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All about Insurance Fraud: Reporting and Protecting Yourself | HNI

It can be easy to think of insurance fraud as a ‘victimless crime.’ After all, sometimes insurance can feel like the worst form of gambling, where you actively put down good money to bet against yourself. And insurance companies themselves don’t always act like the valiant protectors they claim to be — just ask anyone who’s ever had a valid claim denied or lost their coverage when they needed it most. Is the occasional insurance fraud here or there really such a big deal?

Absolutely it is, because whether it’s targeting providers or policyholders, there’s more to insurance fraud than meets the eye. And whether you know it or not, you might already be a victim.

Here, we discuss the realities of insurance fraud and insurance fraud reporting. But first things first: What exactly is insurance fraud?

What Is Insurance Fraud?

Insurance fraud occurs when an individual or group (including business organizations) deliberately attempts to deceive or defraud an insurance process for some form of illegitimate gain. In other words, it’s an attempt to take illegal advantage of a policy that exists to provide support for people or entities that need it. And it is definitely a crime, one that’s punishable with hefty fines and jail time.

And just so we’re all on the same page, it’s not always the policyholder who's committing the crime — insurance providers can also engage in insurance fraud by knowingly denying benefits that are legally due. 

Unfortunately, the list of victims is even more inclusive. Insurance fraud negatively impacts every legitimate policyholder. Sure, in most cases the fraudulent behavior targets the insurance providers in the hopes of capturing an unmerited payout. But those losses are mostly passed on to the insurer’s customers in the form of increased premiums and higher costs for other services. 

So, when a fraudster thinks that a fabricated claim is a great way to stick it to their insurance company, they’re really just sticking it to everyone.

What Are Common Types of Insurance Fraud?

There’s more than one way to defraud the insurance process. You can click here to read more about the following examples, but here’s a brief overview of some of the most widely used types of insurance fraud that you should be aware of

Premium Diversion

This kind of insurance fraud occurs when an insurance professional (or someone posing as one) keeps the insurance premiums paid by policyholders instead of sending the money to the insurance company underwriter.

Workers’ Compensation

When employees try to receive compensation for falsified injury claims, or when companies purposefully misclassify or misrepresent employees or employee risk to avoid paying workers’ compensation premiums, that’s workers’ compensation fraud. 

Auto Insurance

Auto insurance fraud occurs when policyholders misrepresent or omit important vehicle or driver details to secure lower premiums. Repair shops that overcharge insurers for parts, labor, and time are also committing auto insurance fraud. 


There are so many different approaches to healthcare insurance fraud that we’d never be able to list them all here. In most cases, however, it all comes down to healthcare providers overcharging for or misrepresenting the services provided so that they can bill insurance companies for more money. Healthcare insurance fraud can also refer to false claims made by patients. 

Property Disaster

Finally, those who take advantage of homeowners’ insurance to make false or exaggerated claims about property damaged during a natural disaster are committing property disaster insurance fraud. These criminals may be motivated by the prospect of a large payout or the chance to have other expensive repairs billed to the insurance company.

How to Avoid Becoming a Victim of Insurance Fraud 

As previously mentioned, insurance fraud is a crime that affects everyone. Unfortunately, it’s also one of the most prevalent crimes in the country. In fact, according to the FBI website, even excluding health-insurance fraud (which is a pretty big exclusion), insurance fraud costs the average family between $400 and $700 per year in increased insurance costs, and carries a total annual cost of approximately $40 billion.

It’s bad enough to have to pay increased insurance premiums; it’s a lot worse to fall prey to insurance fraud schemes aimed at you specifically. If you want to avoid being personally victimized by insurance fraud, consider the following tips:

  • Do Your Research
    Be sure that you check the references and licenses of any insurance professionals you do business with. Additionally, research current rates and competitive estimates — anything too far off from the norm should have you seeing red flags.
  • Understand Insurance Laws
    Read up on insurance laws to get a feel for what kind of practices are illegal. This will help you spot scams much more easily.
  • Be Skeptical about Promises that Sound too Good to Be True
    In insurance, the old adage holds true: If something sounds too good to be true, it probably is. Be especially wary of promises of quick service or material availability after a major storm or other disaster.
  • Read Contracts Carefully
    It may seem obvious, but always make sure you read through any contracts before you sign them. Be especially careful never to sign any blank applications or forms. Also, if an agent ever pressures you to provide false information, then they’re almost certainly trying to involve you in a scam.
  • Get a Copy of Your Policy
    You should expect to receive a complete copy of your policy within a reasonable amount of time. If you don’t receive one, then contact your state’s Department of Financial Services to report the issue. Once you receive the copy of your policy, review it to verify that it contains the agreed-upon coverage.
  • Keep Copies of Your Insurance Records
    If you are involved in an insurance scam, having hard copies of your insurance records on hand can help you get the issue resolved. Keep these copies someplace safe, such as in a fireproof lockbox. 

How to Report Insurance Fraud

If you think that you may be a victim of insurance fraud, report it immediately! The longer you wait to address the problem, the more damage it can do. Insurance fraud reporting helps the FBI identify and eliminate scams, reducing the negative impact fraud can have on legitimate insurance clients (and you might even be eligible for a reward if your information proves accurate). 

Ready to blow the whistle? Here’s what you should do if it looks like you’re getting scammed:

Contact Your Insurance Provider

Your first step if you suspect an insurance scam should be to take the issue to your insurance provider. The provider should have resources in place to help get to the bottom of the issue. 

Contact the FBI

Most states sponsor a bureau designed to investigate claims of insurance fraud. You can take your concerns directly to your local FBI office, or you can also report non-internet-based fraud to the FBI’s tips and leads webpage.

Insurance fraud is a major issue, and even if you’ve never been targeted directly you’re still paying the costs. Help put a stop to it — be familiar with the most common types of insurance scams, take appropriate steps to protect yourself, and know what to do when you encounter fraud.