Working definitions of insurance fraud (2)

Definitions of Insurance Fraud

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Insurance fraud can be characterized in many ways, including those describing the nature of the fraud as well as the source of the infraction. In all cases, the Insurance Information Institute’s (2008) broad definition of insurance fraud conveys both its formal and informal dimensions:

Insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for the purpose of financial gain [C]ommon frauds include “padding,” or inflating actual claims, misrepresenting facts on an insurance application, submitting claims for injuries or damages that never occurred, and “staging” accidents.

	Framework for Fraud Insurance Benchmarking
What is Fraud? Fraud Meaning and Definition

Insurance fraud may be classified as “hard or “soft.” Hard fraud is a deliberate attempt to either stage or invent an accident, injury, theft, arson, or other type of loss that would be covered under an insurance policy.

Soft fraud, which is sometimes called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim [...] [S]oft fraud may also occur when people purposely provide false information to influence the underwriting process in their favor when applying for insurance [...]

An additional “practical” definition is offered by the Coalition Against Insurance Fraud – CAIF (2008a) an amalgamation of insurers, regulators, law enforcement, academic, and consumer interests. Fraud “... generally happens when someone intentionally deceives another about an insurance matter to receive money or other benefits not rightfully theirs.”

Similarly, and owing to the nature of the offense, legal standards, although variable, are well established. These are well recognized from a basic legal standpoint, although statutorily, interpretations in the context of insurance vary by state.

Fraud is an intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him/her, or to surrender a legal right. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he/she shall act upon it to his/her legal injury (Black’s Law Dictionary, 1990, p. 660). Elements of a cause of action for “fraud” include false representation of a present or past fact made by defendant, action in reliance thereupon by plaintiff, and damage resulting to plaintiff from such misrepresentation[2].

An insurance fraud burden minimally includes satisfaction of the following four prongs:

1. A material false statement or false representation of fact;
2. Knowledge of its falsity;
3. Reliance on the false statement by the victim; and
4. Damages suffered (Smith and Roberson, 1971).

Moreover, fraud and insurance crimes emanating from (sometimes) large, criminal, organized rings – whether they be mobile, or stationary, and typically of the multi-claim variety – are distinguished from those more commonly presented by policyholders[3]. (Indeed, legitimate policyholders are often unwitting victims of such rings as targets in their maintenance.) A common ploy tracing to the very roots of the automobile industry involves the multi-vehicle setting described as the “swoop and squat,” wherein a target vehicle is trapped between two others and hit from the rear at high speed. This setting affords additional “cover” to the conspiracy and provides the necessary lifeline to funds for the co-conspirators. It also adds considerably to confusion in sorting and screening legitimate from illegitimate claims. Insurer and societal response to this type of dangerous, fraudulent behavior has spawned a highly organized industrial response further described below.



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