Arson for profit, life and disability fraud, embezzlement, false pretense, false statements, willful failure to pay group insurance premiums and other insurance related crimes are occurring every day in North Carolina. For example:
- The viatical settlements industry – which allows individuals with terminal or catastrophic illnesses to sell their life insurance policies to third parties has experienced certain fraudulent activities such as “cleansheeting.” Cleansheeting is the practice failing to disclose terminal or catastrophic illnesses on the insurance application when applying for a life insurance policy. This type of fraud goes hand in hand with certain unethical viatical and life settlement brokers and providers who purchase these policies (knowing them to be fraudulent) and offer them as an investment to the public.
This viatical fraud has occurred in North Carolina and our citizens should feel free to call the N.C. Department of Insurance or N.C. Secretary of State’s Securities Fraud Division to inquire about an agent, broker or provider prior to viaticating or investing in a viaticated policy.
- Unfortunately, there have been instances where an insurance agent has not forwarded premiums to the appropriate insurance company as required by contract. This situation often leads to charges of embezzlement and, on occasion, has caused entire agencies to become financially impaired and incapable of conducting further business.
- There also have been instances where an employer has willfully stopped paying premiums on employee group insurance plans without first having given the employees at least a 45-day written notice. The net effect of this is to leave the employees unknowingly without insurance coverage. Often the first sign of this occurs when the hospital or other medical provider informs the employee that their coverage has been terminated and that they are now responsible for the entire bill.
- The practice of convincing an insured to use an existing policy's cash value to pay for a newer and unnecessary policy is called "churning" or "twisting." Since agents earn their largest commission for the first year a policy is in effect, unscrupulous agents may "twist" the truth and "churn" a new, "better" or "cheaper" policy to the customer. This new policy may, in fact, have less favorable terms or fewer benefits. This is illegal.
- "Unauthorized Insurers" are companies, plans or other arrangements that give the appearance of being authorized, licensed, registered or approved by state or federal regulators to engage in the business of transacting insurance. In other words, they look and act like legal insurance companies; however, they are unlicensed and may often engage in illegal acts. They often offer substantially lower rates and employ few, if any, underwriting principles. As a result, claims are paid slowly or not at all and cash reserves are non-existent after having been misappropriated by unscrupulous owners. Regulation by state regulators and the United States Department of Labor is rigorously avoided and, sooner or later, the entity goes out of business leaving their "insureds" high and dry with unpaid claims and no insurance.
