Insurance Fraud: What It Costs You and Extreme Cases With Examples

Should You Worry About Insurance Fraud?

insurance fraud costs facts and examples

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According to the FBI, insurance fraud costs the average American family between $400 and $700 more a year on their insurance premiums. There are many different types of insurance fraud, here are some examples:

  • Individuals scamming their own insurance for personal gains
  • People collaborating to defraud insurance together
  • Elaborate schemes set up by third parties to scam both the insured people and the insurers in a claim

Here are the facts you need to know about insurance fraud, plus a round-up of some extreme insurance fraud case examples and scams.

Some Facts About Insurance Fraud

Although as consumers we may not experience insurance fraud directly every day, studies have shown that 78% of consumers are concerned about insurance fraud. Here are some industry facts to help put in perspective the magnitude of insurance fraud that is ongoing.

  • 1 in 30 claims is reported as fraudulent globally, which works out to about 3-4% of claims
  • Based on insurance industry research,10% of incurred losses and expenses are estimated to be attributed to fraud as of the last study by the Insurance Information Institute. In personal insurance or property and casualty insurance, this amounted to about $30 billion each year from 2013-2015. That's 150 billion dollars in fraud in 5 years for that time period.
  • The Coalition Against Insurance Fraud estimates $80 billion in fraud a year for all the different types of insurance.
  • As of the latest data in 2018, insurance fraud had increased 11 points since 2014, according to two-thirds of insurers.

Examples of Different Types of Insurance Fraud

Fraud occurs both on an individual level, and on the corporate level. Fraud schemes occur in many categories, including:

  • Identity theft
  • Scams that start on social media, or online shopping scams 
  • Hacking and cybercrime
  • Employee-agent fraud
  • Falsified Claims

Examples of Insurance Fraud in the Hall of Shame

Every year there are numerous unbelievable cases of insurance fraud, fraud crimes cost $80 billion dollars annually. For the past 20 years, The Insurance Fraud Hall of Shame has reviewed many of these fraud cases, electing a list of insurance criminals called the Shamers, to put a human face on fraud.

Extreme Fraud Case Examples

Every year there are numerous unbelievable cases of insurance fraud, fraud crimes cost $80 billion dollars annually. For the past 20 years, The Insurance Fraud Hall of Shame has reviewed many of these fraud cases, electing a list of insurance criminals called the Shamers, to put a human face on fraud. In 2018, one medical supply scam had scammers contacting people on Medicare to get their social insurance numbers and personal information. Then the scammers would use the information to order medical equipment, costing taxpayers and Medicare millions of dollars. The Insurance Fraud Hall of Shame is one resource that lists some extreme cases of insurance fraud in 2020. Here are some extreme and terrible fraud examples:

  • A caregiver starved a disabled man and denied him medicine stealing over $107,000 through false Medicaid health insurance claims
  • Turning against family members to collect money is no stranger to the criminals in the Hall of Shame. In the 2018 Hall of Shame, a parent poisoned their 15-month-old son to get the $50,000 life insurance, lied about his medical conditions, and then continued to collect the disability checks after he died. In 2020's list, a son turns against his mother, hiring someone to kill his mother to collect on the life insurance and fund a glamorous lifestyle.
  • A Texas man organized a gang to destroy rundown homes after buying fraudulent insurance policies to cover the said homes. They damaged at least a dozen homes, burning them or flooding them to collect on the insurance, with claims of $1.7 million.

Health Insurance Fraud Common Examples

Health insurance provides scammers with many opportunities to fraud people and insurance companies. Some common scams include:

  • Medical billing fraud. So many people have trouble understanding their medical bills that fraud might be harder to detect, especially if you are not paying attention.
  • Medical Identity theft
  • Medicare and Medicaid have huge fraud exposures, these fraudulent claims and activities end up costing the taxpayer money because they are government-funded programs.

Car Insurance Fraud Examples

Car insurance scams happen in many different circumstances. Sometimes it is the insured person who stages a fraud. Other times you could have a car accident that is completely legitimate, but then have the auto repair shop, the towing company, or other parties involved in fraud without even realizing it. Here are some examples:

  • Repair shops charging for extra work or time inaccurately
  • Using used parts but charging for new parts
  • Staged car crashes
  • People selling their cars to chop shops to get the money for parts and then claiming the car was stolen

Learn more about avoiding car insurance repair scams from National Insurance Crime Bureau (NICB).

Examples of Home Insurance and Renter Insurance Fraud

Here are some typical examples of home insurance fraud:

  • People inflating insurance claims to get more money than their actual loss
  • People selling their belongings and then claiming they were robbed
  • People claiming they have been robbed when the items or cash never existed.
  • People burning their house down when they are in financial hardship
  • People making false declarations or not disclosing full or truthful information.

Beware of Little White Lies

Fraud comes in many forms, some of them are obvious, but then there are also circumstances where you omit information, or may not report something to an insurance company. If you conceal information or lie about the details of a claim, this is fraud. Insurance fraud can be defined as any time there is a deliberate deception that results in your gain, this can be when you're applying for insurance, failing to report changes in circumstance, or making a claim. Learn more about examples and consequences of lying to the insurance company here.

Life Insurance Fraud Examples 

Life insurance fraud happens in many ways, here are some examples:

  • People trying to take insurance out on others when they know they have a short lifespan and not declaring medical issues
  • Buying insurance under false circumstances
  • Questionable life insurance agents or people pretending they are agents trying to scam you

Examples of Fraud By Insurance Agents and Insurance Company Employees

Believe it or not, insurance fraud happens inside the industry as well. Many times we think insurance companies are being so vigilant examining claims closely and trying not to pay out too much in claims that we don't even think about the fraud in the industry itself. Insurance fraud happens with underwriters, adjusters, and unfortunately with dishonest agents too. One example from the Insurance Hall of Shame in 2018, was when an insurance adjuster planned out damages on homes, burning and flooding dozens of homes for $14 million in insurance claims.

If you suspect fraud or dishonest or unprofessional behavior from someone in the insurance industry, you can contact your State Insurance Commissioner's Office to get help and guidance. You can also report fraud to the National Insurance Crime Bureau (NICB) 1-800-TEL-NICB (1-800-835-6422) or National Center for Disaster Fraud at 1-866-720-5721.

Beware of Fraud By Contractors Repairing Your Home

Unfortunately, at times of disaster, there are often scammers looking for ways to make some money. People pretending they are contractors may approach you and give you a "great deal" on repairs, there is major fraud that happens like that. If you suspect disaster fraud you can contact the National Center for Disaster Fraud at 1-866-720-5721.

Contractors may also commit fraud by not doing proper repairs, or not using the time or materials they are charging for. Be careful to follow steps when hiring a contractor, like checking references, that will protect you from being scammed.

Always ask for references, and make sure the contractor you hire is licensed and in good standing. You have a right to have things in writing and work with formal contracts. Cash deals and handshakes should be a warning sign of potential fraud.

Insurance Claims and Fraud

The list of fraud cases that happen with insurance will always be growing since there will always be criminals who will look for ways to profit for themselves without any regard for the cost of fraud on society or others.

Always be cautious with your medical bills, protect your identity, and never be afraid to check references or call the insurance company with questions if you suspect something is wrong with a claim.