Qualitative Ambiguities in the Definition of Insurance Fraud (3)

Definition of Insurance Fraud

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Nearly, all states have statutory definitions of insurance fraud, and the bulk of these has in recent history treated insurance fraud as a felony offense (Worsnop, 1996, pp. 891-904). Regulation of private insurance is almost exclusively relegated to state governments, and as a result, there is considerable differentiation in the approaches by the states to identification and prosecution of suspicious claims and asserted insurance frauds[4]. It must be noted that this decentralization of regulations regarding insurance, and subsequently, insurance fraud, is a major complicating factor in national efforts to curb the problem. As Richard Derrig, then Senior Vice President of the Auto Insurers Bureau of Massachusetts reported at a historic gathering of national interests on insurance fraud in Derrig (1993):

Fraud and abuse are not well defined concepts. Even experts viewing claims files in studies done in Massachusetts do not define fraud the same way. That’s one reason no one knows how much fraud there is because we haven’t agreed on a definition.

The ambiguity surrounding the term was echoed again in 2000, in a near-mirror gathering of industry, consumer, regulatory and enforcement personnel (CAIF, 2000):

Insurance fraud means many different things to different people, and therein lies one of the biggest challenges in measuring fraud: there is no universally understood definition of insurance fraud. From a strict legal sense, a fraud exists only when a court has deemed it so, either through criminal or civil rulings. While measuring court actions is relatively easy most of the time, the results may not be meaningful in gauging the fraud problem because only a small fraction of fraudulent acts ever end up in court.


To cite this document:
William C. Lesch, Bruce Byars, (2008) "Consumer insurance fraud in the US property-casualty industry", Journal of Financial Crime, Vol. 15 Issue: 4, pp.411-431, doi: 10.1108/13590790810907245