Learn about fraud

Watch out . . .

— insurance crooks are picking your pocket in order to line theirs. These thieves are committing insurance fraud, one of America’s largest criminal industries. Insurance fraud is a crime, and one way or another, honest consumers and businesses pay the price.

Insurance fraud occurs every day and in every state. People of all races, incomes and ages are victimized. Insurance fraud costs Americans at least $80 billion a year, the Coalition Against Insurance Fraud estimates.

But look beyond the high dollar costs… you’ll also see honest, hardworking Americans whose lives, businesses, careers and families are damaged or even ruined by insurance fraud crimes.

People lose their savings. Trusting citizens are bilked out of thousands of dollars, often their entire life savings, by insurance investment schemes. The elderly are especially vulnerable.

Health is endangered. People’s health and lives are endangered by swindlers who sell nonexistent health policies or perform quack medical care to illegally inflate health insurance claims.

Premiums stay high. Auto and homeowner insurance prices stay high because insurance companies must pass the large costs of insurance fraud to policyholders.

Consumer goods cost more. Prices of goods at your department or grocery store keep rising when businesses pass higher costs of their health and commercial insurance onto customers.

Honest businesses lose money. Businesses lose millions in income annually because fraud increases their costs for employee health coverage and business insurance.

Innocent people are killed and maimed. People die from insurance schemes such as staged auto accidents and arson — including children and entire families. People and even animals also are murdered for life insurance money.

Employees lose jobs. People lose jobs, careers and health coverage when insurance companies go bankrupt after being looted by fraud thieves.

What is Fraud?

Insurance fraud occurs when people deceive an insurance company or agent to collect money to which they aren’t entitled. Similarly, insurers and agents also can defraud consumers, or even each other. Insurance fraud can be "hard" or "soft."

Hard Fraud. Someone deliberately fakes an accident, injury, theft, arson or other loss to collect money illegally from insurance companies. Crooks often act alone, but increasingly, organized crime rings stage large schemes that steal millions of dollars.

Soft Fraud. Normally honest people often tell "little white lies" to their insurance company. Many people think it’s just harmless fudging. But soft fraud is a crime, and raises everyone’s insurance costs. Consider…

A car owner inflates a fender bender claim to cover her deductible, or she understates how many miles she drives annually to lower her auto premium… A homeowner inflates the value of his stereo equipment stolen during a robbery… Or a printing business lists fewer employees than it really has in order to pay lower workers compensation premiums.

Fraud is Big

Insurance fraud is hard to measure because so much goes undetected, and complete research has yet to be done. Still, we have enough evidence to know that fraud is widespread — and expensive.

Healthcare fraud alone costs Americans $54 billion a year, the Coalition Against Insurance Fraud estimates.

More than one third of people hurt in auto accidents exaggerate their injuries. This adds $13-$18 billion to America’s annual insurance bill, notes a study by the Rand Institute for Civil Justice.

Nearly one third of doctors exaggerate the severity of a patient’s illness to help the patient avoid early discharge from a hospital, according to the Journal of the American Medical Association.

Why Is Fraud So Big?

Insurers sometimes back off. Most insurance companies take a tough stand against fraud, but some companies unwittingly encourage fraud by paying suspicious claims too easily. These companies believe it’s cheaper to pay some smaller suspect claims than fight in court, and a quick payoff also may avoid multimillion-dollar lawsuits for bad faith.

Health system is an easy target. America’s health care system is huge and vulnerable. The sheer number of patients and treatments plus complexity of billing attract cons who are skilled at looting our overworked health care system. The pressure to control costs also encourages many doctors or health firms to cheat so they can recoup lost profits or meet rigorous treatment quotas.

Immigrants are vulnerable. Insurance cheats consider America’s large and growing immigrant groups easy targets. Asian and Hispanic communities, for example, report extensive insurance fraud as con artists prey on immigrants’ trust, lack of English skills and ignorance of how insurance works.

Low-Risk Crime. Insurance cheaters view insurance fraud as a low-risk, high-reward game, and far safer than drug trafficking or armed robbery. Consider:

Three states still don’t have specific insurance fraud laws, thus discouraging many prosecutors from tackling tough fraud cases.
Courts are getting tougher on convicted schemers, but too often jail sentences still are light, with courts often reserving space in overcrowded prisons for people convicted of more-violent crimes.
Professional societies overseeing doctors and lawyers often are reluctant to discipline peers convicted of insurance fraud.

Low Legal Priority. Prosecutors often give top priority to combating drugs, violence and other high-profile crimes. Though prosecutors are tackling more fraud cases than in the early 1990s, too many prosecutors still believe insurance crimes often are too complex and technical to successfully prosecute.

People Tolerate Fraud. Too many consumers believe insurance fraud is justified. This environment of tolerance makes it much easier for con artists to operate safely. Research by the Coalition Against Insurance Fraud reveals:

As many as one of three Americans tolerate insurance fraud to varying degrees.