Insurance fraud

As old as the business itself, insurance fraud become very important during the mid 1980s, due especially to the growing rise of premiums. Fraudulent attempts and practices vary in type and scale of seriousness. They affect all classes of business and occur at all levels of transaction and can be committed by different parties: the insured, underwriters, professionals, third parties or even insurers and reinsurers.

Faced with the phenomenon that came to be qualified as a crime and which seriously crippled the business, the companies started to react appropriately in order to prevent, pick up and eradicate fraud with a view of protecting their interests and those of the insured.

For the business, the objective is to maintain the balance between the fastidious inquiries pinpointing fraud and the legitimate compensations for the insured.

It is the insurance companies, insurance policy holders, tax payers and the public, in general, who are made to pay the bill for fraud by seeing their premiums and taxes increase.


Misuse, abuse or fraud is a deliberate act committed by an insured person in order to make profit of his or her contract in an illegitimate manner with the culpable intent to deceive.

Insurance fraud is characterized by false statements or intentional omissions in order to illegally benefit from insurance services.

Fraud typologies

Used with permission from MicrosoftFraud can take different forms: over billing, falsification or modification of receipts, falsification of documents reporting a medical diagnosis or a claim, or submission of requests of settlement for unnecessary items or products and services that were not supplied.

Particularly hit by this phenomenon is the health insurance where fraud can take many forms such false billing and procedures, falsification of beneficiaries' identity, over billing of consultations or medical acts, the false codification of pharmaceutical products, the simulation of physical disablement and inappropriate or fraudulent practices or claims for compensation.

The record of the most spectacular and costly frauds published each year by the business sometimes unravels the comical nature of the tactics used in the field of insurance fraud.

In need of action, the companies have, on their turn, developed the specific tools and skills to fight back. Good sleuths as they are, investigators have been dispatched all over the place in order to foil the multiple stratagems, confront testimonies and confound criminals, hence the prevalence of these topics which shaped the scenarios of detective films and novels: murders for the sake of life insurance premiums, simulated disappearance, ship scuppering, deliberate robbery or destruction of one's property in view of obtaining compensations for real or simulated damages.

Legal description of fraud

  • Reticence or deliberate false statement upon underwriting
  • Simulation of disablement
  • Fraudulent over insurance
  • Multiples and cumulative insurances
  • False statements on the nature, the causes, the circumstances, and the consequences of a disaster
  • Falsification, use of false documents, corruption
  • Deliberate destruction or deterioration of property

Phenomenon's scale

Due to its opaque and illicit nature, fraud can not be the object of quantitative studies or studies that enable us to measure its scale with a high degree of accuracy. Likewise, the perpetrators of such offence can not be easily identified.
Nonetheless, European companies estimate that 10% of all amounts paid for claims relate to cases of fraud, which accounts for a huge loss that is amplified by anti-fraud measures: cost, the complexity of investigations and their lengthy procedures can only augment losses.

In the regions of Africa, the Maghreb and some Middle Eastern countries, insurance fraud is commonplace practice which may reach the scale of a scourge, with all classes of business being affected: marine, motor and health. The absence of verification tools, the legal vacuum and the collusion between companies and insured constitute a breeding ground for this phenomenon.

Fraud in figures

  • Non life insurance fraud is estimated to cost the Canadians 1.3 billion USD every year. According to non life insurers, 10 to 15% of non life insurance claims are fraudulent.
  • In the United Kingdom, a recent study appraised the amount of fraud to be 550 million GBP (970 million USD) per year, adding that insurance companies turned out to be victims as well as offenders. One large company out of three provides false information on its forms. In the course of the last two years, 2/3 of the large companies have been the victims of false statements.
  • In the United States, the overall loss is estimated at 100 billion USD per year.
  • According to the United States Government Accountability Office (GAO), 1 USD out of seven is lost in fraud in the health sector which tops the list of false statements.
  • Just for the year 1990 losses resulting from fraud or abusive statements of the health insurance scheme amounted to about 12 billion USD. In 2004, losses reached 95 billion USD.
  • In 2003, fraud pertaining to damage and property insurance cost 23 billion USD.
  • In 2004, motor-related fraud amounted to 14 billion USD in false statements per year.

Insurance fraud: a white collar crime

According to opinion polls, insurance fraud is still and often regarded as commonplace and acceptable practice in numerous circles where wronging an anonymous organization is deemed to be less serious than wronging a specific person.

While «soft» swindling committed by a disaster victim for whom it is only «natural» that his or her insurer be made to pay dearly for the damage endured, not minding false statements or using false documents, it is «hard» swindling with its sophisticated methods that is dealing the hardest blow to the business.

Organized crime has been widely involved in the sector, especially in North America. Facilitated and amplified by the use of information technology, large-scale operations orchestrated by experts in the field are being conducted in cahoots with the insured, insurers, lawyers firms and even top-level magistrates.


Used with permission from Microsoft The high rise in the number of fraud attempts unveiled in recent years is explained by higher efficiency of anti-fraud struggle led by States and companies.

When a case is established through corroborating evidence and clues, the criminal act makes its perpetrator liable to prosecution before civil tribunals or penal courts.

Civil sanctions include contract and premiums annulment as well as payments in damages and incurred interests. Penal sanctions provide fines and prison sentences depending on the offense seriousness.

Example of an anti-fraud jurisdiction

As the cases of insurance fraud increased notably following the 2004 cyclones, the state of Florida has considerably stiffened its anti-fraud jurisdiction.

It has made provisions for insurance offences as follows:

  • 20 000 USD and a five-year prison sentence for a third-degree fraud,
  • From 20 000 to 100 000 USD and a fifteen-year prison sentence for a second-degree offence,
  • Over 100 000 USD and up to a thirty-year prison sentence for a first-degree offence.

Prevention and struggle plan

In order to face this new type of elaborate criminality that has grown during the 1990s, the authorities and the business have combined efforts by reinforcing their legal and technical plans.
Anti-fraud activity is being jointly conducted by the State's police and customs departments and by the companies' special investigation units. Rewards are even offered in return for information regarding insurance frauds, as is the case for criminal hunts.

At the level of companies

The case of fraud suspicion is kept under scrutiny by experts who proceed to the necessary enquiries. To do so, the companies have designed statistical and technical tools as fraud indicators that make it possible to spot falsified documents in the insured files.

Computer data bases, information exchange, intelligence, training of investigators, sensitization of consumers and public opinion are among the assortment of tools put in place for anti-fraud struggle.
Some specialized detective agencies as well as firms of economic intelligence are now offering investigation services for the benefit of companies.

At the level of states

In Europe, the companies' action is supported and reinforced by the national agencies in charge of the struggle against fraud.

In the United States, the scale of the phenomenon has led to the implementation of a genuine strategy with the creation of a service specialized in the prevention and repression of fraud in 43 states.

The Federal Bureau of Investigation (FBI) and the Bureau of General Inspection (BGI) appointed a hundred anti-fraud special agents within the health insurance system.

1993 witnessed the creation of the « Coalition » against insurance fraud, a legal and educational organization gathering consumers' representatives, governmental agencies and insurers. A similar institution exists in Canada.

The news: Swindlers are everywhere

June 2005 - AllstateIndicted by California's Insurance Department for allegedly illicit practices, Allstate will have to refund up to 30 million USD to its clients.

August 2005 - AIG: The American giant, the world's leading insurer has been accused of swindling by a group of 17 reinsurers of different nationalities. Fraud pertains to documents falsification in view of perceiving more money from reinsurance. Munich Re via its subsidiary American Re and Swiss Re whose damages have been estimated at 73 million USD are among the plaintiffs.

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