Insurance fraud seems like it might be easy. After all, how hard can it really be? Push your car off a cliff; call the cops to report it stolen; cash your check and peace out to the islands.
This, we should not have to point out, is a bad idea. Insurance fraud is a felony because it is a very specific, very clear form of larceny. In New York, for example, penalties can range from one to 25 years in prison depending on the scope of the theft. And most people who try to run a scam on their insurance company get caught.
After all, this is a multi-billion dollar industry whose entire business model depends on weeding out the truth from the liars. That doesn’t mean people don’t try though.
Here are some of the most common forms insurance fraud takes:
6 Types of Insurance Fraud
1. Application Fraud
Application fraud happens when you knowingly and intentionally provide false information on an insurance application. It is generally the most common form of insurance fraud, being responsible for up to two-thirds of all denied life insurance claims alone, according to the Los Angeles Times.
This can involve any type of insurance. Someone who provides false health information while applying for medical insurance or life insurance, for example, has committed application fraud. Another person might apply for auto insurance and claim their $8,000 beater is worth $80,000. Or still another might apply for renters insurance and double the value of their personal possessions.
Understand that this only applies to intentional lying. People get things wrong on their insurance forms all the time, whether because of an honest mistake, an estimate that was off base or some other source of error. It is not fraud to estimate your weight on a medical form and get it wrong. It only becomes a problem when you knowingly make a false claim.
2. Illegitimate Denial Fraud
Of course, the insurance companies don’t always look at it this way.
Arguably the second most common form of insurance fraud is committed by insurance companies themselves. According to the legal website NOLO: “Also known as ‘bad faith insurance practices,’ fraudulent activities on the part of insurers include actions such as denying valid insurance claims, denying coverage to individuals for certain conditions that should be covered, failing to properly investigate claims, and deliberately underpaying claims.”
This practice is widespread. It involves practices such as: sending patients a bill for services that their policy unambiguously covers; automatically denying claims; inventing pretextual reasons for denying or underpaying claims. Perhaps most common, this happens when an insurance company sends you deliberately confusing paperwork, hoping that you’ll miss the fact that they have overcharged you or denied legitimate coverage.
The list of examples could go on, but no matter how common it may be, this is not a legal business practice. It is fraud.
3. False Claims Fraud
Then there are the people who simply invent their claims.
This category captures the broadest range of activity. Someone has committed this type of fraud when they file an insurance claim under false pretenses. Examples can include:
- Staging an accident or injury in order to deliberately file a claim against someone’s insurance.
- Filing a claim for an injury, accident or other form of incident that never happened.
- Filing a claim with false information.
- Intentionally creating damage in order to file a claim. This is the motivation behind many arson cases, in which a building owner will burn down a worthless structure to try and claim the insurance money.
- Filing a claim for damage that doesn’t exist. This is common in the wake of major storms, when even people who didn’t have any damage will file a claim and hope that the insurance company is too overwhelmed to properly investigate.
Perhaps the most common form of false claim fraud is when someone causes accidental damage themselves and tries to file an insurance claim. For example, you might accidentally hit a tree while backing out of your driveway. Since your insurance doesn’t cover damage that you do to the vehicle yourself, you file a claim saying that it was a hit and run. This would be fraud.
4. Faked Death Fraud
This is another form of false claim fraud, but a highly specific one.
It is surprisingly common for individuals to try to defraud life insurance companies by faking their own deaths. In fact, people try to fake their own deaths so often that one author wrote an entire book of interviews with people who have done so.
When someone plays dead and tries to file an insurance claim it becomes a felony. Often in this scheme their beneficiary will collect the money and share it with the claimant. At least, that’s the idea. The reality is that it’s a lot harder to get away with faking your own death than most people seem to think.
And for those curious, it doesn’t work if you actually kill the person either. If someone’s life insurance beneficiary kills them, the murderer loses all rights to the money.
5. Inflation Fraud
This type of fraud often seems like nothing. It is the simple act of adding a little to the bill when you file your insurance claim.
Inflation fraud is having the mechanic make upgrades to your car instead of just repairs, then sending your insurance company the entire bill. It’s a doctor charging your health plan for a couple of tests he didn’t really run or which you didn’t need. It’s the slip-and-fall claimant who says that they can’t move their arm… then goes out for a game of tennis the next day.
Sometimes this type of fraud is small-bore. People try to add an extra $100 to their claim and insurance companies generally turn a blind eye. But when someone tries to make a fender-bender into a million dollar liability claim, that’s when they send in their investigators.
6. Forgery and Identity Theft Fraud
Finally, people sometimes try and file claims under someone else’s insurance. This is particularly common with health insurance. Individuals will get another person’s identifying information and then try to make claims against their insurance.
Sometimes these are illegitimate claims for legitimate treatments, but often this is simply a way to pocket cash. For example, one common scam is for criminals to steal the identities of elderly citizens on Medicare. Then they will order expensive medical equipment using the stolen identity, have it paid for by that person’s insurance, and re-sell the medical equipment for a profit.
7. False Police Reports
It is important to note that many forms of insurance fraud involve filing a false police report.
Any accident involving a moving vehicle, for example, should involve a report with the local police. The same goes any time you claim that your property was stolen, burned or intentionally damaged. Most insurance policies will require that you submit a copy of the police report along with any relevant claim. For example, if your laptop gets stolen, you will need to report the theft to the local police and get the appropriate paperwork before you can file a claim with your insurance company.
This is a bottleneck for many forms of insurance fraud because filing a false police report is in and of itself a crime. In most, if not all, states it is punishable with jail time. Worse, it gets the police involved with your scam. All of a sudden it isn’t just Allstate (ALL) - Get Report or Geico you have to fool. It’s the cops.
And they take a very dim view of liars.