Most fraud is considered being done by individuals and small groups
to insurance companies and other large corporations but what if some
insurance companies are committing fraud? We hear about fraud rings
that milk millions out of insurance companies but what about
insurance companies that commit fraud in order to avoid paying what
they rightfully owe to policyholders?
Recently in the Katrina disaster companies have been taken to court
for failing to pay on policies claiming flood to be the cause of the
loss rather than wind from the hurricane. There has been
documentation showing certain companies to have told adjusters and
engineering companies they want reports showing water and no wind
damage. By using this method the insurance companies avoid paying
under wind damage and only have to pay under flood coverage, if the
insured has flood insurance. In addition to this the insurance
company doesn't care if they have to pay under flood coverage
because the government foots the bill for that coverage and the
insurance company gets paid for taking care of the claim so they
still make money.
Yet another fraud that some insurance companies seem to be getting
away with is the independent contractor issue. There are a number of
insurance companies that claim to have "independent contractor
agents" but control these agents as de-facto employees. These are
the companies that have "captive" agents and the agent is not
allowed to write for any other company.
The company can keep the agent from writing business and indeed
require the agent to reduce a portion of the agent's business at the
whim of the company. These agents are also required to attend
"mandatory meetings", use "company supplied equipment" and the
company claims to have the ability to "terminate at will". These
things are considered to make one an employee but certain insurance
companies have been getting away with still calling their agents
"independent contractors".
What this means is these companies avoid payroll taxes on state and
federal payroll taxes as well as workmen's compensation, sick leave,
vacation, retirement, etc. on billions of dollars each year. Many
small businesses have been fined by the IRS for misclassifying their
employees as independent contractors for some of the very items
mentioned above, but yet the insurance companies have avoided this
while at the same time doing the very same thing as those small
businesses.
Are the insurance companies so "connected" they can avoid
prosecution by the IRS when a small business can't?
R. Pyorre
01/22/08