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Insurance fraud is any act committed to defraud an insurance process. It occurs when a claimant attempts to obtain some benefit or advantage they are not entitled to, or when an insurer knowingly denies some benefit that is due. According to the United States Federal Bureau of Investigation, the most common schemes include premium diversion, fee churning, asset diversion, and workers compensation fraud. Perpetrators in the schemes can be insurance company employees or claimants. False insurance claims are insurance claims filed with the fraudulent intention towards an insurance provider.

Insurance fraud has existed since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are diverse and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities affect the lives of innocent people, both directly through accidental or intentional injury or damage, and indirectly by the crimes leading to higher insurance premiums. Insurance fraud poses a significant problem, and governments and other organizations try to deter such activity.

An epigram by the Roman poet Martial provides a clear evidence the phenomenon of insurance fraud was already known in the Roman Empire during the First Century AD:

"Tongilianus, you paid two hundred for your house;

An accident too common in this city destroyed it.

You collected ten times more. Doesn't it seem, I pray,

That you set fire to your own house, Tongilianus?"
Book III, No. 52


The "chief motive in all insurance crimes is financial profit". Insurance contracts provide both the insured and the insurer with opportunities for exploitation.

According to the Coalition Against Insurance Fraud, the causes vary, but are usually centered on greed, and on holes in the protections against fraud. Often, those who commit insurance fraud view it as a low-risk, lucrative enterprise. For example, drug dealers who have entered insurance fraud think it's safer and more profitable than working street corners. Compared to those for other crimes, court sentences for insurance fraud can be lenient, reducing the risk of extended punishment. Though insurers fight fraud, some pay suspicious claims anyway, as settling such claims is often cheaper than legal action.

Another basis for fraud is over-insurance, in which someone insures property for more than its real value. This condition can be difficult to avoid, especially since an insurance provider might sometimes encourage it to obtain greater profits. This lets fraudsters profit by destroying their property, because they receive an insurance payout greater that the value of the property. The most common forms of insurance fraud are re-framing a non-insured damage to make it an event covered by insurance, and inflating the value of the loss.

Losses due to insurance fraud

It is hard to place an exact value on the money stolen through insurance fraud. Insurance fraud is deliberately undetectable, unlike visible crimes such as robbery or murder. As such, the number of cases of insurance fraud that are detected is much lower than the number of acts that are actually committed. The best that can be done is to provide an estimate for the losses that insurers suffer due to insurance fraud. The Coalition Against Insurance Fraud estimates that in 2006 a total of about $80 billion was lost in the United States due to insurance fraud. According to estimates by the Insurance Information Institute, insurance fraud accounts for about 10 percent of the property/casualty insurance industry's incurred losses and loss adjustment expenses. The National Health Care Anti-Fraud Association estimates that 3% of the health care industry's expenditures in the United States are due to fraudulent activities, amounting to a cost of about $51 billion. Other estimates attribute as much as 10% of the total healthcare spending in the United States to fraud—about $115 billion annually.] According to the FBI, non-health insurance fraud costs an estimated $40 billion per year, which increases the premiums for the average U.S. family between $400 and $700 annually. Another study of all types of fraud committed in the United States insurance institutions (property-and-casualty, business liability, healthcare, social security, etc.) put the true cost at 33% to 38% of the total cash flow through the system. This study resulted in the book title "The Trillion Dollar Insurance Crook" by J.E. Smith. In the United Kingdom, the Insurance Fraud Bureau estimates that the loss due to insurance fraud in the United Kingdom is about £1.5 billion ($3.08 billion), causing a 5% increase in insurance premiums. The Insurance Bureau of Canada estimates that personal injury fraud in Canada costs about C$500 million annually. Indiaforensic Center of Studies estimates that Insurance frauds in India costs about $6.25 billion annually.

Hard vs. soft fraud

Insurance fraud can be classified as either hard fraud or soft fraud.

Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire that is covered by their insurance policy in order to claim payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.

Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in an automotive collision an insured person might claim more damage than actually occurred. Soft fraud can also occur when, while obtaining a new health insurance policy, an individual misreports previous or existing conditions to obtain a lower premium on the insurance policy.

Types of insurance fraud

Life insurance

See also: Category:Murderers for life insurance money

The majority of life insurance fraud occurs at the application stage, involving applicants misrepresenting their health, their income, and other personal information in order to get a cheaper premium. As more and more insurance amendments can be performed online or over the telephone, identity theft has become an enabling crime that can lead to the amendment of life insurance terms to benefit a fraudster; for example, by adding a second stolen identity as a new beneficiary.

Life insurance fraud may involve faking death to claim life insurance. Fraudsters may sometimes turn up a few years after disappearing, claiming a loss of memory.

An example of life insurance fraud occurred in the case of John Darwin, a former teacher and prison officer who turned up alive in December 2007, five years after he was thought to have died in a canoeing accident, claiming to have no memory of the period after his disappearance.

Similarly, former British Government minister John Stonehouse went missing in 1974 from a beach in Miami but was discovered living under an assu...