Insurance fraud remains a widespread issue in the U.S., costing businesses, insurers and consumers billions each year. It entails intentional deception throughout the insurance process, from policy purchase to claims settlement. Health care insurance fraud, particularly Medicare and Medicaid fraud, stands out as the most financially burdensome, followed by life insurance and property and casualty fraud.
The impact of insurance fraud doesn’t just affect businesses and insurers—it can also result in higher premiums for consumers. Advancements in technology offer hope for combating fraud, with insurers investing in auto-fraud detection systems to identify and prevent fraudulent activities early on. A 2021 survey by the Coalition Against Insurance Fraud (CAIF) revealed widespread integration of these systems among insurers, reflecting a proactive stance against fraud.
Read on to learn about the most costly types of insurance fraud, common scams, and how to protect yourself from becoming a victim.
Insurance Fraud Statistics at a Glance
Although health care insurance fraud has the most significant financial impact on the U.S., the influence of insurance fraud extends across various sectors.[1]
- An estimated $308.6 billion annually is lost to insurance fraud in the U.S. each year.[1]
- Insurance fraud costs an estimated $900 per consumer, mostly due to increased premiums as a result of fraud.[1]
- The most costly category of insurance fraud is health care insurance fraud (including Medicaid and Medicare insurance fraud), which costs consumers an estimated $105 billion annually, followed by life insurance fraud ($74.7 billion) and property and casualty insurance fraud ($45 billion).health insurance company.
- Fraudulent behaviors can include providers submitting claims for services never provided, or submitting a claim for a more complex procedure than was performed (known as upcoding).[1]
- Health care fraud can come in several forms, and be found in several areas, such as; clinics/doctor’s offices, home health services, hospitals, long-term care facilities, pharmaceuticals, pharmacies, medical devices and durable medical supplies.[1]
- Health care fraud committed by a patient includes medical identity theft (or willing “card sharing”) where an uninsured patient poses as the policyholder—a crime that is on the rise, according to the Coalition Against Insurance Fraud.[1]
Health Care Fraud Accounts for $105 Billion in Insurance Losses Annually[1]
In the United States, billions of dollars in health care claims are believed to be illegitimate.
- The National Health Care Anti-Fraud Association estimates that 3% of total health care expenditures are lost annually due to health care fraud, while some law enforcement agencies estimate up to 10%.[6]
- Estimates place these losses at $105 billion annually.[6]
- In 2020, $3.1 billion of health care claims were recovered by the Office of Inspector General.[1]
$68.7 Billion of the Total Health Care Fraud Losses Are From Medicare and Medicaid Fraud[1]
One of the most common types of health care fraud involves Medicare and Medicaid, leading to billions of dollars in losses.
- This type of fraud can occur on the consumer or professional level and can include providers billing for services they didn’t complete, or a person stealing information to submit fraudulent claims.[7]
- Medicare and Medicaid patients, including the disabled and elderly, are more vulnerable to fraud than the general population.[1]
Insurance Fraud and Covid-19
Insurance fraud related to Covid-19 claims has been another standout issue for the health care insurance industry.
- As of 2022, the Federal Trade Commission received more than 292,000 reports of fraud associated with Covid-19, representing $674 million in losses.[8]
- During the pandemic, fraudulent reports about health services more than doubled, with fraudulent claims related to Covid-19 increasing “persistently.”[8]
Life Insurance Fraud
Life insurance fraud can make policies more expensive and weaken the financial health of insurance companies.
What is Life Insurance Fraud?
Life insurance fraud occurs when an insured person or an insurance company alters or provides false information with the goal of financial gain.car insurance company, pretending that their car was stolen. This practice impacts insurers and can lead to nationwide rate increases for auto insurance policyholders.car insurance.[1]
- To file an insurance claim for auto theft, you will need the VIN number, make/model of the vehicle, color and license plate number, which can all be found in your insurance policy.[3]
Auto Theft Accounts for $7.4 Billion in Insurance Losses Annually[1]
The Coalition Against Insurance Fraud reports auto theft losses equate to $7.4 billion each year, but doesn’t differentiate between auto theft and auto theft fraud. However, this number is reflected in NAIC's total figure of insurance fraud, which costs Americans $308 billion per year. [1]
- More than 1 million vehicles were stolen in 2022, a 7% increase from 2021 (1,001,967 vs 937,976).[3]
- California and Texas lead U.S. states with the highest number of stolen vehicles in 2022.[3]
- The National Insurance Crime Bureau estimates one vehicle was stolen every 32 seconds in 2022.[3]
- Vehicles had a 34% same-day return rate within 24 hours of the theft, and a 45% return rate in 48 hours. Reporting stolen vehicles to law enforcement will offer a record for insurance purposes.[3]
Workers Compensation Fraud
When employers pretend their workers are independent contractors to avoid paying insurance, it's called workers' compensation insurance fraud. This trick cheats insurance companies, avoids taxes and enables dishonest bosses. [1]
What is Workers’ Compensation Fraud?
Workers’ compensation is insurance covered by employers, in case their employees suffer an accident while working. Benefits can include covering medical bills, rehabilitation costs and lost wages, and in some cases, a death benefit.[1]
- Workers’ compensation fraud is defined as a fabrication or mistruth about an injury while on the job to receive benefits.[1]
- Working “under the table” while collecting workers’ compensation benefits is also considered fraud.[1]
- Workers’ compensation fraud can be committed by an employer, whereas they may misclassify workers or other misrepresentations to reduce premium payments.
- Medical providers may also commit workers’ compensation fraud, by overbilling for services.[1]
Workers’ Compensation Fraud Accounts for $34 Billion in Insurance Losses Annually[1]
- This number includes $9 billion in insurance losses from fraudulent workers’ compensation claims, as well as $25 billion in losses due to workers’ compensation premium losses.[1]
- Workers' compensation insurance costs employers an average of $957 a year for civilian workers who work 40 hours a week for 52 weeks a year, as of December 2022.[12]
- The percentage of claim denial rates for workers’ compensation was 6.9% in 2017, one percentage point higher than in 2013 (5.8%).[1]
- The most common reasons for denial are; no evidence of injury, no injury per definition and reservation of rights (or an insurance company stating the injury does not fall within coverage boundaries).[1]
Auto Premium Fraud
Auto premium fraud, also known as premium leakage, involves policyholders providing false information to obtain lower premiums. This fraud occurs throughout the policy process and poses issues for insurers due to the competitive market and potential long-term financial losses.[1]
What is Auto Premium Fraud?
More and more people use online platforms to buy insurance policies without meeting an agent or insurance company representative face-to-face. This can make it easier for them to give wrong information on their policies.[1]
- Premium fraud can occur during several points in the policy process, including signing up for a new auto policy or amending a current auto policy.
- Premium fraudulent consumers are often motivated to misrepresent their policy details to avoid higher premium costs.[1]
- Misrepresentations could include: the number of drivers, vehicle use, garaging location, moving to a higher premium area, or misrepresenting the mileage on the vehicle.[1]
Auto Premium Fraud Accounts For $35.1 Billion in Insurance Losses Annually[1]
- Unrecognized drivers account for the largest portion of auto premium fraud, followed by underestimated mileage and violations/accidents.[13]
Disability Insurance Fraud
Disability insurance fraud typically involves false disability claims, which cause significant societal issues beyond financial losses. When individuals falsely claim disabilities, they deprive those genuinely in need of support, and can make it more challenging for them to access necessary assistance.[1]
What is Disability Insurance Fraud?
People attempting disability insurance fraud typically provide false information, but sometimes claimants may unknowingly commit fraud because they don't know the rules or accurately describe their condition.[14]
- Disability fraud is when a consumer knowingly deceives an insurance company of pertinent information to collect disability benefits.[1]
- This can be faking a medical condition to appear as disabled, collecting payments after recovery, receiving disability benefits while working “off the books,” exaggerating a condition or inflating income to receive a higher benefit from Social Security.[1]
Disability Fraud Accounts For $7.4 Billion in Insurance Losses Annually[1]
Like other types of insurance fraud, disability insurance fraud results in substantial financial losses, totaling billions of dollars.
- The $7.4 billion figure represents Social Security disability fraud specifically, or improper payments, which are defined as payment miscalculations, neglecting available information, or not reporting or incorrectly reporting an event.[1]
- This figure represents overpayments specifically, as underpayments were excluded as a result of improper calculations.[1]
Disaster Related Fraud
During natural disasters, some individuals may try to exploit survivors by posing as legitimate disaster aid workers and offering to assist them with their applications.[15]
- Disaster fraud schemes can include false or exaggerated claims, misclassification of damage, claims filed by consumers that live outside the coverage zone, contractors inflating the cost of repairs, upfront costs without work and charity fraud scams to misappropriate funds.[16]
- When Hurricane Katrina hit in 2005, there were approximately 1.6 million insurance claims that were filed, totaling $34.4 billion in losses. Government funding was allocated for $80 billion to help with reconstruction, and of these funds, it’s estimated that $6 billion was fraudulently claimed.[16]
How Is Insurance Fraud Detected?
Spotting and stopping insurance fraud involves understanding when and how fraud happens. As insurance fraud continues to cause huge losses, both insurance companies and government agencies are striving to find the best solutions.
- Forty-two states and the District of Columbia have an insurance fraud bureau, with all of these states requiring insurers to report fraud to the relevant bureau or other agency.[1]
- The Insurance Information Institute reports that most insurers have now hired special investigation units to monitor fraud.[10]
- The International Association of Special Investigating Units, a national academy, was formed to educate and train fraud investigators.[10]
Anti-Fraud Technology
Using data technologies to recognize fraudulent activities, along with analytical advancements, is crucial in combating fraud against increasingly sophisticated criminals.
Nearly all insurance companies rely on anti-fraud technology to detect fraudulent behaviors.[1]
Insurers are refining their fraud detection programs by integrating various tools.
- According to The Coalition Against Insurance Fraud, nearly all insurers (96%) reported using anti-fraud technologies to detect insurance fraud.[1]
- Anti-fraud detection tools include red flag detection, predictive modeling reporting capability, case management, exception reporting and data visualization/link analysis.[1]
- Anti-fraud technologies are best at detecting potential fraudulent claims in property claims and personal auto insurance.[4]
- In 2021, about four in ten (39%) of insurers reported automated fraud systems detected more than 30% of their referrals, which is an increase of 20% since 2018.[1]
How to Prevent Insurance Fraud
Insurance fraud is a widespread issue that affects individuals, businesses and insurance companies alike. Insurance fraud and vehicle theft can affect you even if you haven't incurred direct harm. Fraud increases insurance premiums, raises taxes and drives up consumer goods prices.
Here are some tips to help prevent becoming a victim of insurance fraud.
Verify potential insurers. Verify that the insurance company you may select is licensed in your state and will have the support of your state insurance department if needed. Additionally, you can visit A.M. Best to research insurance companies to ensure they boast solid ratings from independent agencies. Always work with authorized insurers and agents to steer clear of any risky dealings.
Carefully complete your applications. Avoid signing blank forms or leaving any application sections empty. Providing incorrect, incomplete, or false details on your application can risk your insurance coverage. Remember, providing false information on an insurance application or claim is against the law. Don't let an agent pressure you into providing false information or omitting important details.
Review policy details. Expect to receive a copy of your policy from your insurer within a reasonable timeframe. If you're buying a new life insurance policy, remember to use the free-look period, which, depending on your state, typically lasts between 10 and 30 days (a free-look period is when you can cancel your policy and receive a full refund on your premium.) Once you receive your policy, read it immediately to ensure it includes the coverage you discussed with your agent. Contact your agent immediately if it doesn't match.
Keep records of policy details. Ensure that copies of all insurance records, including premium payments, are saved. Consider storing them in a secure location, such as a safe deposit box or waterproof container, or with a trusted individual, such as a friend or attorney.
Sources:
- Coalition Against Insurance Fraud
- FRISS
- National Insurance Crime Bureau
- National Association of Insurance Commissioners
- Scrofano Law
- National Healthcare Anti-Fraud Association
- Medicare.gov
- Federal Trade Commission
- Reinsurance Group of America
- Insurance Information Institute
- National Safety Council
- Bureau of Labor and Statistics
- Verisk
- Darras Law
- Federal Emergency Management Agency (FEMA)
- FBI
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