Insurance Fraud: Free CFE Practice Questions

Question 1

A homeowner files a fire claim. The policy file shows an application signed by the agent with an effective date two days before the fire, and the cash premium was remitted to the insurer in full. The insurer's system logs show the agent keyed in the application the morning after the fire. The homeowner's prior policy with another insurer had lapsed months earlier. The adjuster finds that the damage matches the inventory. Which scheme do these facts BEST indicate?

Replacing an existing policy to earn a new first-year commission Diverting the cash premium and reporting the policy as still pending Inflating the claimed fire damage to recover more than the actual loss Backdating a policy so it covers a loss that had already occurred

Correct Answer: Backdating a policy so it covers a loss that had already occurred

The system logs show the agent entered the application the morning after the fire but gave it an effective date two days before. With the prior coverage lapsed, this is a backdated policy written to cover a loss that had already occurred.
Diverting the cash premium does not fit, because the premium was remitted in full and the policy was issued, not left pending. Replacement for a new commission fails because there was no existing policy to replace; the old one had lapsed. Inflated damage is ruled out because the damage matches the inventory.
Key concept: agent backdating schemes, detected by comparing system entry timestamps with stated effective dates.

Question 2

Several auto insurance customers complain that their premiums are higher than the amounts their agent quoted. A fraud examiner finds that each policy is genuine, that the full premium was remitted to the insurer, and that each policy was newly written rather than a replacement. However, each one carries accidental death and roadside riders the customers never requested. The rider charges are folded into a single total premium figure, and the agent's commission rose with each rider. Which scheme do these facts BEST indicate?

Sliding optional coverages Writing fictitious policies Diverting premium remittances Churning prior policies

Correct Answer: Sliding optional coverages

Sliding optional coverages is correct because the agent added accidental death and roadside riders the customers never requested and hid their cost inside a single total premium, which raised his commission.
Churning prior policies is wrong because each policy was newly written, not a replacement of an existing one. Writing fictitious policies is wrong because every policy was genuine and tied to real customers. Diverting premium remittances is wrong because the full premium reached the insurer.
Key concept: sliding is an agent-level insurance fraud in which unrequested optional coverages are slipped into a policy, concealed in a lump-sum premium figure, and used to generate extra commission.

Question 3

In the insurance agent fraud scheme known as churning, the agent adds extra coverages, such as accidental death or motor club memberships, to a policy without the insured's knowledge.

True False

Correct Answer: False

The scheme described is sliding, in which an agent adds coverages the insured did not request so that the premium, and the agent's commission, increases. Churning occurs when an agent replaces existing policies with new ones, often by drawing on the cash value of the old policies, mainly to generate new commissions rather than to benefit the policyholder.

Insurance Fraud

CFE - Insurance Fraud Example Questions

Question 1

Question 2

Question 3

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