ALT="Insurance Problem Solver logo"You might have fake insurance and not know it. Understanding, buying and using insurance is complicated and confusing. That’s why I created The Insurance Problem Solver. My goal is to explain it to you and to run interference if you need help.
I’m not the smartest guy in the room; hell, I can’t change the oil in my lawnmower. But I confess to knowing a fair amount about insurance. I want to share that knowledge with you in terms that you can understand and use.

What Is Fake Insurance?

The first steps are understanding what insurance is and how real insurance companies work. I purposely used the word “real.” This is because historically, and cyclically, there exist entities that:

  • Profess to be insurance companies
  • Profess to provide the protection that real insurance provides and/or
  • Be something other than insurers that perform the function of insurers

Lots of them are fakes and scams.

Real insurance relationships involve the transfer of a risk of loss from an insured to the insurer. The risk of loss transferred depends upon the type of insurance involved, such as:

  • Health insurance, where an insurer agrees to pay costs of care related to sickness or injury
  • Life insurance, which assumes the financial risk of loss resulting from death
  • Property and casualty insurance which assumes the risk of loss from the damage or destruction of specified kinds of property or protects you from claims of negligence.

There are lots of options from which to choose for all these, and other, types of insurance. Yet, none of the options make much of a difference unless they are provided by real insurance companies. Sometimes the words “authorized” and “licensed” are used; those are the technical, insurance terms. I’ll use the term, “real” (as opposed to fake).

Areas Of Insurance Regulation

Although many real insurers conduct business in more than one state, they must get permission from each state to do business there. State agencies exist in each that regulate the operation of real insurers in that state.

Some of the areas of regulation include:

  • The background of the people behind the organization (to make sure that they are honest and experienced)
  • The finances of the insurer. Minimum assets, in amount and kind, are required when the insurer seeks a license. The insurer is examined thereafter to make sure that finances are in order
  • The forms of insurance contract(s) utilized by the insurer. This is done to make sure that the forms follow with state insurance laws and are fair to consumers
  • The underwriting requirements of the insurer. These are the parameters of risks that the insurer will accept. They depend upon the type of insurance the company will offer. State law dictates acceptable and unacceptable underwriting factors.
  • The amount that the insurer can charge for the insurance
  • The manner in which claims are handled

Fake insurers, that sell fake insurance, often claim that they are exempt from state insurance regulation. Earlier in my career, I was in charge of a section of the Florida Department of Insurance that investigated and prosecuted fake insurers, the individuals behind them, the agents who sold the products, and the theories to support their claims that licensure was not required.

A frequent theory, and one that recurs every few years is that the insurance plan is not actually insurance. They claim to be “self-insured” so that only a specific group of people are insured, like a state organization of barbers. If that were true, there would not be the broad spreading of risk that is the hallmark of insurance (and triggers the need for licensure and regulation).

But the reality of the fake insurers is usually this:

  • They will accept anyone and everyone into the plan regardless of their occupation or profession, age, health or residence. There is therefore, spreading of risk, so the operation is really insurance.
  • The amount charged as premium is not actuarialy determined; it is usually too low to pay expected claims so that people will flock to buy into it.
  • Claims may be paid at first, but payments then stop because there is not enough money to go around.
  • Money gets skimmed off the top by the people who started the plan because they are dishonest.
  • The program goes bankrupt, consumers are left with unpaid claims, and the providers of services (such as physicians and hospitals) are unpaid.

It is imperative that you deal only with legitimate, licensed, authorized insurance companies. You can find out if an insurer is licensed by contacting your state Department of Insurance.
Ongoing changes in the insurance industry, especially health insurance, are making things even more complex. It is easy to get lost.

If you need help or have related questions, please contact Luke Brown, The Insurance Problem Solver. I live in Tallahassee, Florida in case you wanted to meet in person, and I’m a retired insurance attorney.