CU Fraud Identification and Mitigation 3 — Questions and Answers
Question 1: Which of the following is an example of 'soft fraud' in auto insurance?
- Staging a deliberate vehicle collision to collect injury benefits
- Adding pre-existing damage to a legitimate accident claim (Correct answer)
- Filing a claim for a vehicle that was never insured
- Bribing an adjuster to approve a fabricated total loss
Correct answer: Adding pre-existing damage to a legitimate accident claim
Soft fraud (also called opportunistic fraud) involves exaggerating an otherwise legitimate claim, such as adding pre-existing damage to a real accident claim.
Question 2: A key characteristic that distinguishes 'hard fraud' from 'soft fraud' is:
- Hard fraud involves smaller dollar amounts than soft fraud
- Hard fraud requires deliberate planning to create a false loss event (Correct answer)
- Soft fraud is always prosecuted as a felony while hard fraud is a misdemeanor
- Hard fraud only occurs in commercial lines policies
Correct answer: Hard fraud requires deliberate planning to create a false loss event
Hard fraud involves intentionally creating or staging a loss event (e.g., arson, staged accidents), whereas soft fraud involves exaggerating real losses.
Question 3: An underwriter reviewing a workers' compensation application notices the employer has reclassified high-hazard employees into low-hazard job codes to reduce premiums. This is known as:
- Experience modification manipulation
- Payroll audit evasion
- Employee misclassification fraud (Correct answer)
- Rate arbitrage
Correct answer: Employee misclassification fraud
Misclassifying employees into lower-risk job codes to reduce workers' compensation premiums is a common form of premium fraud that distorts the risk profile.
Question 4: Social network analysis (SNA) in fraud detection is used primarily to:
- Monitor social media activity of claimants for lifestyle inconsistencies
- Identify connections between claimants, providers, and attorneys involved in fraud rings (Correct answer)
- Calculate the social cost of insurance fraud on communities
- Verify claimant identities through public social profiles
Correct answer: Identify connections between claimants, providers, and attorneys involved in fraud rings
SNA maps relationships between parties to uncover fraud rings by revealing hidden connections among claimants, medical providers, repair shops, and legal representatives.
Question 5: When a policyholder reports their vehicle stolen but surveillance footage shows them parking it in a remote location, the underwriter should flag this as a potential:
- Salvage title concealment scheme
- Vehicle 'give-up' fraud (Correct answer)
- VIN cloning operation
- Title washing scheme
Correct answer: Vehicle 'give-up' fraud
A 'give-up' scheme occurs when an insured intentionally abandons or hides their own vehicle to report it stolen and collect the insurance proceeds.
Question 6: Which document is most critical in detecting workers' compensation premium fraud through payroll underreporting?
- Certificate of insurance
- Annual payroll audit report (Correct answer)
- Loss run statement
- Subcontractor agreement
Correct answer: Annual payroll audit report
Annual payroll audits compare actual payroll records against amounts declared at policy inception, revealing underreporting used to reduce premium obligations.
Question 7: An insured who intentionally conceals a prior bankruptcy when applying for a surety bond is committing:
- Material misrepresentation on the application (Correct answer)
- Constructive fraud based on negligent omission
- Innocent concealment protected by privacy laws
- Puffery that does not affect bond underwriting
Correct answer: Material misrepresentation on the application
Intentionally hiding material information such as prior bankruptcy on a surety bond application constitutes material misrepresentation, which can void the bond.
CU Fraud Identification and Mitigation 3
Which of the following is an example of 'soft fraud' in auto insurance?