Insurance is a financial provision for the distribution of risks against loss from unavoidable disasters. The protection which it affords takes the form of a guaranty to indemnify the insured if certain specified losses occur. The principle of insurance, so far as the underwriting of the obligation is concerned, is that for the payment of a premium the guaranty will be given to reimburse the insured.
In order for an insurer to be able to honor their guaranty, they must be able to fairly assess their risk so that the premiums collected are sufficient to meet the losses that occur; together with the administrative costs. This is the process known as rating and insurers must make a practical investigation into each proposed application for coverage in order to fairly determine the degree of risk associated with the proposed policy.
The opportunity for fraud and concealment of material facts that contribute to the underlying risk for insurers can not be overstated. According to a 1996 report released by the Insurance Research Council, more than one of every three bodily-injury claims from car crashes involve fraud and 17-20 cents of every dollar paid for bodily injury claims from auto policies involves fraud or claim buildup resulting in a $5.2-$6.3 billion addition to the auto premiums that policyholders pay each year.
Underwriters Bureau agents are focused on reducing insurance costs by reducing fraud.
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When unavoidable disasters strike; insurers provide protection to their policyholders. Fraudulent claims drive the cost of that coverage up substantially.
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