Ever since the insurance was invented, so was the insurance fraud. There are many kind of fraud, from life insurance fraud to the auto fraud.
Most of time, when somebody commits fraud, that is for financial gain. Due to the nature of the insurance policies, they are full of potential for exploitation. In general, the insurance policies are exploited by people claiming more loss than actually occured or inflating the value of the item lost.
Insurance fraud is usually devided into two classifications; soft fraud and hard fraud. The soft fraud is more common than the hard fraud, it is also known as opportunistic fraud. This type of fraud occurs when the insured party inflates an already legitimate claim. Soft fraud, for example, occurs when an insured individual involves in a car accident and claim that more damage is done to the vehicle than is true. Soft fraud can happen at the start of a new insurance policy, when an individual purchasing a policy misrepresents their actually situation to get a lower premium. An example of this is if someone buys a car insurance policy but lies about the number of miles on the vehicle to get a lower premium.
Hard fraud is when someone plan a loss to receive the insurance payout. This scam is usually executed with a fire, “stolen” car, or similar that the individual plans themselves. Sometimes the whole crime ring is devoted to hard insurance fraud.
Auto insurance fraud is one of the most common type of fraud. It is estimated that in 1996 as many as 36 percent of auto insurance claim were fraudulent in some way. Soft fraud in auto insurance fraud includes what was mentioned above, but also the situations where a person claim any injury that do not actually occur in the accident in question, or if someone registers their car in a location that the insurance is cheaper. For example, if someone lives in a big city, it is more expensive to insure the cars so they have to register it with a suburban address to get a lower premium.
Hard insurance fraud is commonly executed in a “crash for cash” scenario, which has some different varieties of the staged crashes. One is the “classic rear-end shunt” where a driver can slam on their brakes, causing the cars behind them to crash into them. Often, the brake lights are off, but reconnected before any investigation is conducted. Other common “crash for cash ‘ scenario is one that called the ” helpful wave shunt” where a driver waves another car ahead of them in a line of traffic, then the crashes into them and denies ever waving.
Insurance fraud is a very real problem in the many places, with 2006 losses estimated to be near $ 80 billion. It is estimated that 3-10% of all health claims contain an element of fraud, resulting in billions of dollars in loss.