Facts + Statistics: 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.

In 2019, the Coalition Against Insurance Fraud and the SAS Institute published a report entitled, State of Insurance Fraud Technology. The study was based on an online survey of 84 mostly property/casualty insurers conducted in late 2018. Nearly three-quarters of the survey participants said fraud has increased either significantly or slightly in the past three years, an 11-point increase since 2014. No insurer has said that fraud has decreased significantly in the last six years.

About 40 percent of insurers polled said their technology budgets for 2019 will be larger, with predictive modeling and link or social network analysis the two most likely types of programs considered for investment. About 90 percent of respondents said they use technology primarily to detect claims fraud, a significant increase from 2016 and about half said they use it to combat underwriting fraud, up from 27 percent in 2016. The greatest challenges for insurers are limited IT resources, which affects about three-quarters of insurers, about the same as in 2016. This is followed by problems in data integration, with 76 percent reporting the problem, up from 64 percent in 2016.

 

Key State Laws Against Insurance Fraud

(As of November 2020)

State Insurance fraud
classified as a crime
Immunity
statutes
Fraud
bureau/unit
Mandatory insurer
fraud plan
Mandatory aut
photo inspection
Alabama X X X (1)    
Alaska X X X    
Arizona X X X    
Arkansas X X X X  
California X X X X  
Colorado X X X (2) X  
Connecticut X X  X (2)    
Delaware X X X    
D.C. X X X (3) X  
Florida X X X X X
Georgia X X X (4)    
Hawaii X X X    
Idaho X X X    
Illinois X X X (5)    
Indiana X X X    
Iowa X X X    
Kansas X X X X  
Kentucky X X X X  
Louisiana X X X X  
Maine X X (6) X  
Maryland X X X X  
Massachusetts X X X   X
Michigan X X (7)    
Minnesota X X X X  
Mississippi X X (8) X (2)    
Missouri X X X    
Montana X X X    
Nebraska X X X    
Nevada X X X (2)    
New Hampshire X X X X  
New Jersey X X X (2) X X
New Mexico X X X X  
New York X X X X X
North Carolina X X (9)    
North Dakota X X X    
Ohio X X X X  
Oklahoma X X X    
Oregon X X      
Pennsylvania X X X (2) X  
Rhode Island X X (8), (10) X (2), (11) X X
South Carolina X X X (2)    
South Dakota X X X (2)    
Tennessee X X X X  
Texas X X X X (8)  
Utah X X X X  
Vermont X X   X  
Virginia X X X (12)    
Washington X X X X  
West Virginia X X X    
Wisconsin X X X    
Wyoming X X (8)      

(1) Alabama does not have an Insurance Fraud Bureau; a fraud unit is established within the Department of Insurance.
(2) Fraud bureau set up in the state Attorney General's office.
(3) In the District of Columbia fraud is investigated by the Enforcement and Investigation Bureau in the Department of Insurance, Securities and Banking which investigates fraud in all three financial sectors.
(4) Fraud bureau set up in the Office of Insurance and Safety Fire Commissioner.
(5) No fraud bureau. Fraud can be reported to General Fraud, Department of Insurance and the Illinois Department of Insurance, Workers’ Compensation Fraud Unit.
(6) The Maine Bureau of Insurance does not have a fraud investigation unit. Fraud can be reported to the Bureau of Insurance office of Fraud and Abuse.
(7) Required as of September 11, 2018.
(8) Arson only.
(9) Fraud can be reported to the Department of Insurance, Criminal Investigations Division.
(10) Auto only.
(11) Fraud Bureau set up in the state police office.
(12) No fraud bureau. Fraud can be reported to the Department of Justice, Division of Criminal Investigation or the Workers’ Compensation Division.

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.

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