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How do insurance companies determine the legitimacy of claims? Do they have the authority to investigate like the police?

If something seems off(they suspect insurance fraud), they can employ an insurance investigator, but they have no more authority than a private investigator – in fact they will sometimes just hire a private investigator. Bigger companies might have their own investigators on staff with different specialities (car accident/fire etc.)

Some companies will investigate every claim as a matter of principal.

Car insurance varies from state to state due to laws.

When I lived in Michigan, it was no fault. It you had an accident, your insurance paid for repairs. Even with a police report it was irrelevant to the insurance company.

In Texas, the insurance company assigned fault based on the police report, unless it happened on private property like a business’ parking lot.

I had a guy back directly into me in a parking lot. You could see the perfect indentation of his trailer hitch in my door. The other guys insurance company decided it must be a 50/50 fault. I challenged them and they sent an adjuster. When he saw the dent, he said, “yeah, you were stationary. He just backed into you”. It then became 100% the other guys fault.

Insurance companies hire private investigators to work for them! They have the “authority” to investigate claims by essentially saying “we’re not paying this claim until you let us investigate it.” I believe they get the police involved when it’s a large amount of money or a serious case of fraud.

Source: My coworker’s husband retired from the police force and is now working as an investigator for a large insurance company, most often on car and home insurance claims.

People try to defraud their insurance companies all the time for money. One case he was working this past winter involved a woman making a claim that her late husband’s fancy/expensive car had suffered water damage when her garage flooded. The insurance company refused to pay out on the basis that there was no reported flooding in that neighborhood during the time period she claimed. She appealed, so they sent out an investigator. He searched her garage and basement and looked at the car. There were a lot of inconsistencies: no water damage on anything else except for a mattress and a few other odds and ends. None of the neighbors had any flooding, and the claimant couldn’t produce any documentation of the flood. She finally admitted that she had just stuck her garden hose into the engine and let it run for two days in order to get an insurance payout.

For life insurance (my bread and butter) a Death claim requires a death certificate. If there is a suspicion of fraud on the claimants part (Like faking your own death), law enforcement would do the leg work. Generally the types of fraud we see are application misrepresentation.

If you’re asking for a high face amount, you will usually get blood taken, prescriptions are checked out on a national database, and medical records sought from a doctor. It’s really hard to misrepresent your health history on a large face amount life application.

Usually on lower face amount policies, which are targeted at modest income families, insurance companies will forgo a lot of medical checks to keep overhead costs low. Usually it will just be an agent asking application questions, then the company asks for a phone interview, and maybe a urine/saliva sample and that’s it. This is where we see the most fraud, but the risk is lower due to the face amount.

In these cases, we the insurer will investigate the legitimacy of the application and may deny the claim based on our investigation.