Product Code Database
Insurance fraud is any intentional act committed to deceive or mislead an insurance company during the application or claims process, or the wrongful denial of a legitimate claim by an insurance company. It occurs when a claimant knowingly attempts to obtain a benefit or advantage they are not entitled to receive, or when an insurer knowingly denies a benefit or advantage that is due to the insured. According to the United States Federal Bureau of Investigation, the most common schemes include premium diversion, fee churning, asset diversion, and workers compensation fraud. False insurance claims are insurance claims filed with the intention towards an insurance provider.
Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Insurance fraud poses a significant problem, and governments and other organizations try to deter such activity.
Studies suggest that the greatest total dollar amount of fraud is committed by the health insurance companies themselves, intentionally not paying claims and deleting them from their systems, and denying and cancelling coverage.
Long before the rise of the modern insurance industry, an epigram by the Roman poet Martial, set in the Roman Empire during the first century AD, illustrates how crimes such as arson might be motivated by profit:Jo-Ann Shelton, As the Romans Did: A Sourcebook in Roman Social History (New York: Oxford University Press, 1988), 65.
According to the American Coalition Against Insurance Fraud, the causes vary, but are usually centered on greed, and on holes in the protections against fraud. Those who commit insurance fraud may view it as a low-risk, lucrative enterprise as compared to other forms of criminal activity.
Another study of all types of fraud committed in the United States insurance institutions (property-and-casualty, business liability, healthcare, social security, etc.) estimates the 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 Pound sterling1.5 billion ($3.08 billion), causing a 5% increase in insurance premiums.Insurance Fraud Bureau. "Fighting Organized Insurance Fraud." p. 2. The Insurance Bureau of Canada estimates that personal injury fraud in Canada costs about Canadian dollar500 million annually.Insurance Bureau of Canada. "Cost of Personal Injury Fraud." Indiaforensic Center of Studies estimates that Insurance frauds in India costs about US dollar6.25 billion annually."Indiaforensic Study on quantification of fraud losses to Indian Insurance Sector "
Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to claim payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.Coalition Against Insurance Fraud. "Learn About Fraud."
Soft fraud, which is more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in an automotive collision an insured person might claim more damage than actually occurred. Soft fraud can also occur when, while obtaining a new health insurance policy, an individual misreports previous or existing conditions to obtain a lower premium on the insurance policy.Insurance Information Institute. "Fraud."
The UK Insurance Research Council estimated that in 1996, 21 to 36 percent of auto-insurance claims contained elements of suspected fraud.Tennyson, Sharon et al. "Claims Auditing" p. 289.
Schemes used to defraud automobile insurance providers differ greatly in complexity and severity, and include both individual and organized efforts.
Staged collision schemes may involve fraud at three different levels. At the top, there are lawyers who file fraudulent claims, supported by doctors who fabricate or exaggerate diagnoses and treatment records. Next are the "cappers" or "runners", the middlemen who obtain the cars to crash, farm out the claims to the professionals at the top, and recruit participants. At the bottom are the participants recruited to risk injury in the staged accidents. These rings may involve organized crime.
Another form of fraud, known as "fronting", involves registering someone other than the real primary driver of a car as the primary driver of the car in order to obtain a lower rate. For example, parents might list themselves as the primary driver of their children's vehicles to avoid young driver premiums.
Member fraud consists of such acts as the making of claims on behalf of ineligible members or their dependents, making false statements on enrollment forms, concealing preexisting conditions that could affect the scope of coverage or cost of the policy, and failure to disclose claims that were a result of a work-related injury in violation of the terms of a health insurance policy.
Provider fraud consists of claims submitted by medical care providers, and may include billing for services not rendered, billing for higher level of services than those provided, making false statements on claims submissions, double-billing by doctors who charge more than once for the same service, performance of unnecessary medical treatments or surgery, and billing for services other than those actually rendered.Hyman, David A. "Health Care Fraud and Abuse." p. 547. Providers may also bill for care actually provided to their patients, but which is not medically necessary. Practices that may be used to perpetrate fraud include "up-coding" or "upgrading", which involve billing for more expensive treatments than those actually provided; "phantom billing", billing for services not rendered; and "ganging", billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.
Health insurance fraud depletes the resources of taxpayer-funded programs like Medicare.Quiggle, James. [1] "Health Fraud" Scam Alerts. Coalition Against Insurance Fraud, 2011 Public healthcare programs such as Medicare and Medicaid are especially conducive to fraudulent activities, as they are often run on a fee-for-service structure.Pontell, Henry N., et al. "Policing Physicians." p. 118.
It is estimated that in the U.S., as of 2017, $262 billion in healthcare claims are initially denied, and health systems spend approximately $20 billion each year trying to secure payment for valid health insurance claims that were wrongly denied, including some claims that were preapproved by the insurance company. Forms of fraud by health insurance companies include the wrongful denial of claims, wrongful cancellation of coverage, and underpayment of hospitals and physicians.
When detected, health insurance fraud can result in civil liability as well as criminal penalties, and potential action against a healthcare provider's license.
Life insurance fraud may involve faked death to claim life insurance. Fraudsters may sometimes turn up a few years after disappearing, claiming a loss of memory. For example, in the case of John Darwin, a former teacher and prison officer pseudocide five years after he was purported to have died in a canoeing accident, after his family had made a successful claim on his life insurance. Similarly, former British Government minister John Stonehouse reportedly missing in 1974 from a beach in Miami after the acquisition of multiple life insurance policies, but was discovered living under an assumed name in Australia.
Property insurance crimes often involve arson,Manes, Alfred. "Insurance Crimes." p. 35. as evidence that a fire was intentionally started may be destroyed by the fire itself. According to the United States Fire Administration, in the United States there were approximately 31,000 fires caused by arson in 2006, resulting in losses of $755 million.U.S. Fire Administration. "Arson Fire Statistics."
Another form for fraud is over-insurance, in which someone insures property for more than its real value. This condition can be difficult to avoid, especially since an insurance provider might sometimes encourage it to obtain greater profits.
During the pandemic in 2020, there was a significant spike of unemployment fraud in the United States.
The detection of insurance fraud usually begins with the identification of suspicious claims, those that have a higher possibility of being fraudulent. This may be accomplished with Statistics analysis that compares data about a claim to expected values,Derrig, Richard A. "Insurance Fraud." p. 277. or through review by or insurance agents. Sometimes insurance fraud is detected as a result of law enforcement investigation, or tips from members of the public. Any claim that is identified as suspect may then be investigated for possible fraud.
For unsupervised statistical detection, the goal is to detect claims that are abnormal as compared to other claims, and to have the algorithm identify "red flag" factors that are associated with past fraudulent claims. This process is not intended to prove that a given claim is fraudulent, but instead to efficiently identify claims that should be subjected to further review.
Fraudulent claims can be one of may be identified as "built up", meaning that they are legitimate claims that are exaggerated in their value, or they may be false claims for damages that never occurred. For built up claims, insurance companies usually try to negotiate the claim down to an appropriate amount.Derrig, Richard A. "Insurance Fraud." p. 278.\
When an insurance company's fraud department investigates a fraud claim, they frequently proceed in two stages: pre-contact and post-contact. The pre-contact stage occurs prior to contact with the claimant, and involves collection and analysis of all available documentation and evidence pertaining to the claim, potentially including the taking of witness statements or collection of evidence from third-party sources. Then, in the "post-contact" stage, they interview the claimant to gather more information and, when possible, an admission that the claim is fraudulent. The goal of the investigation and interview is to verify the value of the claim and, should fraud be identified, collect evidence of the insured party's intent to defraud. or the intention to defraud, An interview with the insured may also be used to challenge subsequent changes to the insured's narrative.
The Insurance Crime Prevention Bureau is a nonprofit organization that was founded in 1973 to help fight insurance fraud. This organization collects information on insurance fraud, and also carries out investigations. Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim.Clarke, Michael. "The Control of Insurance Fraud", p. 10.
The Serious Fraud Office was established by the government in 1987 to improve the investigation and prosecution of serious and complex fraud cases. The City of London Police runs an Insurance Fraud Enforcement Department, that specializes in tracking criminals who knowingly commit insurance fraud.
Part 4 of the Insurance Act 2015 codifies the common law principle that an insurer is not obligated to pay a fraudulent claim, and may recover payments already made from the insured should fraud later be discovered. Upon proper notice to the insured, the insurer may also treat the insurance contract as if it was terminated at the time of the "fraudulent act". Neither "fraud" nor "fraudulent claim" is defined in the legislation.UK Legislation, Insurance Act 2015: Explanatory Notes: Commentary on Sections - Part 4: Fraudulent Claims, accessed on 23 February 2025 In an important legal judgment in this area, the Supreme Court ruled in 2016 that false information being used to support a genuine claim for loss did not in itself make the claim fraudulent, and so the forfeiture rules did not apply. The majority opinion in the Supreme Court differed from the findings of the trial court and the Appeal Court, which had seen the false information as a "reckless misrepresentation" and maintained a public policy interest against use of false claim information.Clyde & Co LLP, Fraudulent Devices - Versloot Dredging BV v HDI Gerling Industrie Versicherung AG (Supreme Court), published on 20 July 2016, accessed on 24 February 2025
|
|
