What Exactly is Insurance Fraud?

The crime of insurance fraud is a common one because it has high reward, what seems like low risk, and the immediate victim tends to be an “rich” business, something that doesn’t get a lot of sympathy from communities.
In essence, insurance fraud involves making a false claim against a contract for insurance coverage, which pays out a financial recovery amount when the damage covered in the contract occurs. In return, the party pays a premium to the insurer for the financial protection.
Where Insurance is Used
Insurance is used in all sorts of protections, from driving cars to shipping goods to protecting homes to cover loss in business ventures.
The insurers make their profit by grouping together lots of the same risk type parties so if there are losses, the premiums of many more than make up the loss for a few. This is called the insurance pool.
Why People are Expected to Report Insurance Fraud
Insurance fraud is a particular problem to the insurance industry because it upsets the risk model. It creates damage payouts that are not expected statistically, and it’s also theft under false pretenses.
Many think insurance fraud is a victimless crime, because it’s only a business that gets hurt. But the loss is passed onto future insurance buyers with higher pricing instead. So, everyone suffers eventually.
Types of Fraud
Hard insurance fraud involves the intentional deceit and falsification of a claim to receive a financial insurance payment for damages and loss. Fake car accidents, intentional house fires, and fake business losses are common in this category.
Soft insurance fraud involves exaggeration of claims. The claim might originally be valid, but the claimant over-inflates the damage to get a bonus, an illegal profit on fake losses.
Examples often occur with added on medical injuries that aren’t as serious as claimed, or ambiguous losses like business opportunities missed by the original damage.