Tips for Avoiding Premium Diversion Schemes


Tips for Avoiding Premium Diversion Schemes
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Embezzlement of insurance premiums is the most common type of insurance fraud, according to the FBI.

Premium diversion is when an insurance agent doesn’t send premiums to the underwriters “and instead keeps the money for personal use,” the FBI’s website says. “Another common premium diversion scheme involves selling insurance without a license, collecting premiums and then not paying claims.”

Chris Walsh, a special deputy prosecuting attorney with the Arkansas Insurance Department, told Arkansas Business that he has a couple of cases a year involving premium diversion. 

“The main things we see are agents that, I guess, get into a financial bind and decide they need some money,” Walsh said. If a claim occurs, the agent will cover the cost himself. Or agents think that they will be able to catch back up with the client’s premium, but never do, he said. 

The losses could be tens of thousands of dollars or more to the business owners or farmers who thought they were insured but weren’t, leaving their claims unpaid. 

Walsh said people think that a handshake “is trustworthy and you’re not going to do me wrong. And unfortunately, every now and then they find out they have been.” 

Walsh said that to avoid being a victim of premium diversion fraud, insurance customers should:

  • Never pay in cash and make sure they get receipts for any payment. 
  • Watch for a copy of a new policy to be delivered in the mail. If policyholders don’t receive the policy within 30 days, they should call their insurance company. And to be on the safe side, Walsh said, the policyholder can call his insurance company to verify that the policy is in place.
  • Call the Arkansas Insurance Department at (501) 371-2600 to verify an agent’s license. 

“And if anybody ever had a case where they thought they were being defrauded, … we would immediately put an investigator on it and check into it,” he said. 


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