Insurance Fraud is one of the most common forms of fraud in the United States. And because it is one of the most common forms of fraud it has kept me and thousands of other investigators employed.  I think that some people who decide to commit fraud don’t think they are really doing so or don’t realize it is a crime to commit insurance fraud. I believe people who commit insurance fraud believe the worst that will happen is their claim will be denied. So what is the definition of Insurance fraud?  What exactly does that mean?  Let’s get into that now.

What is Insurance Fraud? How is it Defined?

Insurance Fraud is when an insured individual, insured business or an individual (in the majority of cases) makes a fake or exaggerated insurance claim to seek compensation for injuries or financial losses that did not actually take place.

You will also see in the news where individuals sell fake insurance policies or where insurance brokers keep the premium money for themselves instead of sending the money to the insurers.  

A man named Kenneth Earl Craft Jr. sold life insurance policies to two different people after his license to sell insurance was revoked the year prior.  He then collected the payments from the individuals he sold insurance to and never submitted the payments to the insurance company.  He stole roughly $7,000 over 7 years and was arrested as a result.

New Jersey state law identifies insurance fraud as this:

Ҥ 2C:21-4.6. Crime of insurance fraud

1. A person is guilty of the crime of insurance fraud if that person knowingly makes, or causes to be made, a false, fictitious, fraudulent, or misleading statement of material fact in, or omits a material fact from, or causes a material fact to be omitted from, any record, bill, claim or other document, in writing, electronically, orally or in any other form, that a person attempts to submit, submits, causes to be submitted, or attempts to cause to be submitted as part of, in support of or opposition to or in connection with: (1) a claim for payment, reimbursement or other benefit pursuant to an insurance policy, or from an insurance company or the “Unsatisfied Claim and Judgment Fund Law,” P.L. 1952, c. 174 (C. 39:6-61 et seq.)..”

Any misrepresentation of an insurance claim can be considered insurance fraud.  

Impact of Insurance Fraud

Where there is an opportunity there is fraud.  And according to the Coalition Against Insurance Fraud, it is believed that there are over 80 billion dollars lost to insurance fraud in the United States.  This was thought to be a low number considering all the insurance fraud that isn’t identified or discovered.

The FBI believes that it is estimated that the total cost of (non-health Insurance) insurance fraud is approximately 40 billion each year.  As a result, the fraud cost for each family has increased by between $400 and $700 each year on their premiums.  

Insurance fraud raises the cost of insurance without a doubt.

Types of Insurance Fraud

There are many types of insurance fraud but they have been categorized into two different types which are Hard Insurance Fraud and Soft Insurance Fraud.

Definition of Hard Insurance Fraud

Hard insurance fraud is when an individual purposely creates an accident or loss to themselves or their property to file a claim with the insurance company.  

Examples of Hard Fraud :

• Staging a vehicle accident
• Faking a fall in a store and then faking an injury
• Burning down a home or business to collect the insurance money
• Lying about how an accident took place to make sure it is covered by insurance
• An individual faking an injury at work when they know they are going to be let go or fired
• Having a vehicle purposely stolen and set on fire to get out of a car payment or to simply collect the insurance money

Definition of Soft Insurance Fraud

Soft insurance fraud is the fraud that investigators likely see more often during an investigation.  Soft fraud is an opportunity type of fraud to either milk the insurance company for more money or to exaggerate a claim for more money.  The claims are legitimate at the beginning but the individual with an insurance claim tries to get more money than is owed by the insurance company.  

Examples of soft insurance fraud

• Having a theft to your home and claim items to be stolen that were not
• Being involved in a vehicle accident and claiming pre-existing damage as part of the claim
• Being injured at work and recovering fully but stating you are still injured and can not return to work.
• Claiming an injury was caused by an accident (fake or real) however the individual already had a pre-existing injury that had not been treated.  The individual then pursues damages including medical treatment for a pre-existing injury.

Different Types of Insurance Fraud

Stolen Vehicle Fraud

There are many different scenarios that involve having a vehicle stolen but essentially an insured has their vehicle is stolen (or makes it look as though it was).  It is later recovered damaged or involved in a fire.  

Vehicle Arson Fraud

Vehicle arson fraud would be when a vehicle is set on fire by an owner or an associate of the owner to collect the insurance money.  

Receiving Undue Benefits

Sometimes elderly individuals receive benefits of some sort.  Once they pass away the benefits are supposed to cease.  Sometimes family members or friends don’t inform the insurance company of the death of the benefit recipient and continue to cash the benefit checks.  This is one of the reasons Alive and Well Checks are conducted.

Vehicle Accident Fraud

This type of fraud can range from claiming fake or exaggerated injuries to claiming existing vehicle damage was the fault of the accident.  The crashes are real however one party becomes opportunistic with the insurance claim.

Staged Accident Fraud

This is where another party purposely causes an accident where it appears you are at fault.  The claims are exaggerated and these individuals are associated with organized crime.

Workers Compensation Fraud

This can be an individual faking an injury at work to someone recovering from an injury and not returning because they claim they are still hurt.

Slip and Fall Fraud

Some people fake slip and falls in various locations and make insurance claims against a store, city, or whoever they can.

Arson of Business or Home

Individuals looking to collect insurance money will burn their homes or business.  Many times important things will be removed just prior to the arson.  

Medical Billing Fraud

Medical providers bill insurance companies for services they did not perform and for the use of equipment they did not use or even have.

Fraudulent Hit and Run Vehicle Damage Fraud

People get involved in vehicle accidents and then out of fear or opportunity they claim it was involved in a hit and run or hit when it was parked.

Renter Insurance

Some people don’t get renters insurance.  Then one day there is a fire or a theft to their home. They then obtain the insurance and file a claim shortly thereafter.  They tell the insurance company that the theft or fire happened after the getting the insurance.  Renters insurance fraud can have many instances that fit in the category of homeowner’s insurance fraud.

Home Owners Insurance Fraud

There are many types of instances of fraud that fall under this category but one of the most common ones in my experience is having theft or damage to a home.  In theft cases, they claim more money than items are worth, make claims for things they never owned or conspire to over charge for any repairs.

Conclusion

Any type of misrepresentation of an insurance claim could be considered fraud and is a crime in every state of the United States.  Insurance related fraud comes in all forms and in the future, I hope to share more than enough stories or instances of insurance fraud to warn those that are thinking about doing it or to help insurance investigators identify different types of fraud.

Insurance fraud like other types of fraud will always exist.  Investigators will keep looking for it and identifying it when it happens.

Insurance investigations have kept me and many others employed over a very long career and since it isn’t going away I should have plenty of job security.  

If you were wondering, “What is Insurance Fraud”, I hope this answered some of your questions.

Andrew