Insurance fraud

Insurance fraud is any act committed with the intent to obtain a fraudulentoutcome from an insurance process. This may occur when a claimant attempts to obtain some benefit or advantage to which they are not otherwise entitled, or when an insurer knowingly denies some benefit that is due. According to the United States Federal Bureau of Investigation the most common schemes include: Premium Diversion, Fee Churning, Asset Diversion, and Workers Compensation Fraud. The perpetrators in these schemes can be both insurance company employees and claimants.^[1] False insurance claimsare insurance claims filed with the intent to defraud an insurance provider.

Insurance fraud has existed since the beginning of insurance as a commercial enterprise.^[2] Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities affect the lives of innocent people, both directly through accidental or intentional injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a significant problem, and governments and other organizations make efforts to deter such activities.

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Causes[edit]

The “chief motive in all insurance crimes is financial profit.”^[2] Insurance contracts provide both the insured and the insurer with opportunities for exploitation.

According to the Coalition Against Insurance Fraud, the causes vary, but are usually centered on greed, and on holes in the protections against fraud.^[3]Often, those who commit insurance fraud view it as a low-risk, lucrative enterprise. For example, drug dealers who have entered insurance fraud ^[4]think it’s safer and more profitable than working street corners. Compared to those for other crimes, court sentences for insurance fraud can be lenient, reducing the risk of extended punishment. Though insurers try to fight fraud, some will pay suspicious claims anyway; settling such claims is often cheaper than legal action.

Another reason for fraud is over-insurance, when the amount insured is greater than the actual value of the property insured.^[2] This condition can be very difficult to avoid, especially since an insurance provider might sometimes encourage it in order to obtain greater profits.^[2] This allows fraudsters to make profits by destroying their property because the payment they receive from their insurers is of greater value than the property they destroy. The most common form of insurance fraud is inflating the value of the loss.^{[citation needed]}

Insurance companies are also susceptible to fraud because it's possible for fraudsters to file claims for damages that never occurred.

Losses due to insurance fraud[edit]

It is hard to place an exact value on the money stolen through insurance fraud. Insurance fraud is deliberately undetectable, unlike visible crimes such as robbery or murder. As such, the number of cases of insurance fraud that are detected is much lower than the number of acts that are actually committed.^[2] The best that can be done is to provide an estimate for the losses that insurers suffer due to insurance fraud. The Coalition Against Insurance Fraud estimates that in 2006 a total of about $80 billion was lost in the United States due to insurance fraud.^[5] According to estimates by the Insurance Information Institute, insurance fraud accounts for about 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses.^[6] The National Health Care Anti-Fraud Association estimates that 3% of the health care industry’s expenditures in the United States are due to fraudulent activities, amounting to a cost of about $51 billion.^[7] Other estimates attribute as much as 10% of the total healthcare spending in the United States to fraud—about $115 billion annually.^[8] Another study of all types of fraud committed in the United States insurance institutions (property-and-casualty, business liability, healthcare, social security, etc.)put the true cost at 33% to 38% of the total cash flow through the system. This study resulted in the book title "The Trillion Dollar Insurance Crook" by J.E. Smith. In the United Kingdom, the Insurance Fraud Bureau estimates that the loss due to insurance fraud in the United Kingdom is about £1.5 billion ($3.08 billion), causing a 5% increase in insurance premiums.^[9] The Insurance Bureau of Canada estimates that personal injury fraud in Canada costs about C$500 million annually.^[10] Indiaforensic Center of Studies estimates that Insurance frauds in India costs about $6.25 billion annually.