Why Insurance Fraud Costs Everyone


Insurance fraud takes on many forms and consumers do not always realize the extent of what constitutes fraud. Most people probably realize that making a claim when no claim exists is a clear case of fraud. However, many people do not realize that fraud can include offenses such as inflating the cost of a claim for a larger recovery. Some believe they are only recovering what they are entitled to, since they have been paying insurance premiums with no claims made. Unfortunately, these types of fraudulent activity increase the cost of insurance to all consumers.

At its most basic, insurance fraud exists any time people claim money to which they are not entitled. This can be within the context of a legitimate insurance claim and not always a result of claims that don’t exist. For example, everyone has heard of people causing damage to their own home in an effort to collect insurance money. A false claim for intentional damage is not covered by insurance and it’s unlawful to present such a claim anywhere – El Paso, Fort Worth, Fresno, Indianapolis, Jacksonville, etc. However, what’s less clear to most people is the exaggeration of an otherwise legitimate claim to collect a larger settlement.

One of the common forms of insurance fraud is to make claims for lost, damaged, or stolen goods that didn’t really exist in the first place. If your home was burglarized and everything was stolen, it may seem tempting to “pad” your claim with some items that were not really stolen or to claim higher value items than those that were lost. You might have heard about this practice from others or even received some advice indicating that everyone does “padding” in the event of a claim. If you do such a thing, you are committing insurance fraud, which is a criminal act and can result in incarceration.

Some justify this type of insurance fraud because they feel a sense of entitlement after paying insurance premiums. There’s a mistaken belief that premiums paid to the insurance company should somehow all be paid back in the form of claims. Unfortunately, if that were the case, insurance companies would all be bankrupt at some point. The basic premise of insurance is to pool the risk. Therefore, everyone pays in to the pool, but only a few are paid out from the pool. However, if this balance is upset by fraudulent claims, everyone has to start paying more premium to cover the losses.

According to the Federal Bureau of Investigations (FBI), the annual cost of insurance fraud is estimated to be over $40 billion. This translates into an increase in insurance premium of $400 to $700 per year, per family. When you consider how much that amount is a part of your overall insurance premium, you get a sense of just how much insurance fraud exists. Every dollar paid by the insurance company as part of a fraudulent claim is passed back to its policyholders in the form of additional premiums.


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