What is Insurance Fraud?

Legal Definition
Insurance fraud is any act committed with the intent to obtain a fraudulent outcome 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. False insurance claims are insurance claims filed with the intent to defraud an insurance provider.

Insurance fraud has existed since the beginning of insurance as a commercial enterprise. 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.
-- Wikipedia
Legal Definition
Insurance fraud refers to any duplicitous act performed with the intent to obtain an improper payment from an insurer. The pervasiveness of insurance fraud drives up costs for all consumers and costs the insurance industry billions of dollars each year. One authority estimates that the annual value of insurance fraud approaches $80 billion. Detecting insurance fraud is difficult because of the surreptitious nature by which the criminal perpetrates the fraud.

Police and prosecutors typically refer to an insurance fraud scheme as either “hard fraud” or “soft fraud.” Hard fraud, the rarer of the two forms, occurs when a criminal deliberately brings about the destruction of property for the purpose of collecting on the insurance policy. Soft fraud, on the other hand, occurs when a policyholder exaggerates an otherwise legitimate claim or when an individual applies for an insurance policy and lies about certain conditions or circumstances to lower the policy’s premium.

One common form of insurance fraud occurs when the insurance policy amounts to a greater value than the value of the insured property. In this situation the policy-owner has the incentive to commit insurance fraud by destroying the property and making it look like an accident in order to collect. In 2006, authorities estimate that fraudsters swindled insurance companies out of $766 million in this manner.

Fraudsters also commonly file insurance claims for accidents that never actually occurred. Owners of life insurance policies have feigned their own deaths in order for their families to collect on the policy. Then, the fraudster receives money from the family while secluded in a remote or foreign location.

Health care insurance fraud also occurs commonly and can be perpetrated by either physicians or patients. Physicians commit fraud when they misrepresent the type of treatment received by the patient so that the patient receives coverage or when they alter the treatment’s costs so as to receive more money. Patients commit healthcare fraud when providing false information during the application process of certain programs and services, when forging or selling prescription drugs, when using transportation benefits for non-medical related purposes, and when loaning or using another’s insurance card.

Automobile insurance fraud occurs when a policyholder submits a claim for an accident that never happened, files multiple claims for a single accident, files claims for injuries not related to an automobile accident, misreports wage losses due to injuries, or reports higher costs for car repairs than that actually paid. Sometimes, policyholders register their cars to a location different from their actual residence in order to avoid higher premium rates.

See White-collar crime Insurance