Fraud

Fraud

INSURANCE FRAUD

Insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for the purpose of financial gain. Fraud may be committed at different points in the insurance transaction by applicants for insurance, policyholders, third-party claimants or professionals who provide services to claimants. Insurance agents and company employees may also commit insurance fraud. Common frauds include “padding,” or inflating actual claims, misrepresenting facts on an insurance application, submitting claims for injuries or damage that never occurred, and “staging” accidents.

Insurance fraud may be classified as “hard” or “soft.” Hard fraud is a deliberate attempt either to stage or invent an accident, injury, theft, arson or other type of loss that would be covered under an insurance policy. Soft fraud, which is sometimes called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim. A car owner involved in a “fender bender” who pads the claim to cover the policy deductible is committing soft fraud. Another example is exaggerating the number and value of items stolen from a home or business. Soft fraud may also occur when people purposely provide false information to influence the underwriting process in their favor when applying for insurance. To lower insurance premiums or increase the likelihood that the application for insurance will be accepted, people may underreport the number of miles driven, misrepresent where a car is garaged, fail to provide an accurate medical history when applying for health insurance, or falsify the number of employees and the nature of their work for workers compensation coverage.

The exact amount of fraud committed is difficult to determine. The proportion of fraud varies among the different lines of insurance, with healthcare, workers compensation and auto insurance believed to be the most vulnerable lines.

Questionable insurance claims rose by 16 percent from 100,201 in 2011 to 116,171 in 2012, according to the National Insurance Crime Bureau (NICB).

  • Insurance industry estimates generally put fraud at about 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses* each year, although the figure can fluctuate based on line of business, economic conditions and other factors.
  • No-fault fraud and abuse cost consumers and insurers about $658 million in 2011 in Florida alone, according to the Insurance Information Institute.

TOP TEN QUESTIONABLE CLAIMS BY INSURANCE TYPE, 2011-2012 (1)

Rank Type of insurance 2011 2012 Percent change, 2011-2012
1 Personal automobile 69,219 78,024 12.7%
2 Personal property: homeowners 11,887 17,183 44.6
3 Workers compensation (2) 3,470 4,459 28.5
4 Commercial automobile 3,092 3,554 14.9
5 Commercial and general liability 2,571 2,650 3.1
6 Personal property: other 1,090 2,621 140.5
7 Commercial property: commercial multiple peril 698 941 34.8
8 Commercial liability: business owners 387 464 19.9
9 Personal property: fire 488 411 -15.8
10 Commercial property: business owners 325 406 24.9
  All questionable claims (3) 100,201 116,171 15.9%

(1) Based on claims insurance companies refer to the National Insurance Crime Bureau to be reviewed and investigated.
(2) Includes employers' liability.
(3) Includes all policy types, not just top 10.

Source: National Insurance Crime Bureau.

View Archived Tables

KEY STATE LAWS AGAINST INSURANCE FRAUD

(As of September 2014)

State Insurance fraud classified as a crime Immunity statutes Fraud bureau Mandatory insurer fraud plan Mandatory auto photo inspection
Alabama X (1), (2) X X    
Alaska X X X    
Arizona X X X    
Arkansas X X X X  
California X X X X  
Colorado X X X (4) X  
Connecticut X X  X (1), (5)    
Delaware X X X    
D.C. X X X (6) X  
Florida X X X X X
Georgia X X X    
Hawaii X (1), (2) X X    
Idaho X X X    
Illinois X X X (1)    
Indiana X X      
Iowa X X X    
Kansas X X X X  
Kentucky X X X X  
Louisiana X X X X  
Maine X X  X (1) X  
Maryland X X X X  
Massachusetts X X X   X
Michigan X X      
Minnesota X X X X  
Mississippi X X (3) X (5)    
Missouri X X X    
Montana X X X    
Nebraska X X X    
Nevada X X X (5)    
New Hampshire X X X X  
New Jersey X X X (5) X X
New Mexico X X X X  
New York X X X X X
North Carolina X X X    
North Dakota X X X    
Ohio X X X X  
Oklahoma X X X    
Oregon X (1) X      
Pennsylvania X X X (5) X  
Rhode Island X X (1), (3), (7) X (5), (8) X X
South Carolina X X X (5)    
South Dakota X X X (5)    
Tennessee X X   X  
Texas X X X X  
Utah X X X    
Vermont X X   X  
Virginia X X X (8)    
Washington X X X X  
West Virginia X X X    
Wisconsin X X X (5)    
Wyoming X X (3)      

(1) Workers compensation insurance only.
(2) Healthcare insurance only.
(3) Arson only.
(4) No fraud bureau. Industry assessment payable to the Insurance Fraud Cash Fund. Attorney General's office conducts fraud prosecution.
(5) Fraud bureau set up in the state Attorney General's office.
(6) In the District of Columbia fraud is investigated by the Enforcement and Consumer Protection Bureau in the Department of Insurance, Securities and Banking which investigates fraud in all three financial sectors.
(7) Auto insurance only.
(8) Fraud bureau set up in the state police office.

Source: Property Casualty Insurers Association of America; Coalition Against Insurance Fraud.

  • Immunity statutes protect the person or insurance company that reports insurance fraud from criminal and civil prosecution.
  • Fraud bureaus are state law enforcement agencies, mostly set up in the department of insurance, where investigators review fraud reports and begin the prosecution process.
  • Mandatory insurer fraud plans require companies to formulate a program for fighting fraud and sometimes to establish special investigation units to identify fraud patterns.