How Prevalent Is Insurance Fraud And Why Does It Continue?

On Behalf of Dunlap Fiore, LLC |

This article looks at how prevalent insurance fraud is and why public attitudes towards it are so lax.

Insurance can provide peace of mind to both consumers and business owners, especially in times of need or distress. Unfortunately, there are some people who abuse the system by engaging in insurance fraud. According to the FBI, the total cost of non-health insurance fraud per year is a staggering $40 billion, which results in the average U.S. family paying an extra $400 to $700 each year in premiums to cover money lost through fraud. Insurance fraud is a crime that affects both insurance companies and regular consumers. Below is a look at both the prevalence of insurance fraud and why public attitudes towards this crime are still troublingly lax.

How Much Does Insurance Fraud Cost?

There are more than 7,000 companies in the U.S. that provide some form of insurance and, collectively, they take in $1 trillion worth of premiums every year. The sheer size of the insurance industry makes it a target for scammers. Insurance fraud can take many different forms, from disreputable insurance agents embezzling premiums instead of sending them to the underwriter to claimants either “padding” their claims or trying to make a claim that they are not entitled to.

As mentioned above, insurance fraud (not including health insurance fraud) costs $40 billion per year. Insurance fraud is especially common after natural disasters occur. The FBI points out that in the wake of Hurricane Katrina, of the $80 billion of government funding that was spent on reconstruction, $6 billion may have been lost through insurance fraud alone.

Public Attitudes Slow To Shift

Insurance fraud causes everybody’s premiums to rise and it can divert important resources from people who truly need it, as the example of Hurricane Katrina shows. Unfortunately, despite the fact that insurance fraud is hardly a victimless crime, public attitudes towards it are notably lax.

According to the Coalition Against Insurance Fraud, a recent survey found that nearly a quarter of respondents say it is acceptable to pad an insurance claim and 18 percent of respondents say it is okay to pad a claim in order to make up for past premiums. Young people aged 18 to 24 were three times more likely to pad a claim than adults over 40.

The good news, however, is that those results are improving. As recently as 2002, for example, 33 percent of respondents said it was okay to pad a claim. Interestingly, however, people today seem more confident that insurance fraud is a crime that tends to go unpunished. In 2003, for example, 49 percent of respondents said that insurance fraud happens because people get away with it, whereas ten years later that percentage went up to 68. Furthermore, just 72 percent of consumers believe insurers are able to identify fraud, down from 83 percent in 2003.

Insurance Defense

Given the prevalence of insurance fraud, insurers, whether they are small Main Street companies or nationwide providers, need effective legal representation when handling claims. An insurance defense attorney can provide insurance companies with the legal advice they need when defending against claims, both in and out of the courtroom.