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Insurance fraud costs $309 billion a year — nearly $1,000 for every American

The US Department of Labor has announced that $45.6 billion in pandemic unemployment insurance has been stolen.



What would you do with an extra US$932.63 in your pocket?

That’s how much insurance fraud costs every American a year — $309 billion in total, according to the findings of a recent research study I led. For a family of four, that comes to nearly $3,800 — about enough to fund a small family vacation.

These additional costs come from increased premiums that consumers must pay to help offset the cost of fraud to the insurance industry. Despite the incredible financial impact on the average consumer, the research also indicates that nearly half of Americans feel it is an “acceptable” type of crime.

File 20221107 23 Gc3aq3The way insurance claims are processed makes the system a very easy target for scammers. Jeffrey Coolidge/Stone via Getty Images

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This little-known type of fraud comes in many forms, such as misrepresenting facts on an insurance policy in order to receive a lower premium. This will involve not disclosing additional drivers in the household, underestimating the kilometers driven per year and using an address in a lower-premium and risk neighborhood.

Another example is a patient who exaggerates an injury in hopes of getting additional benefits such as better medical treatment, additional time off work due to disability and even an attempt to get coverage for an injury that not been part of a car accident. Besides leading to high bills that others end up paying, the fraudulent claims clog up an already busy and stressed medical system, potentially taking away valued treatment from a patient who does need it.

Insurance fraud also involves large-scale organized fraud whereby organized international criminal groups and terrorist cells launch highly detailed campaigns targeting specific insurance companies. In the past, organized crime rings would focus on crimes such as kidnapping, drugs and extortion as a way to fund their organizations. However, my colleagues and I found that most of those groups turned to insurance fraud because it is much less dangerous, the payoff is greater, and the penalty is low or non-existent.

What is unique about insurance fraud

The fact that insurance fraud is high reward, low risk is what makes it stand out from other types of fraud.

There are dozens of other types of scams that fraudsters engage in, all with the goal of either gaining a monetary gain or securing valuable personal information for use in other identity theft schemes. From romance and travel scams to schemes related to work or COVID-19, they all have the same “fraud DNA” of using psychological tricks to manipulate.

But the nature of the insurance system, with many loopholes in how claims are processed, makes it a very easy target and creates additional opportunities to commit fraud.

Moreover, it is a crime that receives very little attention in the media and prosecutors. From a legal perspective, insurance fraud cases often move to the bottom of the priority list of law enforcement and prosecutors, which is why fraudsters are so tempted by this type of crime.

And given how easy this fraud is to commit, how acceptable it seems to many Americans, and how difficult it is to detect, the level of insurance fraud in the US is only expected to grow.

Michael Skiba does not work for, consult with, own stock in, or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations outside of their academic appointment.

This article is republished from The Conversation under a Creative Commons license.

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