CU Fraud Identification and Mitigation 2 — Questions and Answers
Question 1: Which red flag is most commonly associated with premium diversion fraud in insurance?
- Agent remitting partial premiums while retaining the difference (Correct answer)
- Policyholder requesting coverage increases mid-term
- Insurer delaying claim payments beyond 30 days
- Broker submitting applications without signatures
Correct answer: Agent remitting partial premiums while retaining the difference
Premium diversion occurs when an agent collects premiums from policyholders but keeps some or all of the funds rather than forwarding them to the insurer.
Question 2: A property underwriter notices that a commercial applicant's loss history shows three total-loss fires in five years at different locations. This pattern is most indicative of:
- Adverse selection
- Arson-for-profit fraud (Correct answer)
- Moral hazard accumulation
- Catastrophic exposure clustering
Correct answer: Arson-for-profit fraud
Multiple total-loss fires at different locations within a short period is a classic indicator of arson-for-profit, where the insured intentionally destroys property to collect insurance proceeds.
Question 3: The SIU (Special Investigations Unit) is primarily responsible for:
- Setting reserve amounts for suspected fraudulent claims
- Investigating claims with indicators of potential fraud (Correct answer)
- Prosecuting individuals who commit insurance fraud
- Auditing underwriting files for compliance errors
Correct answer: Investigating claims with indicators of potential fraud
SIUs investigate claims that exhibit fraud indicators, gathering evidence and coordinating with law enforcement when necessary.
Question 4: An applicant for disability income insurance who overstates their income to obtain a higher benefit limit is committing which type of fraud?
- Claims fraud
- Application fraud (Correct answer)
- Rate evasion
- Phantom income fraud
Correct answer: Application fraud
Misrepresenting income on an insurance application to obtain a higher benefit limit constitutes application fraud, which occurs at the policy inception stage.
Question 5: Which analytical technique involves comparing a claimant's current loss patterns against a statistical model of expected losses to detect anomalies?
- Subrogation analysis
- Predictive modeling (Correct answer)
- Loss development triangulation
- Actuarial credibility weighting
Correct answer: Predictive modeling
Predictive modeling uses statistical algorithms to identify claims that deviate significantly from expected patterns, flagging them for further fraud investigation.
Question 6: A contractor submits inflated repair estimates after a hailstorm, and the insured knowingly signs off on the exaggerated amounts. This scenario best describes:
- Soft fraud by the contractor only
- Hard fraud by the insured only
- Organized fraud ring involving both parties (Correct answer)
- A legitimate dispute over repair costs
Correct answer: Organized fraud ring involving both parties
When both the contractor and insured knowingly participate in inflating repair estimates to extract higher claim payments, this constitutes organized fraud involving multiple parties.
Question 7: Under the Insurance Fraud Prevention Model Act, insurers are generally required to:
- Deny all claims where fraud is suspected without investigation
- Maintain an anti-fraud plan and report fraud to authorities (Correct answer)
- Charge higher premiums to all policyholders in high-fraud zip codes
- Obtain signed fraud attestations from every claimant
Correct answer: Maintain an anti-fraud plan and report fraud to authorities
The IFPMA requires insurers to establish anti-fraud plans, train employees, and report suspected fraud to state insurance fraud bureaus.
CU Fraud Identification and Mitigation 2
Which red flag is most commonly associated with premium diversion fraud in insurance?