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 2014 the Coalition Against Insurance Fraud and the SAS Institute published The State of Insurance Fraud Technology,  to  track how insurers deploy technology to combat insurance fraud.  An online survey of 42 insurers compared 2014 results to a 2012 survey and found that by 2014, 95 percent of insurers reported using anti-fraud technology, up from 88 percent in 2012.  These technologies focused on claims—71 percent of respondents said detecting claims fraud is the primary use of anti-fraud technology.  Less than half use these tools for nonclaim issues such as underwriting and internal fraud.

Other findings of the Coalition study included:

  • More than half of respondents to the study said the amount of suspected fraud against their company had increased over the past three years.  Only 2 percent said it had decreased.
  • When asked what benefits the insurers who use fraud-detection systems have received, the most-cited benefits were more and better referrals, uncovering complex or organized fraud activity and improved investigator efficiency.
  • Compared to 2012, a larger share of referrals came from automated systems in 2014.
  • One of the most common technologies used today are automated red flags, which automatically highlight suspected fraudulent activity.  Eighty-one percent of respondents reported using automated red flags,  followed by:
  • Link analysis, a tool that enables insurers to unravel complex or organized fraud rings by recognizing the relationships between groups across multiple claims, used by 50 percent of respondents; and
  • Anomaly detection, which warns investigators that information seems improbable, is used by 45 percent of respondents.
  • Most insurers think that no single technology is sufficient to combat fraud. A combination of technologies is necessary to uncover both opportunistic and organized fraud. 
  • Eighty-five percent of insurers predict that funds for anti-fraud detection will remain the same or increase.


Key State Laws Against Insurance Fraud

(As of April 2019)

State Insurance fraud classified as a crime Immunity statutes Fraud bureau Mandatory insurer fraud plan Mandatory auto photo inspection
Alabama X X X (4)    
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 (4)    
Delaware X X X    
D.C. X X X (5) X  
Florida X X X X X
Georgia X X X    
Hawaii X X X    
Idaho X X X    
Illinois X X X (1)    
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   X  
Maryland X X X X  
Massachusetts X X X   X
Michigan X X (9)    
Minnesota X X X X  
Mississippi X X (3) X (4)    
Missouri X X X    
Montana X X X    
Nebraska X X X    
Nevada X X X (4)    
New Hampshire X X X X  
New Jersey X X X (4) 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 X      
Pennsylvania X X X (4) X  
Rhode Island X X (3), (6) X (4), (7) X X
South Carolina X X X (4)    
South Dakota X X X (4)    
Tennessee X X X X  
Texas X X X X (8)  
Utah X X X X  
Vermont X X   X  
Virginia X X X (7)    
Washington X X X X  
West Virginia X X X    
Wisconsin X X (1)    
Wyoming X X (3)      

(1) Workers compensation insurance only.
(2) Healthcare insurance only.
(3) Arson only.
(4) Fraud bureau set up in the state Attorney General's office.
(5) 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.
(6) Auto insurance only.
(7) Fraud bureau set up in the state police office.
(8) Life, accident and health and workers compensation only.
(9) Required as of September 11, 2018.

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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