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Do you consider insurance fraud a victimless crime? Is that because you don’t think any particular person gets hurt – only a faceless big corporation? If so, you’re not really looking for the victim. Because if you really want to see who’s getting hurt by insurance fraud, all you need to do is take a look in the mirror.

That’s right – you pay for insurance fraud through increased premiums for your own coverage. The FBI estimates the total annual cost of insurance fraud to be more than $40 billion (not counting health insurance fraud). The increase to your premiums ranges between $400 and $700 a year, the FBI says. Still think insurance fraud is a victimless crime?

Two classes of insurance fraud

The Insurance Information Institute defines insurance fraud as a “deliberate deception perpetrated against or by an insurance company or agent for the purpose of financial gain.” The III further characterizes fraud as either ‘hard’ or ‘soft,’ which it defines as follows:

  • Hard fraud involves either staging or inventing an accident, injury, theft or other type of loss covered by insurance.
  • Soft fraud happens when a legitimate claim is exaggerated – to make the payout larger.

The III estimates that more than 116,000 questionable claims were filed in 2012, up nearly 16% from the previous year.  By far the most common fraudulent claims – more than 78,000 – were filed against personal automobile policies. Home policies were second, with more than 17,000 questionable claims and workers compensation insurance was third with 4,459.

But claims aren’t the only component of insurance fraud. It also occurs when policyholders intentionally give false information to benefit themselves when applying for coverage. For example, if a policyholder lies about having a dog or fails to identify the breed correctly, it can influence a carrier’s decisions on whether to write a policy as well as how much to charge for it.

Similarly, if a car insurance applicant underreports the number of miles a vehicle will be driven or isn’t truthful about where it will be kept, it could influence premiums. This also is true for businesses that don’t tell the truth about how many employees they have or the nature of the work performed; both factors that affect the cost of workers compensation.

Health care fraud

The FBI excludes the cost of health-care fraud from its estimates, but that doesn’t mean health-care fraud itself isn’t a huge problem. The National Health Care Anti-Fraud Association in 2008 estimated the annual loss to fraud at $68 billion.

Common forms of health-care fraud include billing for services and products never performed or for more expensive services than were performed, as well as performing unnecessary procedures and falsifying a diagnosis to justify additional costly tests. Much of that comes in the federal Medicare and Medicaid programs, which means this type of fraud affects your tax bill in addition to your health insurance premium.

Many states now sponsor fraud bureaus – places where consumers can report suspected insurance fraud, sometimes for a reward. Victimless crime? Not by any means – not when as much as $700 a year or more is at stake. When it comes to insurance fraud, nearly every family in the U.S. ultimately pays a price.

Arthur Murray graduated with a bachelor’s degree in journalism from the University of North Carolina at Chapel Hill. He is editor of the Homeowners Blog at 

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