The Fraudster Next Door: Insurance Fraud Statistics

Do you remember the last time you had to make an insurance claim? Were you ever tempted to claim a little more than you were entitled to?

When you think insurance fraud, you think of someone burning down the garage to ease a cash-flow problem. But there’s much more to it than that.

Insurance fraud encompasses any act aimed at deceiving the insurance process, and it can be committed against an insurance company by a policyholder or a third party claimant.

It also includes insurance agent fraud. In this context, fraud is not limited to criminal activity but includes incomplete disclosure as well as malicious misrepresentations and omissions for the purpose of financial gain. Healthcare, workers’ compensation, and automotive insurance proved to be areas most affected by insurance fraud.

Key Insurance Fraud Statistics for 2024 - Editor’s Choice

• Fraudulent claims total at least $80 billion per year in the United States.
• Property-casualty fraud steals more than $30 billion each year.
• Insurers pay out up to 10% of their claims cost on fraudulent claims annually.
• At least 1 in 10 small business owners worry that their employees will fake work-related injuries.
• According to the FBI, over $40 billion a year is lost through fraud across all non-health insurance.
• All of this happens even though 95% of insurance companies use anti-fraud technology.

Fraudulent claims steal $80 billion annually across all lines of the insurance business.

(Coalition Against Insurance Fraud)

The nature of fraud is elusive and its mechanisms are becoming more complex and sophisticated on a daily basis. It’s difficult to detect insurance fraud and measure its precise financial impact. Fraud occurs at many points over the course of insurance transactions. Applicants for insurance, policyholders, third-party claimants, professionals who provide services and equipment to claimants, and insurance agents can all be cast as protagonists in common fraud schemes.

Plots of insurance fraud cases usually include one or more of the following elements:

• Padding insurance claims or inflating a genuine claim
• Falsifying facts on an insurance application
• Submitting claims for damage or injuries that never happened, services never provided or equipment never delivered
• Staging accidents

Property and casualty fraud cost some $30 billion each year between 2013-2017.

(Insurance Information Institute)

The aforementioned figure fluctuates each year based on many factors. Fraud statistics in insurance claims confirm that determining the true cost of insurance fraud is a challenging job. Scams go beyond payment of inappropriate claims and costs to secure fraud prevention. If we take a look at the bigger picture, we'll see that fraud doesn't only cost consumers money and convenience, it also stifles innovation.

13% of business owners are concerned their employees could commit workers’ compensation fraud.

(Employers.com)

According to Employers.com, a small business insurance specialist, workers’ compensation fraud can be divided into two categories - claimant fraud and premium fraud. A claimant fraud, committed by a worker, usually entails misrepresenting work-related injuries, staging accidents, exaggerating legitimate claims, or attempting to cheat the system to gain access to more benefits than one is entitled to. Unemployment insurance fraud statistics prove that one of the prevalent schemes involves getting unemployment benefits while simultaneously receiving pay. On the other hand, premium fraud is committed by employers and misrepresentation of payroll and misclassification of employees are its most common forms.

Health Insurance Statistics

Approximately four billion health insurance claims are processed in the United States every year.

(National Health Care Anti-Fraud Association)

It is an undisputed reality that a portion of these health insurance claims turn out fraudulent. Although they constitute only a small fraction, each fraudulent insurance claim carries a hefty price tag.

Interestingly enough, shortly after making affordable health insurance available to more people through the enactment of the 2010 healthcare reform law, the Health and Human Services secretary warned the public about a proliferation of bogus health insurance policies. Most common health insurance scams involve exploiting patients through the insertion of false diagnoses into medical records so that fake insurance claims can be submitted for payment.

An estimated 3 to 10% of total healthcare expenditure amounts to fraud each year.

(Insurance Information Institute, National Health Care Anti-Fraud Association)

Both the public and private sectors are subject to scams. According to public and private health insurance fraud statistics, the US healthcare system wasted between $81 billion and $270 billion on fraud in 2011. Based on the information provided by the National Health Care Anti-Fraud Association, $2.27 trillion was spent on healthcare in 2011, and fraudulent claims accounted for 3 to 10% of the total amount. Deceitful activities take place at many points in the system. Not only hospitals, nursing homes, and diagnostic facilities, but also doctors, nurses, medical equipment suppliers, and even attorneys have been named in cases of health insurance scams.

5.1 billion healthcare robocalls were made in 2018.

(Coalition Against Insurance Fraud)

Most people associate spam calls with irritating but mostly harmful telemarketing campaigns. However, there's more to these bothersome calls. The primary target are consumers and the objective is to sell them false health coverage or unnecessary medical equipment. By divulging any personal information through these robocalls you open the door to medical identity theft. Stats on medical insurance fraud show that many examples of health insurance frauds involve a robocall. In most cases, these malicious setups abuse personal medical information extracted through scam calls to defraud health insurers. Many examples of health insurance fraud involve a robocall.

425 healthcare offenders were federally sentenced in fiscal year 2018.

(United States Sentencing Commission)

Out of the 69,425 total cases reported to the United States Sentencing Commission, 5,948 involved theft, property destruction, and fraud. Healthcare fraud accounted for 7.3% of these offenses in the fiscal year 2018. Although these health insurance fraud statistics are by no means encouraging, compared to the fiscal year 2014, things are looking up. There were 506 healthcare fraudsters federally sentenced in 2014 and the United States Sentencing Commission estimates that medical fraud has decreased by 16% since then.

86.8% of healthcare fraudsters federally sentenced in fiscal year 2018 had little or no prior criminal history.

(United States Sentencing Commission)

The United States Sentencing Commission's 2018 research indicated that the average age of a fraudster was 49 years at the moment of sentencing. Here are some more interesting healthcare insurance fraud statistics related to offender characteristics. Most of the medical offenders were white (38.7%), male (65.2%), and US citizens (87.1%). Most hail from the following five districts - Southern District of Florida, Eastern District of Michigan, Southern District of Texas, Middle District of Florida, and Eastern District of Louisiana.

The median loss for these offenses was $1,048,375 and involved the defrauding of both public and private health care entities, based on the 2018 medical insurance fraud statistics.

In 2017, estimated Medicare fee-for-service improper payments were $36.2 billion and Medicaid fee-for-service improper payments totaled $41.2 billion.

(United States Government Accountability Office)

Medicare is the federally financed health insurance program for persons aged 65 and over, low-income and medically needy individuals. In fiscal year 2017, this entity’s fee-for-service expenditure was an estimated $381 billion and combined federal and state spending for Medicaid fee-for-service was an estimated $320 billion. Improper payments, defined as payments for services not sufficiently documented, accounted for more than 10% of total expenditures.

Automotive Insurance Fraud

Auto insurance “premium leakage” is a $29 billion problem.

(Verisk Analytics)

Premium leakage is defined as a result of omitted or misrepresented underwriting information that leads to inadequate insurance and lower rates. According to auto insurance fraud statistics, premium leakage can occur at many points throughout the policy life cycle. Some of the most common plots involve intentional misrepresentation of information by the applicants, and agents influencing claimants to twist the truth in order to lower their rates.

1 in 10 Americans provide false information or omit important data when buying auto insurance.

(Insurance Information Institute)

An online survey found that 40% of Americans stated lower annual driving mileage, and 27% of them decided to omit a driver from the report. Other interesting car insurance fraud statistics show us that about 10% gave an incorrect ZIP code to specify where the vehicle would be stored. One in 10 also falsely reported that their family car, RV, or motorcycle was kept in a garage.

52% of household auto policies are subject to a change of vehicles or drivers annually.

(Verisk Analytics)

Also, almost 30% of American households replace vehicles every year. At first glance, it might seem that these pieces of information aren't related to insurance fraud statistics. From a fraudster's point of view, however, every change in circumstances can be interpreted as an opportunity to create a fake proof of insurance. Although insurance companies make it convenient for policyholders to report changes, many changes don't get declared at all.

Excess payments attributable to fraud in auto injury claims totaled between $5.6 billion and $7.7 billion in the United States in 2012.

(Insurance Research Council)

Based on the researched insurance fraud statistics, these fraudulent claims mostly involved chiropractic treatments, physical therapy as well as alternative medical care. In other words, auto injury claim fraud and abuse accounted for between 13% and 17% of total payments for auto injury coverages. However, the true cost of car insurance fraud is much higher and inevitably leads to higher premiums and reduced benefits for everyone.

No-fault scams cost the average two-car family in Florida $100 in increased auto premiums.

(Insurance Information Institute)

No-fault insurance, also known as personal injury protection insurance (PIP), covers medical expenses and lets policyholders recover any financial losses from their own insurance company. It does not take into account who was at fault in the accident. However, this system is vulnerable. Insurance fraud bureaus in all no-fault states have to deal with corrupt medical providers and attorneys that commit auto insurance fraud by padding legitimate claims.

21% of bodily injury claims and 18% of personal injury protection claims that ended with payment in 2012 appeared fraudulent.

(Insurance Research Council)

Based on the Insurance Research Council's study, the pervasiveness of fraud and buildup varies among states. In 2012, insurance fraud statistics showed that the highest rates of exaggerated or downright false claims in the scope of personal injury protection were peculiar to Florida (31%), New York (24%), Massachusetts (22%), and Minnesota (22%) in 2012. Cases of build-up may involve stretching the amount of injury or loss or constructing a completely false version of an event.

One in five Americans think it is acceptable to plot against insurance companies under certain conditions.

(Coalition Against Insurance Fraud)

Although the Coalition Against Insurance Fraud found that the remaining four out of five respondents to the survey think insurance crimes are unethical, but many Americans approve of insurance fraud. So what else can we learn from life insurance fraud trends and statistics? Approximately 68% of consumers think that most common insurance frauds keep happening because people believe that they can get away with the offenses without hurting anyone.

Life Insurance Scams

Approximately 20% of life insurance claims are denied during the contestability period.

(Reinsurance Group of America)

The contestability period is defined as the time in which an insurance company investigates claims and can deny them if life insurance misrepresentation or fraud is detected. Depending on the state, the period lasts from one to two years and begins as soon as the policy enters into force. The percentage of denied claims is even higher than 20% when only policies issued to younger insureds are taken into account.

Life insurance fraud costs the US insurance industry between $10 and $20 billion annually.

(Reinsurance Group of America)

In a survey by Reinsurance Group of America, respondents named medical misrepresentation, agent fraud, and criminal fraud as the most concerning types of fraud. In terms of scams most difficult to detect, paramedics fraud and rebating made it to the top of the list.

Disaster and Property Insurance Fraud Statistics

Insurance fraud stole $6 billion of the $80 billion the US government allocated for reconstruction after Hurricane Katrina.

(FBI)

With massive wind damage and unprecedented flooding, the infamous Hurricane Katrina also made way for heavy insurance fraud. The storm caused roughly $100 billion in damage, and approximately 1.6 million insurance claims were filed, equaling $34.4 billion in insured losses. It was apparent that the natural disaster left plenty of opportunities for insurance scams, prompting the Government to respond. In September 2005, the Hurricane Katrina Fraud Task Force was established. Since its founding, this institution expanded its list of responsibilities, and is now known as the National Center for Disaster Fraud.

(Coalition Against Insurance Fraud)

Apart from that, approximately 50% are worried about shoddy workmanship. Insurance fraud statistics reveal that one of the most common contractor schemes occurs when an unlicensed operator takes advantage of a traumatized homeowner after a natural disaster. Shady contractors ask for large cash down payments for their services and then disappear without doing any work. Another frequent problem involves poor workmanship and cheap materials.

An average of 261,330 intentionally set fires were reported to US fire departments each year between 2010 and 2014.

(National Fire Prevention Association)

From the US Fire Administration's point of view, reasons that drive property or renters insurance offenders to deliberate firesetting vary. Some of these include crime concealment, excitement, extremism, vandalism, revenge, and, of course, profit. Insurance arsons are an example of a crime motivated by a potential financial gain. When it comes to insurance fraud fires, statistics show that most offenders set fires to destroy properties, dissolve businesses, and damage their inventory with the intention of collecting insurance payouts.

Arsons caused $1.3 billion in direct property damage over the five-year period from 2007 to 2011.

(Coalition Against Insurance Fraud, FBI)

According to the Coalition Against Insurance Fraud, arson statistics are difficult to track. However, there is enough information to deduce that arson attacks against residential and business properties that are aimed at securing insurance payouts have declined in the last few years. Based on FBI data, arson offenses decreased by 5.4% in the first six months of 2015, when compared with the first six months of 2014. The exact reasons for the decline are unclear.

Insurance Fraud From a Legal Point of View

46 states and the District of Columbia set up insurance fraud bureaus.

(Insurance Information Institute)

Some states have more than one bureau dedicated to addressing fraud throughout the different stages of the insurance process. However, some state insurance fraud bureaus operate with limited powers. For example, at the time of writing this article, the states of Illinois and Wisconsin have fraud bureaus that tackle workers' compensation insurance only, and Virginia and Rhode Island have bureaus set up in the state police office. The amount of resources appropriated to these bureaus varies widely too.

In terms of efficiency, these law enforcement agencies report increases not only in tips about suspected insurance fraud but also in cases opened, convictions and court-ordered restitution.

(Coalition Against Insurance Fraud)

The field of insurance fraud can be fundamentally divided into two categories - soft fraud and hard fraud. The first is usually triggered by an opportunity, while the latter involves scheming ahead of the event.

Hard fraud, the rarer of the two, can occur when someone develops a scheme to create the need for an insurance claim. Fraudsters go as far as slamming on their breaks to cause a car accident or faking their own deaths to collect life insurance.

Soft fraud happens when an otherwise legitimate claim is exaggerated. This type of scam is only fraudulent to a certain extent. Therefore, it is also referred to as opportunistic. Soft frauds mostly involve claims that injuries are more severe than they actually are, or declaring a higher value for stolen property. When it comes to business insurance fraud statistics, companies tend to misrepresent the number of employees or the details of the work these employees do.

In 2017, North Carolina General Assembly budgeted $2.4 million to hire additional agents to investigate insurance fraud.

(National Insurance Crime Bureau)

The boost in funding underscored the extent to which fraud bureaus require sufficient resources to combat insurance fraud. More cases were investigated and more fraud perpetrators convicted. The state bureau was also able to expand its geographic reach, arresting suspected offenders in 93% of North Carolina’s counties. Between 2016 and 2018, North Carolina’s Department of Insurance Criminal Investigations Division nearly doubled the number of arrests in connection with suspected insurance fraud. Insurance fraud statistics didn't demonstrate an increased number of fraudulent activities, however, each additionally hired insurance fraud investigator was able to look into more cases.

In 22 states and the District of Columbia, insurers are obligated to create and implement programs to help reduce insurance fraud.

(Insurance Information Institute)

With fraud schemes becoming more sophisticated each year, insurance companies have no choice but to actively take on fraud. Although insurance fraud statistics by state may vary, insurers in all states make their contribution by establishing special investigative units and developing in-house strategies to identify illegitimate claims and potential insurance scams. In association with law enforcement and the National Insurance Crime Bureau, a non-profit dedicated exclusively to fighting insurance fraud, insurers use specially trained professionals to investigate suspicious claims and prevent insurance fraud.

The average sentence for health insurance fraud in 2018: 30 months.

(United States Sentencing Commission)

According to the United States Sentencing Commission, exactly 73.4% of those convicted were slapped with prison sentences in 2018. On the other hand, 1.6% were convicted for an offense carrying a mandatory minimum penalty and 14.3% of those offenders were relieved of that penalty.

However, insurance fraud punishments may vary from state to state.A fraudster can be charged either for a felony or misdemeanor depending on the type and amount of the fraudulent insurance claim.

A Look at Insurance Company Fraud Data

61% of insurance companies associate the increases in fraud with difficult economic times.

(Fair Isaac Corp.)

In a survey conducted by FICO in 2012, insurers predicted that the increasing cost of insurance frauds will have the biggest impact on personal property, workers’ compensation and auto insurance. In terms of fraud by different lines of insurance, 67% of insurance companies anticipate an increase in personal property fraud, 65% suppose that the number of workers’ compensation scams will increase, and 60% foresee a rise in personal auto schemes.

Insurers discharge at least 10% of their claims costs on fraudulent claims every year.

(Fair Isaac Corp.)

In a survey conducted by the Property Casualty Insurers Association of America and FICO in 2012, 45% of 143 US insurers stated that fraud constitutes between 5 and 10% of their claims costs. However, US insurance fraud statistics also show that for nearly one-third of insurance companies fraud costs were up to 20% in the same year.

84% of insurance organizations claim that fraud cases they examine involve at least two industries.

(Coalition Against Insurance Fraud)

As they get more complex, intricate fraud plots often involve multiple industries rather than staying focused on insurance only. It is not rare for an insurance investigation to unveil evidence of financial fraud in many of the cases. Fraud statistics reveal that more than half (61%) of cross-industry fraud cases have a severe impact on insurers.