What Is Insurance Fraud?
If you were to ask someone “what is insurance fraud”, you would receive a broad range of answers. Believe it or not most of these would be correct. Insurance fraud is a broad topic that covers many aspects of the misuse and mismanagement of insurance. Some of the information contained here may even surprise you.
What is insurance fraud? By definition, insurance fraud is any act that is committed to fraudulently obtain payment from an insurance company. This is a broad definition and can cover any aspect from intentionally causing damage to an insured item in order to receive payment falsely, to the exaggeration of a claim in order to get more money than what was actually lost. These examples represent the two main types of fraud, hard and soft insurance fraud. If someone starts their home on fire in order to collect the insurance money this is considered hard fraud. Soft fraud is not as extreme and happens often. If a car stereo is stolen and the owner claims the value to be more than it was actually worth in order to profit this is considered to be soft insurance fraud. Insurance fraud happens with all types of insurance, such as health insurance, life insurance and other types of insurance, not just property insurance.
This comes from a report from Thompson Reuters (2009). In 2009 alone, the healthcare industry counted losses of $125 billion to $175 billion dollars resulting from fraud. For auto insurance companies fraud accounted for $4.8 to $6.8 billion in excess premiums paid out. (Insurance Research Council, Nov. 2008)This money went for false or exaggerated medical claims, unnecessary procedures and staged accidents etc. If you’re wondering where all that money comes from, take a look at your insurance statement. Insurance fraud is one of the reasons that insurance premiums run so high. Insurers make up these losses from fraud by increases in the premiums we pay.