If you don’t carry wide-ranging business insurance coverage, your business – your livelihood – can be at risk. Insurance fraud is a common problem. In fact, there are professionals who defraud insurers as part of their business plans!

Scam artists get jobs in high-end retail outlets and steal the place blind with accomplices who get a REAL employee discount. Chop shops disassemble stolen cars, some from businesses, and sell the parts at a huge profit. Some criminals specialize in faking accidents to receive compensation. Each one of these frauds can leave you vulnerable to insurance claims and lawsuits that can seriously harm your business.

What are some common insurance frauds? How do they operate? And what can you do to help protect yourself against insurance fraud?

One of the most common insurance frauds is the slip-and-fall. In some cases, the criminal takes advantage of loose carpeting, trips, falls and claims to have a range of soft tissue injuries – injuries that don’t show up on x-rays.

In other cases, these scam artists actually create the “danger.” A grocery store customer drops a grape on the floor, slips on it, and you have a lawsuit on your hands. In fact, many stores pay these scam artists out of court because it costs the retailer less to pay off the criminals than to pay legal expenses to defend against a medical claim with mounting bills.

If you have employees on the road, insurance fraud may be on the road with them. One common ploy is called the “swoop and squat.” Two criminals, in two cars, target your company vehicle. The first car swoops in front of the target car. The second pulls in behind. The first car then slams on its brakes, causing the target car to rear-end the first car, at which point the second car rear-ends your company car – a staged, three-car accident, with your car in the middle.

Swoop and squats are planned. These con artists believe that businesses (you advertise on your service trucks) carry lots of insurance coverage, making delivery trucks, and other vehicles with your company’s name on display, prime targets for a number of lawsuits by criminals who target small businesses with big liability insurance policies.

An employee’s “sprained back” on your loading dock can generate medical expenses for months – even years. Again, these “soft tissue” injuries are difficult to diagnose, or prove fraudulent. They don’t show up on most medical tests.

Can You Defend Your Business Against Insurance Fraud?  

It may not be possible to protect your company from all forms of insurance fraud, but there are things you can do to lower the likelihood that your business is victimized. Take prudent measures to defend your business from insurance fraud.

Buy enough coverage to protect your company assets. It may be expensive, but you have business assets to protect. Add contingency coverage, like business interruption insurance, or loss of business due to theft, natural disaster and other facts of life. It’s smart business.

Physical assets may or may not be insured for full replacement value – especially when equipment that wears down is the insured property. As this equipment depreciates, or becomes obsolete, the insurance payout decreases accordingly.

Also consider an umbrella policy that kicks in when other policy limits are reached. It’s typically low-cost coverage, and in many instances, a good use of business capital.

In all cases, cover your business by identifying risk and mitigating that risk before an insurance criminal takes advantage of something like a loose handrail. Businesses with high employee turnover are at higher risk of inventory “shrinkage,” so increase employee theft coverage.

Add surveillance cameras to record “high-risk” areas. Entry points in stores, for example, are high-risk locations for staged accidents that may boost company insurance premiums for years.

Warehouse entrance and exit points are high-risk zones that should be covered by closed-circuit television 24/7. It only takes a minute to slip a laptop under a coat.

Cashier stations are high-risk areas – especially in busy stores with several cashiers. Surveillance cameras can help identify employee theft quickly and irrefutably.

Perform background checks. Individuals with criminal histories of shoplifting or employee theft are not people you want working with your cash.

Check references provided by new hires. Call previous employers to verify résumé information and to discuss the prospect with someone who knows – the last employer. Also look for information on Workers Compensation claims filed by potential hires. Some workers are “in the business” of filing Workers Comp claims, living off the proceeds of phantom, work-related injuries.

Limit access. If you sell expensive merchandise, protect inventory with “smart doors” that automatically record who enters and when. Limit access to intellectual data – patents, business systems and other sensitive information – by password-protecting each office computer. Your non-tangible assets may have more value than your hard goods.

Add dashboard cams to your service or delivery vehicles. They aren’t expensive, and may capture the swoop car cutting off your company truck and slamming on its brakes. This can provide strong evidence for your insurer and law enforcement and excellent protection for your “on-the-road” employees.

Small businesses must be prepared for illegal and frivolous insurance claims, but vigilance and increased awareness of the risk exposure of your business can go a long way to help protect your company from insurance fraud.

Go proactive to protect what’s yours. And keep an eye on everything. As a small business owner or manager, you’re in control of risk of insurance fraud.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC