The Impact of Insurance Fraud

Insurance fraud − in the most simple of terms − is a lie told to steal the financial protections and benefits of insurance.

Insurance fraud is a felony crime that imposes significant financial and personal costs on individuals, businesses and society as a whole. It’s a crime that is not only widespread, but also growing, committed by and victimizing people from virtually every race, age, income and education level, profession and region in the U.S. It’s a financial crime, and is reported by the national Coalition Against Insurance Fraud to cost the insurance industry upward of $80 billion a year nationally, making insurance more costly than necessary for policyholders.

Insurance Fraud Defined

Most commonly, as defined in my state’s (Pennsylvania) Crimes Code, insurance fraud is a knowing and intentional lie told on either an insurance application (a 1st degree Misdemeanor crime punishable by up to five years imprisonment) or during a claim to defraud an insurer (a 3rd degree Felony crime punishable by up to seven years imprisonment). It is also important to know that the lie does not need to be successful in actually defrauding an insurer to commit insurance fraud.

In addition to a charge of insurance fraud, defendants may also be charged with attempted theft by deception or theft by deception, as determined by whether or not they unlawfully obtained money of an insurer. Defendants upon conviction or being diverted to rehabilitation programs will also face paying fines of up to $15,000 per violation, plus restitution and court costs.

The Impact

Insurance fraud impacts consumers by increasing premiums and the costs of consumer goods and services. The higher premiums are a result of insurance companies having to pass the costs of false claims — and fighting fraud — on to policyholders.

While most people recognize the negative financial implications of fraud, many do not realize that it can also be a violent crime involving murder, personal injury and serious property damage. For example, innocent motorists’ lives are jeopardized when they are maneuvered into accidents staged by crime rings; homes and businesses are often burned down for insurance money, putting lives of firefighters, family members and nearby properties at risk; health care and injury-related claims can become dangerous when medical providers perform potentially dangerous and unneeded surgery on healthy people solely to increase their billings. In many cases, the victims are elderly, poor or homeless. A familiar scheme involves murdering a spouse, relative or business associate to collect on the victim’s life insurance policy.

Types of Fraud

Motor vehicle insurance fraud continues to lead the way in claims and applications (65percent of all insurance fraud arrests in Pennsylvania alone). Here’s one example: last year, a woman was sentenced to serve 23 months in an Intermediate Punishment Program, ordered to perform 80 hours of community service, and pay $1,852 in court costs for an alleged auto theft. On Dec. 16, 2013, the subject reported to the local police department and her insurer that her 2007 GMC Envoy had been stolen. She first claimed to have last seen it the evening of Dec. 15, and later, upon interview by police officers, said that she had left it idling the morning of Dec. 16 to warm it up. She stated that when she returned some 20 to 30 minutes later, the vehicle was gone. According to the complaint, a short time after the defendant reported the theft, police were dispatched to a fire, where they found the Envoy fully engulfed. The woman reportedly later admitted that the vehicle had not been stolen, but that she had arranged to have it burned in order to collect on her theft claim.

Fraudulent homeowners/property, worker’s compensation and health care/life claims and applications have also led to increased premiums. We recently saw a case where a defendant was sentenced to serve a maximum of 23 months confinement and ordered to pay $1,752 in court costs. According to the complaint, the subject reported that someone had broken into her storage bin in the basement of her apartment building and taken approximately $3,100 worth of items. She reported the same to her insurance carrier and provided them with photographs of the items allegedly stolen. However, it was later determined that those photographs had been taken four days after the reported date of the break-in.

Investigating Fraud

Insurance companies have a legal and moral obligation to shareholders and their policyholders to challenge and resist payment of fraudulent claims. To do this, they employ well-trained fraud analysts and investigators, using a variety of data resources and forensic analysis to ferret out fraud. Many who commit fraud think that their biggest risk will be having their false claim denied. However, additional penalties can include having a policy canceled or rescinded, finding it difficult and more costly to buy insurance, and the embarrassment and added financial costs of being arrested and prosecuted.

Most insurance fraud often begins with a bad decision or small rationalization. Unfortunately, there are those who knowingly commit these crimes, and others who may build up to a series of crimes. Know the risks and penalties. A moment of bad judgment can have serious, life-changing outcomes.

If you suspect insurance fraud, please contact the National Insurance Crime Bureau at 1-800-TEL-NICB. Please visit our websites at and


— Tom Donahue | Executive Director, Pennsylvania Insurance Fraud Prevention Authority