Insurance Fraud: Deceitful Ways People Use

Insurance fraud is a deliberate deception committed by an individual or entity to obtain illegitimate financial gain from an insurance company. It can be perpetrated by applicants, policyholders, third-party claimants, or professionals who provide services to claimants. Fraudulent activities may include padding or inflating claims, misrepresenting facts on insurance applications, submitting claims for false injuries or damage, staging accidents, or collecting premiums without paying claims. Individuals may be motivated by financial stress, greed, or a sense of entitlement to commit insurance fraud. The cost of insurance fraud is significant, with estimates ranging from $40 billion to $308.6 billion per year in the United States alone.

Financial stress, greed, addiction, or a sense of entitlement can motivate people to commit insurance fraud

Financial stress can drive people to commit insurance fraud when they are struggling financially and see an opportunity to make money with low risk and high financial gain. This may be due to financial stress or a desire to cover their deductible. For example, some people may commit fraud by inflating insurance claims or submitting claims for injuries or damage that never occurred.

Greed can also be a motivating factor for people who commit insurance fraud. Some individuals may seek to make money at the expense of other policyholders or view filing a claim as an opportunity to make extra money. This can include professionals and technicians who inflate service costs or charge for services not rendered.

Addiction can play a role in insurance fraud when individuals are motivated by a desire to support their addiction. This can include ordinary people as well as organised criminals who steal large sums through fraudulent business activities.

A sense of entitlement can also contribute to insurance fraud. Some people may feel that they are justified in committing fraud because they believe insurers make a lot of money and can afford it, or that they are not getting enough money from their insurance policy. This sense of entitlement can lead to individuals rationalising their fraudulent behaviour as acceptable or necessary.

People may commit insurance fraud by padding or inflating their insurance claims

Inflating or padding a claim can be done in several ways. For example, a claimant may submit handwritten receipts for repairs on a covered item, or they may add or increase their homeowners or auto insurance coverage shortly before submitting a claim. They may also claim for injuries sustained in a workers' compensation claim, an auto accident, or a slip and fall, and feel that it is acceptable to "embellish" their injuries to reap benefits for pain and suffering, wage loss, replacement services, and attendant care. These are considered "soft fraud" and are often viewed as victimless crimes or even as an entitlement. Fabricating a job about to begin, or having a friend vouch that they provide services or care, are also common examples of soft insurance fraud.

Another way people may inflate their insurance claims is by working with their auto garage to pad the bill to cover things like the deductible. Often, they will approach their repair shop and see if the cost of their deductible can be added to the bill. Most reputable shops will refuse, but there are plenty willing to comply. Or the shops themselves will, for example, put a reconditioned bumper on a car and then bill the insurer for a new one.

Insurance fraud affects all types of insurance, including health insurance, property insurance, auto insurance, and workers' compensation. It costs the average US family between $400 and $700 per year in the form of increased premiums.

Misrepresenting facts on an insurance application is a type of insurance fraud

A material misrepresentation occurs when the insurance company would not have issued the policy, or would have issued a different kind of policy, if the facts had been presented accurately. In most states, any material misrepresentation gives the insurance company a legal basis to deny the claim and rescind the policy. The insurance company does not have to prove that the policyholder intended to deceive or obtain a policy by fraudulent means. However, in some states, an intent to deceive must be established.

Insurance fraud can be committed by applicants, policyholders, third-party claimants, or professionals who provide services to claimants. It can also be committed by insurance agents and company employees. People commit insurance fraud for various reasons, including financial stress, greed, addiction, or a sense of entitlement.

The cost of insurance fraud is significant. A 2022 study by The Coalition Against Insurance Fraud (CAIF) indicates that insurance fraud can cost U.S. consumers $308.6 billion yearly. This includes estimates across several liability areas, such as life insurance, property and casualty insurance, workers' compensation, and auto theft.

Submitting claims for injuries or damage that never occurred is another form of insurance fraud

Submitting claims for injuries or damage that never occurred is a common form of insurance fraud. This can take many forms, from organised criminal operations to opportunistic individuals. For example, after a natural disaster, some people may file false or exaggerated claims, or even intentionally damage their property to receive a higher payout. This was seen after Hurricane Katrina, where insurance fraud accounted for an estimated $6 billion of the $80 billion in government funding for reconstruction.

Healthcare insurance fraud is another area where false claims are prevalent. This can include providers billing for services that were never rendered, or patients claiming for injuries or damage that never occurred. For example, a patient may claim that their TV was damaged in a lightning storm when it had actually stopped working a week earlier. Healthcare fraud is estimated to cost $68 billion, or as much as $300 billion, annually.

Auto insurance fraud is also common, with scammers taking advantage of "no-fault" auto insurance policies, which allow policyholders to recover financial losses from their insurance company regardless of who was at fault in an accident. In these cases, unscrupulous medical providers or attorneys may pad costs associated with legitimate claims, such as billing for a medical procedure that never took place. Another form of auto insurance fraud is "title washing", where the titles of flooded vehicles are altered or cloned to be sold in states with lax title standards.

Insurance fraud can be committed by both consumers and professionals. Consumers may exaggerate claims or lie about the cause of loss, while professionals and technicians may inflate service costs or charge for services not rendered. Ultimately, insurance fraud hurts everyone, as it leads to increased premiums for consumers and costs businesses and consumers $308.6 billion a year.

Staging accidents or losses is a further example of insurance fraud

Another example of staging an accident involves vehicles damaged by flooding. Unscrupulous sellers may switch or clone the manufacturers' serial number plates and put them on a flooded but repaired vehicle. Alternatively, they may resell a car with a "salvage-only" title in a state with more relaxed title standards. This practice is called "title washing".

In addition to staging accidents, individuals may also stage losses or damages to their property. For instance, an individual might falsely claim that their TV was damaged by a lightning strike when it had actually stopped working a week prior. Or, following a break-in, they might tell their insurance company that more items were stolen than actually were. In these cases, providing false information to an insurance company constitutes insurance fraud.

The motivation to commit insurance fraud can vary. Some people may be struggling financially, while others may not understand that they are committing a crime and believe their actions are harmless. A small number of people may commit fraud in a more systematic and deliberate manner, seeking to make money at the expense of other policyholders. Regardless of the motivation, insurance fraud is a serious crime that can result in multiple felony charges, restitution, and jail time.

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