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