Insurance fraud is defined as any act intentionally committed with the goal of securing payment from an insurer.
Fraudulent insurance claims make up a significant portion of all claims received by insurers, costing these companies billions of dollars a year. This cost is then passed on to customers in the form of increased insurance rates. The types of insurance fraudsters are diverse, and so are the crimes they commit. More comprehensive stats are kept by government institutions or car insurance companies such as Cheap Car Insurance or the Insurance Information Institute. Fraudulent insurance claims can consist of exaggerated damage claims to intentional “accidents” and theft.
It is quite difficult to measure the exact amount of money stolen through fraudulent insurance claims as insurance companies, local, and federal agencies all gather and report data differently. The types of information they gather as well as the types of crime they report varies widely between agencies. Not to mention that insurance fraud is designed to be invisible, unlike many other crimes. There are many more fraudulent claims that go through undetected than are actually caught.
Watchdog agencies at the state level that are charged with investigating insurance fraud compile and report statistical data regarding the prevalence of insurance fraud in any given state and make estimations based on the information available. Almost every state has at least one bureau charged with monitoring and investigating insurance fraud and many have more than one. The states that do not have multiple organizations to investigate and report fraud are: Alabama, Illinois, Maine, Michigan, Oregon, Vermont, and Wyoming.
The 2007 annual compiled report of state fraud insurance fraud statistics published by the Coalition Against Insurance Fraud reveals this staggering list of statistics:
Cases opened 31,654
Presentations to prosecutors 5,936
Civil actions 7,672
Restitution ordered $179,036,100
All insurance fraud can be classified in one of two ways: hard fraud or soft fraud.
An insurance fraud claim can be classified as hard fraud when someone deliberately carries out a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to receive payment for damages. Hard fraud is usually conducted by large criminal rings and cost insurance companies millions of dollars a year.
Soft fraud is much more common than hard fraud and also been known as opportunistic fraud. In this type of claim, the policyholder will exaggerate the extent of an otherwise legitimate claim in order to receive higher compensation. For example, when a policyholder is involved in a collision, he or she might inflict or claim more damage than was really done to his or her car.
It is also considered soft fraud to underreport damage to a vehicle in order to obtain a lower insurance premium or to collect on it at a later time.
Insurance fraud has been called a victimless crime, but the rising rate of insurance premiums does not reflect the same perspective. Insurance fraud hurts everyone involved, including the criminal, who may find that their insurance policy has been cancelled, or worse, be convicted of felony insurance fraud.