However, insurance fraud victimizes both insurance companies and their customers. Fraud saddles both groups with substantial, measurable costs. On the insurance company side, fraud drains time and resources. Every insurance company has to commit a high level of its resources to combat fraud. It takes time and personnel to investigate suspicious claims, it has to pay out losses on claims that it can’t prove invalid, it often has to create and maintain special investigative units with related costs, and it must invest in new ways to keep up with new schemes. Customers are hurt by fraud in different ways too. One cost is the increase in premiums caused by insurance company efforts to recoup their higher cost of business. I think that insurance claimants are harmed by the, sometimes, hostile approach that insurers feel they need to use in order to ferret out fraud. That aggressive posture creates tension and problems for those with legitimate claims.
Insurance fraud refers to lying to or deceiving an insurer in order to make money or to illegally secure insurance. Some common fraud schemes include:
- "padding" (inflating the true amount of) a claim
- lying or hiding (concealing) important information when applying for insurance
- lying or hiding (concealing) important information when reporting a loss
- submitting false claims
- "staging" accidents
- failing to report recovered property
- faking theft claims
- committing (home or vehicular) arson for profit
Please see part two of this article for information on fighting fraud.