Wikipedia defines insurance fraud to be “any act committed with the intent to fraudulently obtain payment from an insurer.” It has been around since insurance has become a profitable enterprise. Insurance fraud can be classified as hard fraud or soft fraud.

In hard fraud, someone intentionally arranges and/or stages a loss. Commonly collisions, theft or fires that are covered by insurance policies are used to deceive insurance companies to pay out for damages, sometimes involving millions of dollars.

Soft fraud is more common than hard fraud. This is when policyholders exaggerate on legitimate claims. An example would be someone who claims more damage than was really done to his or her car in the case of an automobile collision. Misrepresenting yourself or hiding the reality of pre-existing conditions during an application for health insurance also counts as soft insurance fraud.

Types of Insurance Fraud

Life Insurance

Life insurance-related murder is an example of life insurance fraud. There have been numerous cases of individuals either killing their spouses/parents/children themselves, or hiring someone else to kill them, to collect on life insurance benefits. Another example is when someone stages their own death in order for beneficiaries to collect on their life insurance benefits.

Health Insurance

One of the major motives for people to commit health insurance fraud is the fact that it is works in favor of all the parties involved. Even the most honest patients go along with it at times when it affects their own medical care. Physicians see it as essential to give their patients the treatments they require and are not covered by their policies and would otherwise not be able to afford. Physicians often bill the insurance company for an entirely different service, which is covered in the policy, than the one which was given to the patient. Other times, a physician either bills the insurance company for more expensive treatments than what was actually provided; provide and then bill for a medically unnecessary treatment; and even blatantly bill for services not rendered.

Auto Insurance

There is a broad range of methods used to deceive car insurance companies. Soft auto insurance fraud can be one of several:

  • Filing more than one claim for a single injury
  • Filing a claim for injuries not related to a car accident
  • Giving an inaccurate account of wages lost due to an injury
  • Reporting higher costs than what was actually paid for car repairs

Hard auto insurance can comprise of any of the following:

  • Staging automobile collisions, sometimes even using random strangers in the process
  • Filing claims when the policyholder was not actually involved in an accident
  • Submitting claims for medical treatments that were not received
  • Inventing physical injuries after an accident
  • Registering a car to a location that would get the policyholder cheaper insurance rates
  • “Fronting” or registering someone other than the real primary driver of a vehicle as the primary driver (for example, parents who list themselves as primary drivers in their teenagers’ cars so as to avoid paying for higher premiums)
  • Deliberately and untruly reporting their vehicles as stolen

Property Insurance

Arson is the common method used in a majority of property insurance crimes. Soft property insurance fraud can be in the form of knowingly submitting fraudulent receipts, or home improvement estimates.

Falsified claims account for a significant fraction of all claims received by insurance companies yearly. It has been and is a serious problem costing billions of dollars and indirectly results in the rise of insurance premiums.

Today, 48 out of the 50 states have specifically classified insurance fraud as a crime. It has serious consequences – from having your policy cancelled, to having to pay fines and imprisonment.


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