ACE Fraud Detection & Prevention 3 — Questions and Answers
Question 1: Which technique is used by fraud rings to exploit the ACORD 80 (Homeowners Application) when committing property insurance fraud?
- Falsifying prior loss history on Section IV (Correct answer)
- Overstating the number of occupants
- Changing the policy effective date retroactively
- Omitting the mortgage company name
Correct answer: Falsifying prior loss history on Section IV
Falsifying prior loss history on the ACORD 80 conceals prior claims, allowing fraudsters to obtain coverage they would otherwise be denied or pay higher premiums for.
Question 2: In premium fraud, what does 'fronting' refer to?
- Using a broker to submit falsified applications on behalf of a client
- Naming a low-risk driver as the primary insured when a high-risk driver is the actual primary user (Correct answer)
- Collecting premiums without remitting them to the insurer
- Inflating payroll figures to increase business income coverage
Correct answer: Naming a low-risk driver as the primary insured when a high-risk driver is the actual primary user
Fronting involves listing a low-risk driver as primary to reduce premiums while the actual high-risk driver primarily uses the vehicle.
Question 3: Which ACORD standard is most relevant to electronic data interchange (EDI) in workers' compensation fraud reporting?
- ACORD 25
- ACORD AL3
- ACORD WCIO EDI (Correct answer)
- ACORD 140
Correct answer: ACORD WCIO EDI
ACORD WCIO EDI standards govern electronic reporting of workers' compensation data, including first reports of injury that feed into fraud detection workflows.
Question 4: A claimant submits three water damage claims to different insurers within 18 months. What best describes this fraud pattern?
- Hard fraud — fabricating losses to collect multiple payments (Correct answer)
- Soft fraud — exaggerating a single legitimate loss
- Premium fraud — misrepresenting risk factors at application
- Agent fraud — broker manipulating policy documents
Correct answer: Hard fraud — fabricating losses to collect multiple payments
Submitting fabricated or repeated claims to multiple insurers to collect overlapping payments is a classic hard fraud pattern.
Question 5: What is the significance of the 'date reported' vs. 'date of loss' gap in claim fraud analysis?
- A longer gap always indicates the claim is fraudulent
- Unusual reporting delays, especially near policy cancellation, can signal backdating fraud (Correct answer)
- ACORD standards require all claims to be reported within 24 hours
- A short gap indicates the claimant fabricated the loss
Correct answer: Unusual reporting delays, especially near policy cancellation, can signal backdating fraud
Reporting delays, particularly when a claim is filed just before policy cancellation or after a coverage lapse, are a recognized red flag for backdating fraud.
Question 6: Which entity maintains the National Insurance Crime Bureau (NICB) database used for vehicle theft fraud detection?
- The federal Department of Transportation
- A nonprofit supported by property-casualty insurers (Correct answer)
- The NAIC as a regulatory body
- ACORD as part of its data standards initiative
Correct answer: A nonprofit supported by property-casualty insurers
The NICB is a nonprofit organization funded by property-casualty insurers to help detect and prevent insurance crime including vehicle theft fraud.
Question 7: In life insurance fraud, what is 'STOLI' and why is it a fraud concern?
- Stranger-Originated Life Insurance — investors fund policies on strangers' lives, subverting the insurable interest requirement (Correct answer)
- State-Operated Life Insurance — a government scheme that competes with private carriers
- Structured Transfer of Life Interest — a legal tax avoidance strategy
- Systematic Term and Optional Life Indemnification — a reinsurance arrangement
Correct answer: Stranger-Originated Life Insurance — investors fund policies on strangers' lives, subverting the insurable interest requirement
STOLI schemes involve third-party investors funding life insurance policies on strangers specifically to collect death benefits, violating insurable interest laws.
ACE Fraud Detection & Prevention 3
Which technique is used by fraud rings to exploit the ACORD 80 (Homeowners Application) when committing property insurance fraud?