insurance fraud: an overview
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.
menu of sources
- CRS Annotated Constitution: Fourteenth Amendment: Insurance
- U.S. Code:
- 15 U.S.C., Ch. 20 - McCarran-Ferguson Act Recognizing State Regulation of Insurance
- 15 U.S.C., Ch. 65 - Liability Risk Retention
- 12 U.S.C., Ch. 16 - Federal Deposit Insurance Corporation (FDIC)
- 7 U.S.C., Ch. 36 - Crop Insurance
- 42 U.S.C., Ch. 50 - Flood Insurance
- 5 U.S.C., Ch. 87 - Federal Employee Life Insurance
- 5 U.S.C., Ch. 89- Federal Employee Health Insurance
- N.Y. Court of Appeals:
- Appellate Decisions from Other States
Key Internet Sources
Useful Offnet (or Subscription - $) Sources
- Good Starting Point in Print: Robert H. Jerry, Understanding Insurance Law, Fourth Edition, (2007)