ACFE Insurance Fraud — Questions and Answers
Question 1: An insured person deliberately sets fire to their own failing business to collect on a property policy. This is commonly called:
- Arson for profit (Correct answer)
- Premium diversion
- Rate evasion
- Churning
Correct answer: Arson for profit
Arson for profit is intentionally destroying insured property to collect the insurance proceeds, often when the business is financially distressed.
Question 2: An insurance agent collects premiums from customers but never forwards them to the insurer, pocketing the funds. This is known as:
- Premium diversion (Correct answer)
- Rebating
- Twisting
- Sliding
Correct answer: Premium diversion
Premium diversion occurs when an agent or broker keeps customer premium payments rather than remitting them to the insurance company, leaving customers uncovered.
Question 3: Staged accident rings typically involve which combination of participants?
- Fake victims, corrupt medical providers and sometimes attorneys (Correct answer)
- Only the insurer's actuaries
- Regulators and auditors
- Reinsurers and brokers
Correct answer: Fake victims, corrupt medical providers and sometimes attorneys
Staged accident schemes use participants who pose as victims, with complicit clinics and lawyers inflating injuries and claims.
Question 4: Which is a common red flag of claimant fraud on a property theft claim?
- Claimed items are unusually expensive and receipts are unavailable (Correct answer)
- The claim was reported promptly to police
- The insured has a long claim-free history
- The policy was in force for ten years
Correct answer: Claimed items are unusually expensive and receipts are unavailable
High-value losses with no documentation, especially soon after a policy purchase or increase, are classic indicators of an inflated or fabricated claim.
Question 5: 'Churning' in life insurance refers to:
- An agent inducing a policyholder to replace policies repeatedly to earn new commissions (Correct answer)
- A policyholder faking their own death
- An insurer delaying legitimate claims
- Overstating a business's inventory
Correct answer: An agent inducing a policyholder to replace policies repeatedly to earn new commissions
Churning is replacing existing policies with new ones primarily to generate commissions, often to the policyholder's detriment.
Question 6: Soft insurance fraud differs from hard insurance fraud in that soft fraud involves:
- Exaggerating a legitimate claim (Correct answer)
- Staging a loss
- Destroying property deliberately
- Forging policy documents
Correct answer: Exaggerating a legitimate claim
Soft (opportunistic) fraud is padding or exaggerating a real claim. Hard fraud is deliberately staging or fabricating a loss.
