What is Insurance Fraud?

Mary McMahon
Mary McMahon

Insurance fraud is any activity in which people use fraudulent means to obtain payouts from insurance companies. Industry organizations suspect that as many as 10% of insurance claims may actually be fraudulent in nature, demonstrating how common insurance fraud can be, and many fraudulent claims are never firmly identified, causing large losses for the insurance industry as it pays out on such claims. Consumers are impacted directly by insurance fraud even when they don't commit it, because insurance companies are forced to charge higher premiums to compensate for funds they lose due to fraudulent activity.

Filing a false insurance claim is a form of fraud.
Filing a false insurance claim is a form of fraud.

Car, life, health, and property insurance can all be subject to insurance fraud. In soft fraud, people simply exaggerate an existing, legitimate claim. For example, a driver involved in a car accident might claim that damage to the windshield was caused in the accident, even though it wasn't, forcing the insurance company to replace the windshield. In hard fraud, people actually make up a situation which would result in an insurance payout, either entirely on paper, as in the case of a medical provider who submits claims for services which were never provided, or in reality, as in the instance of someone who burns down a home to get an insurance payout.

People in an auto accident might exaggerate the damage, which would be insurance fraud.
People in an auto accident might exaggerate the damage, which would be insurance fraud.

Insurance companies use a number of algorithms to detect insurance fraud. Every time a claim is submitted, the company's computers review it for signs that it may be fraudulent, and suspicious looking cases will be referred to a claims adjuster or another insurance professional who can review the claim to determine whether or not it is valid. If an insurance company suspects that insurance fraud may be involved, it will investigate to support its case, and may deny the claim on the basis of the outcome of the investigation.

Insurers have been struggling with fraud since they opened for business. A number of nations have laws in place which provide specific penalties for insurance fraud, making it a potentially dangerous activity to engage in, and many nations also support insurance company investigations with law enforcement investigations which are designed to identify and put a stop to fraud.

There are a few cases in which people may engage in activity which looks fraudulent, but really is not. As long as people file an insurance claim in good faith, if the insurance company has a problem with the claim, the dispute can usually be worked out without needing to involve the law. Insurance companies are also aware that because of concerns about fraud, they may sometimes accidentally flag a claim which is not at all fraudulent, and they are usually open to consumer disputes if consumers feel that they have been unfairly denied. Attorneys general and other government officials can help consumers if they want to dispute denied claims.

Business owners with too much debt might commit insurance fraud by setting their business on fire to collect insurance money.
Business owners with too much debt might commit insurance fraud by setting their business on fire to collect insurance money.
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments

anon221597

I have hyperthiroidism caused by a bike accident and cannot work. my tablets don't really do anything except cause body pain and I am constantly tired. It may not be a disability to you, but it is for me!

anon135877

I know someone who only worked two years for the city of New York and now collects disability for two years. Her disability is pregnancy and thyroid. She doesn't take her meds for the thyroid and is pregnant for the second time within the two year period which was supposed to end Dec 2011.

Pregnancy is not a disability and neither is thyroid. I know people who have worked with both conditions. The person collecting is a sibling of mine and I am appalled. She has been on welfare prior than worked two years and is now collecting disability and food stamps. Her older kids will be too old for her to collect taxes on, so she started another welfare mob.

This is unfair to us hard workers. I don't care if it is a sister of mine either. I think things should be done. She has friends who get into car accident after car accident and collect every time they have kids. And others who have been on the system over 30 years, have houses and live with the landlord and claim benefits to pay for the property.

anon36772

My husband's ex wife has been collecting disability for their 7 year old and she does not have primary custody, is this legal in the state of pa?

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