud, and failure to disclose claims that were
a result of a work related injury. Provider fraud consists of claims submitted
by bogus physicians, billing for services not rendered, billing for higher level
of services, diagnosis or treatments that are outside the scope of practice,
alterations on claims submissions, and providing services while under
suspension or when license have been revoked. Independent medical
examinations are used to debunk false insurance claims and allow the
insurance company or claimant to seek a non-partial medical view for injury
related cases.
According to The Coalition Against Insurance Fraud, health fraud
depletes taxpayer-funded programs like Medicare, and may victimize
patients in the hands of certain doctors. Some scams involve double-billing
by doctors who charge insurers for treatments that never occurred, and
surgeons who perform unnecessary surgery.
According to Roger Feldman, Blue Cross Professor of Health Insurance at
the University of Minnesota, one of the main reasons that medical fraud is
such a prevalent practice is that nearly all of the parties involved find it
favorable in some way. Many physicians see it as necessary to provide
quality care for their patients. Many patients, although disapproving of the
idea of fraud, are sometimes more willing to accept it when it affects their
own medical care. Program administrators are often lenient on the issue of
insurance fraud, as they want to maximize the services of their providers.
The most common perpetrators of healthcare insurance fraud are health
care providers. One reason for this, according to David Hyman, a Professor
at the University of Maryland School of Law, is that the historically
prevailing attitude in the medical profession is one of “fidelity to patients”.
This incentive can lead to fraudulent practices such as billing insurers for
treatments that are not covered by the patient’s insurance policy. To do
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this, physicians often bill for a different service, which is covered by the
policy, than that which was rendered.
Another motivation for insurance fraud in the healthcare industry, just as in
all other types of insurance fraud, is a desire for financial gain. Public
healthcare programs such as Medicare and Medicaid are especially
conducive to fraudulent activities, as they are often run on a fee-for-
service structure. Physicians use several fraudulent techniques to achieve
this end. These can include “up-coding” or “upgrading,” which involve billing
for more expensive treatments than those actually provided; providing and
subsequently billing for treatments that are not medically necessary;
scheduling extra visits for patients; referring patients to another physician
when no further treatment is actually necessary; "phantom billing," or billing
for services not rendered; and “ganging,” or billing for services to family
members or other individuals who are accompanying the patient but who
did not personally receive any services.
Perhaps the greatest total dollar amount of fraud is committed by the health
insurance companies themselves. There are numerous studies and articles
detailing examples of insurance companies intentionally not paying claims
and deleting them from their systems, denying and cancelling coverage,
and the blatant underpayment to hospitals and physicians beneath what
are normal fees for care they provide. Although difficult to obtain the
information, this fraud by insurance companies can be estimated by
comparing revenues from premium payments and expenditures on health
claims.
7.3) What Is A Automobile Insurance Fraud ?.
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Fraud rings or groups may fake traffic deaths or stage collisions to
make false insurance or exaggerated claims and collect insurance money.
The ring may involve insurance claims adjusters and other people who
create phony police reports to process claims.
The Insurance Fraud Bureau in the UK estimated there have already
been more than 20,000 staged collisions and false insurance claims across
the UK from 1999 to 2006. One tactic fraudster’s use is to drive to a busy
junction or roundabout and brake sharply causing a motorist to drive into
the back of them. They claim the other motorist was at fault because they
were driving too fast or too close behind them, and make a false and
inflated claim to the motorist's insurer for whiplash and damage which can
give the fraudsters up to £30,000.
In the Insurance Fraud Bureau's first year or operation, the usage of data
mining initiatives exposed insurance fraud networks and led to 74 arrests
and a five-to-one return on investment.
The Insurance Research Council estimated that in 1996, 21 to 36 percent
of auto-insurance claims contained elements of suspected fraud. There is a
wide variety of schemes used to defraud automobile insurance providers.
These ploys can differ greatly in complexity and severity. Richard A. Derris,
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vice president of research for the Insurance Fraud Bureau of
Massachusetts, lists several ways that auto-insurance fraud can occur.
The Automobile Industry Has Two Further Stages:-
1. Staged Collisions.
2. Exaggerated Claims.
7.3.1) Staged Collisions.
This category involves staging a collision where the fraudsters will
use a vehicle to stage an accident with the innocent party. Typically, there
would be 4 or 5 fraudsters in the vehicle which makes an unexpected man
over causing the innocent party to collide with the fraudster’s vehicle.
Each of the fraudster’s then claim for injuries sustained in the vehicle.
Working with a “recruited” doctor, the injuries are typically whiplash or other
soft tissue injuries which are hard to dispute later.
Other examples include jumping in front of cars as done in Russia. The
driving conditions and roads are dangerous with many people trying to
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scam drivers by jumping in front of expensive-looking cars or crashing into
them. Hit and runs are very common and insurance companies notoriously
specialize in denying claims. Two-way insurance coverage is very
expensive and almost completely unavailable for vehicles over ten years
old–the drivers can only obtain basic liability. Because Russian courts do
not like using verbal claims, most people have dashboard cameras
installed to warn would-be perpetrators or provide evidence for/against
claims.
7.3.2) Exaggerated Claims.
A real accident may occur, but the dishonest owner may take the
opportunity to incorporate a whole range of previous minor damage to the
vehicle into the garage bill associated with the real accident. Personal
injuries may also be exaggerated, particularly whiplash.
8) Examples.
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Examples of soft auto-insurance fraud can include filing more than
one claim for a single injury, filing claims for injuries not related to an
automobile accident, misreporting wage losses due to injuries, or reporting
higher costs for car repairs than those that were actually paid. Hard auto-
insurance fraud can include activities such as staging automobile
collisions, filing claims when the claimant was not actually involved in the
accident, submitting claims for medical treatments that were not received,
or inventing injuries. Hard fraud can also occur when claimants falsely
report their vehicle as stolen. Soft fraud accounts for the majority of
fraudulent auto-insurance claims.
Another example is that a person may illegally register their car to a
location that would net them cheaper insurance rates than where they
actually live, sometimes called "rate evasion". For example, some drivers
in Brooklyn drive with Pennsylvania license plates because registering
their car in a rural part of Pennsylvania will cost a lot less than registering it
in Brooklyn. Another form of automobile insurance fraud, known as
"fronting," involves registering someone other than the real primary driver
of a car as the primary driver of the car. For example, parents might list
themselves as the primary driver of their children's vehicles to avoid young
driver premiums.
9)How To Detect Insurance Fraud ?.
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The detection of insurance fraud generally occurs in two steps.
The first step is to identify suspicious claims that have a higher possibility of
being fraudulent. This can be done by computerized statistical analysis or
by referrals from claims adjusters or insurance agents. Additionally, the
public can provide tips to insurance companies, law enforcement and other
organizations regarding suspected, observed, or admitted insurance fraud
perpetrated by other individuals. Regardless of the source, the next step is
to refer these claims to investigators for further analysis.
Due to the many number of claims submitted each day, it would be far too
expensive for insurance companies to have employees check each claim
for symptoms of fraud. Instead, many companies use computers and
statistical analysis to identify suspicious claims for further
investigation. There are two main types of statistical analysis tools used:
supervised and unsupervised. In both cases, suspicious claims are
identified by comparing data about the claim to expected values. The main
difference between the two methods is how the expected values are
derived.
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In a supervised method, expected values are obtained by analyzing
records of both fraudulent and non-fraudulent claims. According to Richard
J. Bolton and David B. Hand, both of Imperial College in London, this
method has some drawbacks as it requires absolutely certainty that those
claims analyzed are actually either fraudulent or non-fraudulent, and
because it can only be used to detect types of fraud that have been
committed and identified before.
Unsupervised methods of statistical detection, on the other hand, involve
detecting claims that are abnormal. Both claims adjusters and computers
can also be trained to identify “red flags,” or symptoms that in the past have
often been associated with fraudulent claims.
10) Insurance Frauds. Insurance industry is a very typical example of the frauds committed by the outsiders. External parties always endeavor to commit the frauds with or without the help of the employees of the companies unlike other organizations like banks where the bigger frauds are required to committed in collusion.In all there are 37 Insurance companies in India including life and non-life segments.
1. Bajaj Allianz Life Insurance Company Limited
2. Birla Sun Life Insurance Co. Ltd
3. HDFC Standard life Insurance Co. Ltd
4. ICICI Prudential Life Insurance Co. Ltd.
5. ING Vysya Life Insurance Company Ltd.
6. Life Insurance Corporation of India
7. Max New York Life Insurance Co. Ltd
8. Met Life India Insurance Company Ltd.
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9. Kotak Mahindra Old Mutual Life Insurance Limited
10. SBI Life Insurance Co. Ltd
11. Tata AIG Life Insurance Company Limited
12. Reliance Life Insurance Company Limited.
13. Aviva Life Insurance Co. India Pvt. Ltd.
14. Shriram Life Insurance Co, Ltd.
15. Sahara India Life Insurance
16. Bharti AXA Life Insurance
17. Future General Life Insurance
18. IDBI Fortis Life Insurance
19. Canara HSBC Oriental Bank of Commerce Life Insurance
20. Religare Life Insurance
21. DLF Pramerica Life Insurance
22. Star Union Dai-ichi Life Insurance
23. Agriculture Insurance Company of India
24. Apollo DKV Insurance
25. Cholamandalam MS General Insurance
26. HDFC Ergo General Insurance Company
27. ICICI Lombard General Insurance
28. IFFCO Tokyo General Insurance
29. National Insurance Company Ltd
30. New India Assurance
31. Oriental Insurance Company
32. Reliance General Insurance
33. Royal Sundaram Alliance Insurance
34. Shriram General Insurance Company Limited
35. Tata AIG General Insurance
36. United India Insurance
37. Universal Sompo General Insurance Co. Ltd.
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11) Insurance companies lose Rs 15K cr to fraud Annually.
Ref :- New Delhi : Press Trust of India
The insurance sector seems to be the most vulnerable to frauds as companies are losing a whopping over Rs 15,000 crore every year due to exaggerated claims by customers or agents, a survey has found.
A latest survey conducted by the India forensic Research, which is a Pune-based consultancy firm for fraud investigations, research and due-diligence, has revealed that insurance companies in India bear a loss of about Rs 15,171 crore due to different frauds every year.
Fake documentsMotor and health insurance are the most prone to insurance related frauds followed by life and property insurance, the report said. Documents such as fake medical bills and certificates are commonly used to cheat insurance companies in the country. These are followed by driving license and FIR related papers, the report said.
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“The survey states that unlike other industrial sectors, external parties like agents and claimants pose the biggest risk of frauds before the insurance sector,” said India forensic Research founder member Mayur Joshi.
Frauds can also be committed through miss-appropriation (agent advisors depositing the premium cash money after a delay or not depositing the premium cash money at all), customer non-existence (false policy sold to a non-existent customer) and through fraudulent claims (fake claims being submitted by customer’s with or without agent connivance.The report said that one in every two persons exaggerates their insurance claims.
“There is a perception among customers that the insurance company always pays less than what you claim even if it is true damage assessment, which often motivates them to exaggerate their claims,” it said. Majority of the respondents believe that most of the frauds are cause by insurance agents who are the critical interface between customers and companies.
Over the last 10 years, the Indian insurance industry has grown at a
compounded annual growth rate of around 20%. However, with the
exponential growth in the industry, there has also been an increased
incidence of frauds. Insurance fraud encompasses a wide range of illicit
practices and illegal acts involving intentional deception or
misrepresentation.
The industry has witnessed an increase in the number of fraud cases in the
last one year. Organizations are waking up to the fact that frauds are
driving up the overall costs of insurers and premiums for policyholders,
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which may threaten their viability and also have a bearing on their
profitability. Hence, companies need a more vigorous fraud management
framework. Although this survey focuses on retail insurance, frauds related
to commercial insurance claims and third-party claims are also on the rise.
The sophistication of fraudsters in the area of commercial insurance claims
and third-party claims makes it all the more difficult for organizations to
detect and control fraud in time.
The key motive for all insurance crimes is financial profit. Insurance
contracts provide the insured and the insurer with opportunities for
exploitation. According to the survey, 40% of the respondents felt that fraud
cases in insurance companies have gone up substantially in the last one
year.
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12) Case Studies :-
15 Most Famous Cases of Insurance Fraud Insurance fraud seems like it might be an easy thing to do. Insurance companies are often so huge, one wonders how they might not even notice a few mistakes in your favor. But the fact is that insurance companies have people who make it their full time job to sniff out fraud, ensuring that they keep a tight bottom line. And while they may not catch every tiny little fudge, you can be sure they are on the hunt for major offenders such as the ones on this list. Check out these famous insurance fraud cases.
1. HCA/Medicare : In 2000 and 2002, HCA pleaded guilty to 14 felonies, including fraudulently billing Medicare as well as other programs. HCA had inflated the seriousness of diagnoses, filed false cost reports, and paid kickbacks to doctors to refer patients. HCA had to pay the US government $631 million plus interest, as well as $17.5 million to state Medicaid agencies, on top of $250 million already paid to Medicare for outstanding expense claims. It was the largest fraud settlement in US history, with law suits reaching $2 billion in total.
2. John Darwin's Death : John Darwin faked his death in a canoeing accident, turning up five years later. He'd been secretly living in his house and the house next door, while his wife claimed the money on his life insurance. They were both sentenced to six years in prison, but released on probation. BBC created a TV drama about their story called Canoe Man.
3. The horse murders scandal : Between the mid 1970s and mid 1990s many expensive horses were involved in insurance fraud. These expensive horses, often show jumpers, were placed on insurance for accident or death, and killed for the insurance money. The number of horses killed in this manner is believed to be at least 50 and possibly as high as 100. It was the biggest scandal in
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equestrian sports, resulting in the death of a whistleblower, Helen Brach, in addition to the horses.4. John Mango's fire : A Toronto businessman, John Mango hired someone to set fire to his business for the insurance money. Things got quite out of hand, killing one person during the fire and forcing many families to leave the area until the fire could be put out. Mango was charged with second degree murder on top of his fraud charges.
5. Swoop and squat : In the 90s, car insurance fraud ran rampant. Cars would purposely get into accidents with innocent people on the road, hoping to score insurance money, and often, they did. These accidents frequently injured drivers, and some were even fatal. These accidents usually earned the orchestrators about $20,000 each.
6. Michael Jackson's prescriptions : Lloyds of London has recently filed suit to invalidate an insurance policy taken out by Michael Jackson. The policy covered his "This Is It" tour in the event that it was not successful. The payout was to be $17.5 million, but Lloyds argues that it is invalid because Michael Jackson did not disclose prescription drugs on his application. As Jackson died from an overdose, Lloyds is claiming deception.
7. The Titanic : Everyone knows the story of the Titanic, but not everyone realizes that some believe it's part of a conspiracy to pull off a huge insurance fraud. The Olympic, Titanic's sister ship, was damaged and rendered useless during one of its voyages-and some believe that the Titanic as it sunk was actually the Olympic. Conspiracy theorists note several inconsistencies in the performance and construction of the "Titanic" that indicate the Titanic sinking was a case of swapped ships.
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8. Cooperman art theft hoax : Would you steal your own art for money? LA ophthalmologist Steven Cooperman did. He arranged for a Picasso and a Monet to be stolen from his home in an attempt to collect $17.5 million in insurance money. He was convicted in July 1999.
9. Martin Frankel : Martin Frankel's insurance fraud is just one in a long list of financial crimes. He was sentenced to 200 months in prison due to over $200 million in losses to insurance companies. He eventually plead guilty to 24 federal counts of racketeering and conspiracy, securities fraud, and wire fraud.
10. Bristol-Myers Squibb kickbacks : Regulators in California have gone after Bristol-Myers Squibb for insurance fraud, among other offenses. The lawsuit accuses Bristol-Myers of making payments to high-prescribing physicians, targeting and profiting on the private insurance industry. It is the largest health insurance fraud to be pursued by a California state agency. Additionally, in 2007, the pharmaceutical company paid $515 million to settle with federal and state governments against allegations of kickbacks to defraud Medicare and Medicaid.
11. Dr. Gupta's mystery procedures : There's a nationwide manhunt launched by the FBI looking for Dr. Gautam Gupta. The complaint against him alleges that he submitted claims to Blue Cross/Blue Shield and Medicaid for unnecessary procedures, and even ones that were never performed. The fraudulent insurance claims from Dr. Gupta reached nearly $25 million.
12. Millionaire insurance fraud : Charles Ingram was first made famous as a fraud when he cheated on Who Wants To Be A Millionaire?, using coded coughs to win. But his deception was further exposed when he was convicted of insurance fraud as well. He placed a suspicious £30,000 burglary claim,
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and was found to be dishonest, ultimately winning two guilty charges for his fraud.13. TAP Pharmaceuticals fraud : The Department of Justice got involved with this pharmaceutical insurance fraud case. TAP Pharmaceuticals engaged in fraudulent drug pricing and marketing conduct, as well as filing fraudulent claims with Medicare and Medicaid. They agreed to pay $559 million to the government for those claims, as part of an $875 million settlement for all criminal charges and civil liabilities.
14. I get knocked down, but I get up again…and knocked down again 48 more times: With 49 cases, Isabel Parker earned her title as the queen of the slip and fall scam. During her career, she received claims totaling $500,000.15. Torching the Malibu : What do you do if you don't want to pay on your car anymore? If you're teacher Tramesha Lashon Fox, you get your students to set your car on fire in exchange for passing grades. She'd hoped to get insurance money, but instead lost her job and served 90 days in jail.
So, These Were The Famous Case Studies Which I Have Done And Studied In The Topic Given To Me.
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13) References :-
Google.co.in
Google (Images)
en.wikipedia.org/wiki/Insurance fraud
insurancefrauds.blogspot.com/
www.indian express.com
www.indiatoday.in
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