Top 5 Types of Insurance Frauds and the Consequences

Adit Bhatnagar
Jun 24, 2022
4 min read

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Insurance fraud occurs when someone deliberately lies to gain insurance benefits they are not entitled to. While most insurance claims are real, some fraud claims are submitted to insurers to make easy money.

Insurance fraud is a constant struggle for every insurer and insurance company. Unfortunately, some frauds go through undetected and cost the insurance company financial loss and embarrassment. Successful fraudulent insurance claims can cost the industry billions to trillions worldwide.

This short article will explain the top types of insurance fraud and the consequences when caught.

Top 5 Types of Insurance Frauds

Automobile Insurance Frauds

One of the most common insurance frauds is automobile insurance fraud (car insurance fraud). The purpose of a scam is to obtain quick money and make insurers believe that something small is severe.

Auto Insurance Frauds can include:

Staging Fake Accidents

: The insured plans a simple vehicle crash with partners or other policyholders and pretends it was a sudden accident.

Self-Inflicted Car Damages

: Exaggerating or causing damage to an insured vehicle to gain more money for a cheap, quick fix.
On-Purpose Crash: A common car fraud is a ‘panic stop,’ in which the policyholder instantly breaks, causing the car behind to crash into them.

Healthcare Insurance Frauds

Another frequent personal insurance fraud claim is health insurance fraud. These scam claims occur when policyholders provide false or misleading information to a health insurance company to gain a significant reimbursement.

Healthcare Insurance Frauds can include:

Creating Fake Invoices: Policyholders create fake invoices or change charges to gain more money than they have paid.

Non-Smoker Life Insurance Fraud

: When insured lie on their life insurance that they do not smoke when they are, in fact, heavy smokers. Policyholders don’t understand this is a crime, and the insurance will be invalid if a medical report proves that the patient is a smoker.

Using Someone Else’s Coverage

: When a policyholder provides the insurance company with medical bills of uninsured members (family or friends). You cannot use anyone’s coverage unless added to the same policy by the insurance company.

Employee Compensation Fraud

Employee compensation fraud is one of the most popular business-related insurance scams. It occurs when an employee fabricates an on-the-job injury to gain insurance benefits. Unfortunately, it can happen in almost any industry and has severe consequences when caught. In Hong Kong, it is a crime punishable by a fine and imprisonment for up to seven years.

The Employee Compensation Insurance Frauds can include:

Fabricating Injury

: When an employee fakes their injury on work premises and alleges it was due to their work duty. The employees aim for a recovery break, compensation, and a free salary.

Exaggerating Injury

: Employees may be injured but exaggerate their injury to doctors or medical professionals to extend their recovery break and gain more salary and compensation benefits.

Working While ‘Injured’

: When an employee is on injury recovery break at ‘job A’ but has begun working at new ‘job B’. Working new jobs during a recovery break is illegal and breaks contract agreements. Also, it proves that the employee was faking their injury at their original position.

Fire Frauds

Individuals and businesses can scam fire and damage insurance frauds. The main purpose of this fraud is to gain quick insurance money to recover a company or get out of debt. No matter the cause, it is illegal, and the consequences will be worse than the possible reward.

Fire and Damage Insurance Frauds can include:

Business Premises Fire:

Business owners may set their location on fire to obtain a hefty insurance payment. They do this when the business is not doing well and need money desperately.

Home Fires

: Homeowners may have money problems and light their house on fire to solve them with an insurance settlement. Additionally, homeowners remove valuable items from their homes before starting the fire and claim these items, too.

Additionally, in any fire, a detailed investigation is conducted to determine the cause. Investigators can also identify whether the items claimed were on the property during the fire. Therefore, most owners will not get away with the fraud and will suffer more because they broke the law.

Theft or Robbery Fraud

Unfortunately, there are many instances where property owners or renters stage robberies to claim the cost of items under their insurance. They deliberately damage their property and try to convince the authorities and insurance companies – that they have been robbed of the most expensive items. These items have just been hidden and moved to a friend’s house.

Theft or Robbery Insurance Frauds can include:

Friendly Robber

: Owners ask friends to come to rob their home on purpose and make it as realistic as possible. Then, they hide their valuable assets in their home (friend’s home).

Self-Damaged House

: Owners try to find places to hide their valuables and then damage the house to make it look like a robbery has occurred.

Once again, serious investigations begin after a robbery, and home/business owners rarely get away with the crime.

Insurance Fraud Conclusion

According to the Hong Kong Federation of Insurers, ‘it is estimated that about 10% to 15% of the insurance claims paid out could be fraudulent’.

Frauds can be commercial or personal. These top five insurance frauds may seem smart to the perpetrator. However, new technology is getting smarter and detecting frauds easily and quickly. Therefore, no matter the fraud or who committed it, the consequences are never worth it.