Four Faces study:

Why Americans do— and don't— tolerate insurance fraud

The needle on America’s moral compass is wobbling


As a nation, we’re backsliding toward higher tolerance of insurance fraud, reveals a national consumer-attitude study by the Coalition Against Insurance Fraud.

Four Faces of Insurance Fraud is the newest national study of consumer attitudes about this persistent crime. Conducted last fall, Four Faces provides a 10-year update of a landmark study the Coalition first conducted in 1997.

The slippage in consumer attitudes raises questions about whether fraud fighters are succeeding in influencing public opinion against the $80-billion annual crime. The Coalition has repeatedly warned that fraud fighters must plough more resources into public-outreach efforts that today are fragmented, ill-researched and under-funded. “We need the active support of American consumers if we expect to turn the corner on combating fraud,” warns Dennis Jay, the Coalition’s Executive Director. “This study is a wake-up call for the entire fraud-fighting community.”

Maybe the best news is that more than four of five adult Americans think a variety of insurance crimes are unethical. That’s a potentially large anti-crime army, if fraud fighters can mobilize them into action.

But the flip side is that about one of five adults-about 45 million people- might well bilk insurance companies under the right conditions, or at least have few qualms when others do it.

This study is a wake-up call for the entire fraud- fighting community.

Equally important is that more Americans tolerate a variety of specific insurance schemes than 10 years ago. Note the declines in people who think it’s unethical to:

• Misrepresent facts on an insurance application to lower their premiums (82 percent today, down from 91 percent in 1997);

• File a claim for damage that occurred before the damage was covered (85 percent, down from 91 percent);

• Inflate a claim to cover the deductible (84 percent, down from 91 percent); and I Misrepresent an incident in order to be paid for an uncovered loss (84 percent, down from 92 percent).

Similarly, more Americans tolerate insurance fraud in general. People generally hold one of four broad attitudes toward insurance schemes (hence the title, Four Faces). The group of adults who tolerate insurance fraud the most-the so-called “Critics”-grew significantly in the last 10 years. More than one of four people are Critics, up from one of five people a decade ago.

The only group that shrunk? People who tolerate insurance fraud the least. The “Moralists” plummeted from nearly a third of adults 10 years ago to a quarter today.

Several forces may help explain America’s ethical uncertainty. For one, more people have negative attitudes toward insurance providers. Fraud-prone attitudes may reflect a backlash.

Some 72 percent of people had a positive attitude toward insurance companies a decade ago, a figure that has dropped to 62 percent today.

Slightly more than half of adults felt positively about the insurance industry as a whole back then, but fewer than two of five are in a good mood today. That’s 90 million adults with a negative attitude-a potentially combustible mixture.

By the same token, wrong simply isn’t wrong anymore. We may be living in an age of moral relativism where many unethical behaviors that once were seen as black and white now have several shades of grey. The warning signs are everywhere.

More Americans tolerate tax fraud and credit card fraud than a decade ago, the Coalition’s study shows. This raises the question of whether too many Americans have become moral couch potatoes who increasingly tolerate any kind of fraud, including insurance schemes.

People also increasingly see insurance fraud as a swirling moral gray area. More Americans today think it’s all right to consider the surrounding circumstances when deciding if a given insurance scheme is unethical, the Coalition’s study says. Many people ask themselves: Did the scheme damage anyone? How much money was stolen? Is the scheme commonly done by others?

Most Americans also believe insurance fraud is prevalent in America. The implications are potentially important. Wild bears grow bolder and more brazen if they become too-used to humans. By the same token, people may become bolder about fleecing insurers if they believe insurance fraud is a normal part of American life. Everyone does it, so what’s the problem? Why not me? In fact, four of five adults say inflating claims to cover deductibles is prevalent. Nearly four of five think lying both to be paid for an uncovered claim and to lower their premium are commonplace. Seven of 10 think both falsifying receipts or estimates and submitting a claim for damage that happened before buying coverage are prevalent.

But more than four of five consumers do agree insurers should educate the public about how fraud raises premiums Americans may not be as keen as they once were on jail cells or criminal raps for combating insurance fraud, but most seem to think the power of persuasion can go a long way toward regaining control of the streets.

Why Americans do-and don't-tolerate insurance fraud

Executive Summary

Introduction and background

This study was conducted to gain insight on why public tolerance of insurance fraud seems to be increasing. Both qualitative and quantitive research was used in an attempt to understand how public attitudes about fraud are formed and what factors influence them.

The Coalition commissioned a national research firm to conduct a series of consumer focus groups as well as a telephone survey of 602 households in the United States. Among the areas explored in the focus groups and survey include opinions about insurance fraud and insurance providers.

Focus group findings

Respondents offered the following possible reasons for committing insurance fraud:

• to save money or reduce costs.

• to get expensive work done they would not otherwise be able to afford.

• to "get back" at insurance companies.

Respondents acknowledged that fraud leads to higher premiums, but believed that premiums would continue to rise even if fraud were eliminated. Nor would premiums be lowered, they said. Respondents also felt the public has a moral obligation to report fraud, but most said they would not report a fraudulent act themselves for various reasons.

Reasons cited why people resist committing insurance fraud include a strong sense of right and wrong and fear of being caught and punished. Respondents said insurers could discourage fraud by rewarding customers for "good behavior," such as providing rebates or credits for not filing claims over a period of time, and aggressively pursuing customers who do commit fraud.

Quantitative research

The objectives of this research included:

• understanding public perceptions of unethical behavior;

• determining experience with and attitudes toward the insurance industry;

• measuring public perception of unethical insurance behavior;

• determining personal knowledge of, and experience with, insurance fraud; and

• measuring attitudes toward curtailing and punishing insurance fraud.

Using cluster analysis, researchers found that 98 percent of the sample could be grouped into one of our subgroups depending on their levels of tolerance and certain perceptions of why people commit insurance fraud. For the purposes of this study, the subgroups are identified as Realists, Conformists, Moralists and Critics.

• The Realists have a low tolerance for insurance fraud but realize it occurs. They may feel some behaviors are justified depending on the circumstances; they don't advocate strong punishment. This group represents 21.6 percent of the survey's respondents.

• The Conformists are fairly tolerant of insurance fraud, largely because they believe many people do it, making it more acceptable. For that reason, they tend to believe in more moderate forms of punishment. This group makes up 26.4 percent of the survey's respondents.

• The Moralists have the least tolerance of insurance fraud. They believe there's no excuse for this behavior and are the most willing to punish perpetrators severely. This is the largest group of respondents-30.7 percent of the surveyed population.

• The Critics have the highest tolerance for fraud and tend to blame the insurance industry for people's behaviors because they believe insurers don't conduct business fairly. They want little or no punishment for perpetrators. This group represents 21.2 percent of the survey's respondents.

Demographically, the four cluster groups varied only slightly.

Survey findings

• Unethical behavior. Virtually all respondents (98 percent) believe using someone else's credit card is highly unethical. They were somewhat less likely to consider as unethical the failure to declare income on a tax return. Two forms of insurance fraud — padding a claim and misrepresenting an incident to obtain coverage for a loss — fell in between at 91 percent and 93 percent, respectively.

• Insurance industry. Nearly three-quarters of respondents (73 percent) rate their company either very positive or fairly positive, and 74 percent have similar feelings about their agent. On the other hand, 53 percent rate the industry in general as either very or fairly positive. Insurance agents are held in about the same regard irrespective of cluster subgroups. The Conformists and the Moralists are more likely to feel positively about their company and the industry in general.

• Insurance premiums. More than half (63 percent) say they believe insurance premiums are either very or fairly reasonable. Among the cluster subgroups, the Conformists and the Moralists again are more likely to feel positively about insurance premiums and to rate them as very or fairly reasonable.

• Claims experience. Respondents who had filed life and homeowners claims were more likely to have positive attitudes towards insurers.

• Respondents who demonstrated a positive attitude toward insurers tended to have lower levels of tolerance for fraud.

Perceptions of insurance fraud

• Most respondents believe so-called "soft fraud," such as padding claims, is common. The Conformists are the most likely cluster group to believe these actions are common, while the Critics are the least likely to believe insurance fraud is common.

• About two-thirds agree that insurance premiums increase regardless of claims history and that companies make undue profits. About six in 10 agree that people who commit fraud are only looking for a fair return on premiums paid; nearly the same number (56 percent) agree that rates are based on the assumption that fraud occurs.

• 63 percent of respondents felt that a person's moral character was the prime deterrent to committing insurance fraud. Most respondents also said they were personally concerned about insurance fraud. Moreover, nine in ten respondents said they believe insurance rates are higher as a result of fraud. When asked to estimate the amount by which premiums are higher as a result of fraud, the mean response was 37 percent.

Personal experience with fraud

• 31 percent say they know someone who has committed insurance fraud. However, only 17 percent of those respondents say they have reported someone for committing fraud.

Curtailing and punishing fraud

• Respondents overwhelmingly believe insurance companies should take a number of actions to curtail insurance fraud. About nine in 10 respondents believe the industry should verify applications more carefully; inform people how fraud increases costs; lower premiums for people with few or no claims; investigate claims more thoroughly; and prosecute suspected fraud more often.

• 57 percent believe people should be prosecuted for lying and falsifying information. Nearly the same number (53 percent) say that denying the unjustified portion of the claim also is highly suitable. The Critics are far less likely to believe the suggested consequences were appropriate, and more likely to believe all claims should be processed with no questions asked.


The Coalition recommends that the insurance industry develop and fund an intensive, ongoing public information campaign to educate the public about insurance fraud, specifically convince the Realists that insurance fraud is not a victimless crime and communicate to the Conformists that fraud is not as widespread as they believe it to be. Moralists need messages reinforcing their low level of tolerance for this crime, and the Critics must be convinced that fraud is a major contributor to the rise in insurance premiums and that insurers are working hard to detect and deter fraud.

Other recommendations

• Careful and cost-effective verification of applications targeting material misrepresentations should be a standard practice by all insurance companies. This practice also should be communicated to applicants to dispel any possible notion that insurers do not check applications thoroughly.

• Claim submissions should be scrutinized for evidence of potential fraud and investigated accordingly.

• Company anti-fraud activities should be widely publicized so consumers know the risk of committing fraud, and are aware of what insurers are doing to protect their customers from the cost of this crime. Diligent efforts need to be undertaken to uncover situations where anti-fraud efforts have led to reduced rates for consumers. Such cause-and-effect relationship needs to be publicized as broadly as possible to convince consumers that they will benefit from anti-fraud efforts.

• In assessing which claims practices engender the most customer satisfaction, companies should consider the potential positive implications for attitudes about insurance fraud. The claims process should be viewed as an opportunity to build credibility with insureds, which likely will help to lower their tolerance for fraud.

• The insurance industry should explore the feasibility of a reward system to encourage the reporting of fraud.

• Prosecutors, especially elected officials, should recognize that consumers overwhelmingly support prosecution of insurance fraud. They should educate themselves about this crime, manage their resources in a way that allows more attention to be given to insurance fraud, and take an active and aggressive role in publicizing fraud cases.

• Fraud bureaus, which are most familiar with fraud's warning signs, should play the lead role in consumer outreach and education about the nature and extent of insurance fraud. States lacking fraud bureaus should direct the insurance department to undertake the outreach efforts while evaluating the need to establish a bureau.