Insurance Fraud: Facing Up to the $300 Billion Problem

By Drew Sickler

Just how big a problem is insurance fraud? By some estimates, the total value of fraudulent claims submitted in the United States each year could be more than $300 billion. Needless to say, that presents a major threat to insurers.

But the issue has serious consequences for consumers too, increasing premiums for households and businesses and adding to the scrutiny facing honest policyholders.

Insurance fraud may be a complex issue. But at the heart of every incident of fraud is the same thing: an individual willing to break the rules.

To find out more about what drives such fraudulent claims and how they can be stopped,  Customertimes surveyed 2,000 Americans about the topic.

Insurance Fraud: How Common Is It?

Given the staggering numbers at stake, we wanted to put the question directly to consumers: have you ever considered making a fraudulent insurance claim?

Overall, 1 in 5 respondents told us they had at least considered committing insurance fraud, with half of those (1 in 10 overall) saying that they had gone through with their plans.

When asked whether they knew anyone who had committed or considered insurance fraud, 16% of respondents said they did. Meanwhile, a further 14% said they knew someone who had considered doing so.

For those in the insurance industry, it provides a compelling reminder of the scale of the problem – and just how common such frauds can be. But what motivates consumers to consider committing fraud?

Amongst our respondents in the US, the most cited factor – perhaps unsurprisingly – was financial gain, with 45% of respondents considering it to be one of the main drivers of insurance fraud.

But our survey also revealed the non-financial reasons that consumers believe are driving insurance fraud. These included peer influence; a desire to redress perceived wrongs committed by insurers; an ignorance of the potential consequences; and old-fashioned desperation.

Insurance fraud: What do consumers think?

When it comes to tackling insurance fraud, understanding the views and attitudes of consumers – many of whom will be insurance buyers themselves – provides a vital advantage for insurers.

So what exactly do consumers think? One useful insight from the study was on the role of so-called “loopholes” in policies in driving insurance fraud, with 45% of Americans saying such loopholes made it easier to commit fraud.

A desire to get back at the perceived unfairness of insurance policies was another factor, with 24% of respondents agreeing that insurance fraud could sometimes be justified when the underlying policy was unfair.

Of course, as many insurers will recognize, the matter of determining which policies should be regarded as ‘unfair’ or too stringent will be highly subjective – presenting a clear problem for policy providers.

Meanwhile, 69% of respondents said they viewed insurance fraud committed by individuals as less serious – and thus more excusable – than similar frauds committed by companies.

When it came to identifying insurance fraud, 63% of respondents felt certain that they could spot such cases. But did they have confidence in the ability of insurers to find and prevent insurance fraud?

On the whole, our respondents felt that insurers were competent at addressing the problem, but only 1 in 6 felt that companies were fully equipped to detect fraud in every instance.

On the other hand, 1 in 4 disagreed completely, saying they did not trust insurers to identify and prevent fraud.

Could things improve before long? Our study revealed that almost 3 in 4 consumers expected new technologies like AI and data analytics to improve companies’ fraud detection efforts in the future.

Insurance fraud: How can insurance providers do better?

Our study also provided plenty of lessons for insurers, who consumers increasingly regard as responsible for informing them about fraud.

On the whole, 30% of respondents felt that insurance providers were doing enough to educate consumers about insurance fraud and its consequences. By contrast, 57% felt that insurers needed to do more.

Are insurance firms doing enough to compensate those who fall victim to fraud? A majority of our respondents disagreed, with 65% saying that the industry needed to do more to provide effective redress to victims.

We also wanted to know whether consumers would be happy to share more of their data if it helped prevent fraud. Sixty-six percent of respondents said they would be happy to do so.

On the other hand, consumers wanted to see the industry improve its communications, with 58% saying that dealing with insurance providers was too complicated and bureaucratic.

If providers needed an additional incentive to improve the user experience, they should note that 80% of respondents said they would be more likely to trust insurance companies if they were less bureaucratic to deal with.

If insurers can give consumers more confidence in their processes, then, it could help provide valuable intelligence in preventing the scourge of insurance fraud.

Methodology: To create this study, researchers from Customertimes surveyed 2,000 people in the US aged over 18 years old. Participants within this age group were invited to share their experiences at random with no focus on particular genders, ethnicities, or backgrounds.