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Insurance Fraud

(All images, information, and text courtesy of Insurance Information Institute, Inc. All Rights Reserved)


Insurance industry estimates generally put fraud at about 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses each year, although the figure can fluctuate based on line of business, economic conditions and other factors.[1] Using this measure, over the five-year period from 2008 to 2012, property/casualty fraud amounted to about $33 billion each year. Also, the Federal Bureau of Investigation said that healthcare fraud, both private and public, is an estimated 3 to 10 percent of total healthcare expenditures.[2] Based on U.S. Department of Health and Human Services’ Centers for Medicare and Medicaid Services’ data for 2010, healthcare fraud amounted to between $77 billion and $259 billion.

Fraud may be committed by different parties involved in insurance transactions: applicants for insurance, policyholders, third-party claimants and professionals who provide services and equipment to claimants. Common frauds include "padding," or inflating actual claims; misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred, services never rendered or equipment never delivered; and "staging" accidents.

Forty-two states and the District of Columbia have set up fraud bureaus (some bureaus have limited powers, and some states have more than one bureau to address fraud in different lines of insurance). These agencies have reported increases in referrals (tips about suspected fraud), cases opened, convictions and court-ordered restitution.

Healthcare, workers compensation and auto insurance are believed to be the lines most vulnerable to insurance fraud. But the nature of fraud is constantly evolving. Shortly after the enactment of the 2010 healthcare reform law, the Health and Human Services secretary issued warnings about a proliferation of phony health insurance policies.

Auto theft, a related issue, is discussed in Insurance Issues Updates, Auto Theft.

[1] Estimate based on research conducted by the Battelle Seattle Research Center for the Insurance Information Institute in 1992 (Fighting the Hidden Crime: A National Agenda to Combat Insurance Fraud. Insurance Information Institute, March 1992) and other industry reports (including Insurance Fraud, Renewing the Crusade, Conning, 2001).

[2] Federal Bureau of Investigation, Financial Crimes Report to the Public, Fiscal Year 2007.


  • The Coalition Against Insurance Fraud’s State of Insurance Fraud Technology report, issued in September 2014, found that about half (51 percent) of the 42 insurers who participated in the survey said that suspected fraud has increased to some degree. Seven percent said it increased significantly. The study was conducted in June and July 2014.

  • Ninety-five percent of the respondents said they use antifraud technology, up from 88 percent in 2012. Seventy-one percent of respondents said that detecting claims fraud is the primary use of their antifraud technology.

  • About half of the insurers (53 percent) cited lack of IT resources as the stumbling block in implementing antifraud technology.

  • The Coalition’s report also discussed emerging fraud trends, identifying those that involve bodily injuries and suspicious activities by medical providers—especially in the workers compensation and auto lines of insurance—as becoming more prevalent.

  • Insurers are also faced with cyber fraud as they collect a large amount of personal information, and the number of companies reporting attacks increased significantly since 2012.

  • Questionable Claims: National Insurance Crime Bureau (NICB) questionable claims are referred from NICB member insurance companies to be reviewed and investigated when they contain one or more indicators of possible fraud. Questionable claims for 2012 were up 16 percent from 2011 to 116,171, compared with 100,201 in 2011, according to a May 2013 NICB report.

  • By type of insurance, the top five types by questionable claims were: personal automobile, with 78,024 claims in 2012, up 13 percent from 2011; homeowners personal property ranked second, with 17,183 questionable claims, up 45 percent; followed by workers compensation questionable claims totaling 4,459 in 2012, up 29% from a year ago. Commercial automobile questionable claims totaled 3,554 in 2012, up 15 percent from 2011. There were 2,650 questionable claims in the commercial and general liability category in 2012, up 3 percent from a year ago.

  • Questionable claims in the NICB report can contain up to seven referral reasons. The top five referral reasons were casualty-faked/exaggerated injury (50,472); vehicle-questionable auto/boat/heavy equipment theft (35,508); miscellaneous-prior loss/damage (29,646); miscellaneous-fictitious loss (29,017) and property-suspicious theft/loss non-vehicle (24,867).

  • The NICB said that in 2012, the top five states generating the most questionable claims were California, with 21,935 claims, followed by Florida (10,693), Texas (10,368), New York (9,059) and Maryland (4,296).

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