{"id":352629,"date":"2017-06-22T13:13:26","date_gmt":"2017-06-22T18:13:26","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/consumer\/insurance\/what-is-premium-diversion.html"},"modified":"2024-04-09T15:04:00","modified_gmt":"2024-04-09T20:04:00","slug":"what-is-premium-diversion","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/consumer\/insurance\/what-is-premium-diversion.html","title":{"rendered":"What Is Premium Diversion?"},"content":{"rendered":"\n
\n \n
\n

What Is Premium Diversion?<\/h1>\n
\n
\n By Oni Harton, J.D.<\/a> | Legally reviewed by Melissa Bender, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

When you buy insurance, you’re paying for the coverage in your policy. This is the business of insurance. The policyholder pays premiums, and the insurer provides insurance coverage.<\/p>\r\n

Paying your insurance premiums also brings peace of mind. If something happens, those insurance benefits will be there to help. As a claimant, you expect a payout when you have a valid claim. What if those premium payments<\/a> never make it to the insurer? What happens if an insurance fraud scheme diverts your premiums and they aren’t available when you file an insurance claim?<\/p>\r\n

Insurance fraud is a significant problem for the insurance industry and the individual policyholder. The FBI estimates that insurance fraud costs more than $40 billion every year.<\/p>\r\n

Premium diversion is a serious offense and the most common type of insurance fraud. The following article defines premium diversion and how this diversion scheme can affect your insurance coverage.<\/p>\r\n

What Is Premium Diversion?<\/h2>\r\n

Premium diversion is a severe and widespread type of insurance fraud<\/a> that can affect policyholders. It can leave you without coverage. Premium fraud occurs when either an insurance professional or someone posing as an insurance professional embezzles policyholders’ insurance premiums<\/a>.<\/p>\r\n

Premium diversion is a serious offense with real ramifications. For example, the National Insurance Crime Bureau<\/a> reports on the consequences of premium diversion by an insurance professional.<\/p>\r\n

Common Types of Premium Diversion<\/h3>\r\n

When you purchase insurance, you often buy it through an insurance agent. An underwriter<\/a> provides the insurance policy. The underwriter receives your premiums through the agent.<\/p>\r\n

Embezzlement in the form of premium diversion occurs when the insurance agent retains premium payments rather than giving them to the underwriter. When premium diversion occurs, you pay premiums. The agent takes the payments for personal financial gain instead of sending the funds to the underwriter. You don’t have insurance coverage<\/a> if the underwriter never receives the premium payments.<\/p>\r\n

One prominent case<\/a> involved the owner of an insurance agency who engaged in asset diversion, which violated federal law. The United States charged the defendant with federal crimes. The owner diverted premiums for financial gain to fund his successful congressional campaign. He later served three years in prison for this fraud case.<\/p>\r\n

State insurance regulators in each state attempt to regulate the insurance industry to protect consumers. For this reason, one regulatory requirement provides that insurance agents obtain a license to sell insurance<\/a>.<\/p>\r\n

Another type of premium diversion scam occurs when someone sells insurance without a license, collects the premium payments, and fails to pay claims.<\/p>\r\n

Other Types of Insurance Fraud<\/h2>\r\n

In addition to premium diversion, there are other types of insurance fraud. Typical insurance schemes also include the following:<\/p>\r\n