Insurance fraud includes any act committed with the intent to fraudulently obtain payment from an insurance company. Fraudulent claims cost billions of dollars annually and account for a significant portion of all claims received by insurers. Some of the major areas in which insurance fraud occurs are in the health care, automobile, and property insurance industries.
The severity of insurance crimes range from slightly exaggerated claims to deliberately caused “accidents” or damage. Innocent people are affected by insurance crimes as well – directly, through accidental or purposeful injury or damage, and indirectly as insurance crimes lead to higher premiums.
Insurance fraud can be classified as one of two types:
- Hard fraud – Occurs when an individual deliberately invents and plans a loss that is covered by their insurance policy in order to receive payment for damages.
- Soft fraud – Also referred to as opportunistic fraud, this type consists of policyholders exaggerating otherwise legitimate claims. For example, claiming more damage than was actually done to a vehicle in an auto accident would constitute soft fraud. This would also include misreporting previous or existing conditions in order to obtain a lower premium on an insurance policy.
Detecting Insurance Fraud
It is cost-prohibitive for insurance companies to have employees check every claim for symptoms of fraud. Thus, many companies use computers and statistical analysis to identify suspicious claims for further investigation. This is done by comparing data about a specific claim to expected values. Both claims adjusters and computers can be trained to identify “red flags,” or symptoms that have often been associated with fraudulent claims in the past. It is important to note that statistical detection does not prove a claim fraudulent; it only identifies suspicious claims that may need further investigation.
Suspicious claims may be submitted to special investigative units (SIUs) which generally consist of experienced claims adjusters with special training in investigating fraudulent insurance claims. These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.