Insurance fraud is any act committed to defraud an insurance process. It occurs when a claimant attempts to obtain some benefit or advantage they are not entitled to, or when an insurer knowingly denies some benefit that is due. Insurance fraud can be committed by insurance company employees or claimants. Fraudulent claims account for a significant portion of all claims received by insurers and cost billions of dollars annually. Types of insurance fraud are diverse and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Insurance fraud can be classified as either hard fraud or soft fraud.
- Hard fraud: This occurs when someone deliberately plans or invents a loss, such as a staged car accident, arson, or theft, to collect money from an insurance company.
- Soft fraud: This occurs when someone exaggerates or inflates a legitimate claim, such as overstating the value of items lost in a burglary, or claiming more damage than was actually done to a car in an accident.
According to the law, the crime of insurance fraud can be prosecuted when the suspect had the intent to defraud, an act is completed, and the act and intent come together. Insurance fraud for at least some lines of insurance is a crime in every state and the District of Columbia. Insurance company fraud can occur when illegitimate insurance companies and dishonest insurance agents collect premiums for bogus policies with no intention or ability to pay claims. Insurance fraud can cost the average U.S. family between $400 and $700 per year in the form of increased premiums. Insurance fraud is a felony and can result in severe penalties.
