By Lindsay Bishop June 20, 2023
Source: Lending Tree
Photo Source: Unsplash,
The insurance industry lost around $308.6 billion due to fraud in 2022, according to estimates from the Coalition Against Insurance Fraud.
Insurance fraud affects all types of insurance, including car, home, life and health insurance. Insurance fraud statistics
There is an estimated $45 billion in property and casualty insurance fraud per year, according to Colorado State University Global’s White Collar Crime Research Task Force (WCCRTF). This includes home, auto and business insurance.
Life insurance fraud is the most widespread type of insurance fraud, costing companies $74.7 billion each year.
Between 10% and 20% of insurance claims are fraudulent.
Policyholders commit $35.1 billion in fraud that lowers their rates each year by lying on their insurance applications to get a better rate.
American families pay an additional $400 to $700 per year in insurance premiums to help cover the cost of insurance fraud, according to the FBI.
What is insurance fraud?
Insurance fraud occurs when a person or company misrepresents information when submitting a claim or applying for insurance to make a profit or save money on insurance.
Cost of insurance fraud Policyholders aren't the only people that commit insurance fraud — contractors, people who make claims and insurance agents are responsible for fraud, too. Annual cost of fraud by insurance type
Type of insurance
Billions ($) of fraud Total
$308.6
Life $74.7
Medicare and Medicaid $68.7
Car, home & business $45.0
Health care $36.3
Premium avoidance $35.1
Workers’ compensation $34.0
Auto theft $7.4
Disability $7.4
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Types of insurance fraud
There are two types of insurance fraud, usually called soft fraud and hard fraud.
Soft fraud occurs when an opportunity arises for someone to take advantage of an existing situation. For example, if you get in a fender bender and the other driver pretends to have a minor neck injury to get a bigger payout from your insurance company, that would be considered soft fraud.
Hard fraud is premeditated, which means a person or group will create an opportunity to get an insurance payout. For example, if someone cuts you off and slams on their brakes to purposefully cause an accident so they can file an insurance claim, that would be considered hard fraud.
Auto insurance fraud Auto insurance companies lose billions of dollars per year due to insurance fraud. Applicants, policyholders, mechanics and accident victims all participate in car insurance fraud.
The majority of these losses are due to lost premiums. This happens when applicants lie on their insurance application to get a better rate.
Car insurance companies lose $29 billion per year because of this, according to a 2017 study by Verisk. Cost of lost premiums by fraud type
Not including a driver in your household on your car insurance policy: $10.3 billion
Underestimating the number of miles you drive: $5.4 billion
Not telling your insurance company about past tickets or accidents: $3.4 billion
Telling your insurance company that your car is garaged at a false address: $2.9 billion
Lost premiums affect car insurance customers, too. Up to 14% of what you pay for car insurance premiums goes toward covering your insurance company's lost premiums. In addition, fraudulent bodily injury claims cost car insurance companies between $6.8 and $9.3 billion per year. These claims tend to involve neck or back pain, which doesn't generally involve a trip to the hospital, and they are hard to dispute.
In some cases, drivers involved in an accident commit fraud by inflating the severity of an otherwise legitimate claim. Known as "buildup," this type of fraud takes place in 21% of bodily injury claims, which pay for injuries to the other driver or passenger in an accident you cause, and 18% of personal injury protection claims, which pay for your own medical bills after an accident, regardless of fault.
Car insurance fraud examples
Some of the most common types of auto insurance fraud are:
Lying on your insurance application to get a lower rate
Faking or exaggerating an injury
Filing multiple claims for the same accident
Filing a claim for an accident that never happened
Causing an accident on purpose to file a claim with another driver's insurance
Filing a claim for a stolen vehicle that doesn't exist or is still in your possession
Inflating the cost or extent of repairs needed to get more money from the insurance company
Home insurance fraud Home insurance fraud is most commonly committed by policyholders doing damage to their own property to file a false insurance claim.
A classic example would be a failing restaurant owner who burns down their own business to get money from the insurance company.
Other types of dishonest claims are more subtle. Homeowners may make a claim for a burglary that didn't happen. Or the burglary may be legitimate, but the homeowner lies about the value of the belongings lost.
Another form of home insurance fraud is homeowners working with dishonest contractors in order to have construction or renovation work covered by an insurance claim. For example, a roofing contractor may tell the insurance company that your roof was damaged by a recent hail storm and needs to be replaced, when the damage is really due to regular wear and tear.
Examples of home insurance fraud
Lying about the damage to your home or belongings
Inflating the value of stolen items after a burglary
Faking a burglary or causing damage in order to make a claim
Lying about the intended use of your property on an insurance application
Having your contractor increase their repair estimate to cover your deductible
Home insurance tends to see an increase in fraud schemes after a natural disaster. Homeowners and contractors take advantage of damage after hurricanes or other major weather events.
For example, the government spent $80 billion on reconstruction after Hurricane Katrina in 2005. Around 9% of that money, or $6 billion, was spent on fraudulent claims.
Common disaster fraud schemes Homeowners
Filing false claims or exaggerating the amount of damage
Submitting claims for damage that happened prior to the storm
Filing a wind or theft claim for items damaged by flooding, which is not typically covered by home insurance.
Contractors
Inflating the cost of repairs to get more money from insurance
Requiring payment up front but not repairing damage
Increasing the claim amount by including damage that wasn't caused by the storm
Life insurance fraud Life insurance fraud costs insurance companies $74.7 billion each year. This type of fraud accounts for 24% of all insurance fraud. That makes life insurance fraud the most common type of insurance fraud.
Life insurance fraud can be committed by those applying for policies, policyholders, beneficiaries and people working in the life insurance industry.
Life insurance fraud examples
Lying on a life insurance application. Applicants might lie about their age or income, or fail to disclose important information about medical conditions and current medications.
Fraudulently changing a beneficiary. This can happen when someone forges a document to make themselves the beneficiary of a policy.
Faking someone's death. Beneficiaries may try to collect a life insurance payout for someone who's still alive or who never existed in the first place.
Insurance agents or industry workers stealing premiums instead of sending them to the life insurance company.
Scammers selling fake policies and keeping the premiums.
Murdering the policyholder.
Health insurance fraud Private health insurance companies lose $36.3 billion per year because of insurance fraud. In addition, the government is the victim of $68.7 billion of insurance fraud each year through Medicare and Medicaid. Combined, that makes up 34% of all insurance fraud.
Medicare and Medicaid recipients are more likely to experience fraud than people with private health insurance. There are a number of reasons for this, including the fact that they are often older or disabled. Both of these groups are more susceptible to fraud because they may be less involved in their health care decisions or have difficulty understanding complex bills.
In addition, people insured through Medicaid have little to no cost for medical care, so they're less likely to notice when they're charged for extra treatments.
Common health insurance scams Health insurance fraud can be committed by both providers and patients.
Health care providers, like hospitals, pharmacies, home health services and long-term care facilities commit the majority of private health insurance, Medicare and Medicaid fraud by:
Billing patients for services that were never provided.
Upcoding, or submitting a claim for a service that is more expensive or complex than what was provided. This also includes billing for higher-quality medication or supplies.
Unbundling, or billing for a handful of services individually instead of using a single billing code that would cost the insurance company less money.
Making up false diagnoses or feigning medical necessity in order to give patients unnecessary, expensive treatments.
Patients can also commit health insurance fraud by:
Stealing someone's identity to use their health benefits.
Sharing their health insurance benefits with friends or family members.
Insurance fraud punishment Insurance fraud is against the law in every state in the country. In most cases, states classify insurance fraud as a felony that can result in expensive fines and years of jail time. Most of those states also have a government agency devoted to rooting out fraud.
Insurance companies have become experts at detecting fraud and creating systems to reduce the issue. This includes the use of artificial intelligence and machine learning to discover fraud attempts.
How can such practices impact your health? How? Why?
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