Insurance Fraud

Insurance fraud: The $100 billion problem

Each year, insurance fraud costs property and casualty insurers almost $100 billion. Big “B.” This problem trickles down from the business side to policyholders, costing the average U.S. family between $400 and $700 per year in the form of increased premiums, according to the Federal Bureau of Investigation.

What is insurance fraud?

Insurance fraud is any act committed to defraud an insurance company by wrongfully receiving compensation or benefits. According to American Property Casualty Insurance Association, fraud comprises 5 to 10 percent of all claims costs for the property and casualty industry.

While there are many forms of insurance fraud, there are some common tactics:

  • Claims for incidents or services that never happened
  • Inflated or padded claims
  • Inflated prices from vendors
  • Misreporting or omitting information on a claim
  • Arson (deliberate property-fire setting)
  • Staged accidents

Report arson or fraud Call our fraud hotline


Insurance fraud can be committed by anyone who does business with an insurance company —policyholders, healthcare providers, vendors, and even employees or representatives of an insurance company. And according to a report from LexisNexis, in 2016, 84 percent of insurance organizations say fraud cases involve more than one industry.



Say a policyholder gets in a car accident. They falsely claim a physical injury to get their insurer to pay for chiropractic fees for unrelated pain. Or, they claim an injury and bill for services they never received.

Another tactic is the fake “stolen” car. Policyholders report a missing vehicle and then attempt to receive a dual payment by getting insurance money and selling the “stolen” vehicle. This scam is also used with other valuable assets written on a policy.


Insurance companies work with a lot of different stakeholders and depend on medical care providers to give accurate assessments of any physical injury. Some providers, however, use “upcoding,” which is assigning an inaccurate billing code to a medical bill to increase their reimbursement. Upcoding not only defrauds insurance companies and the larger system but can cause serious financial problems for patients receiving inflated bills.

Medical providers who ask their patients to undergo unnecessary testing are also committing insurance fraud, not to mention putting their patients through undue personal stress.


Vendors may attempt fraud through padded service bills. One of the most dangerous incarnations of this is airbag fraud, when a vendor fills the airbag chamber with a salvaged airbag and then bills for a new one. Sometimes unscrupulous vendors go as far as filling them with packing peanuts, paper, or even beer cans to trick the airbag sensor, according to an investigation by National Public Radio’s “Weekend Edition.”


As disappointing as it is, sometimes insurance agents, company employees, or even carriers, commit insurance fraud. An insurance agent may write a policy with a customer, but never report the policy to a carrier company. Instead, they collect the premium themselves. They can also write real policies, but add extra coverages the policyholder didn’t ask for, a practice called “sliding.”

Insurance companies may also commit fraud by selling insurance they’re not licensed to sell in certain states, thereby evading state regulations and selling false, unregulated, non-enforced policies.



Insurance fraud can happen almost anytime and anywhere. It has become such an issue that 46 states and the District of Columbia have set up fraud bureaus.

And in states with no-fault insurance systems, which allow policyholders to recover financial losses from their carrier regardless of who was at fault, the problem can be even worse.

No-fault states have begun pushing back against fraud. In 2019, Kentucky increased penalties and fines for insurance fraud, and Utah expanded the definition of fraudulent acts. In the same year, New York raised the penalty for participating in staged accidents from a misdemeanor to a felony in the case of injury or death.

At-fault states are also fighting fraud, some even protecting and empowering whistleblowers. California and Illinois allow whistleblowers to file lawsuits against those who have attempted or succeeded in fraud against private insurers. In cases where funds are recovered as a result of their actions, whistleblowers can receive anywhere from 30–50 percent of the proceeds — a hefty sum when millions are involved.


Insurance companies and state fraud bureaus must adapt constantly to changing technology that is being combined with traditional fraud schemes.

For example, new apps allow pranksters and fraudsters to edit fake broken glass, dents, and scratches on photos of their cars. The fraudster may use that app to file a fake claim on their car.

Artificial intelligence also presents new opportunities for clever thieves. Generative adversarial network (GAN) imaging and “deepfakes” may be the next horizon of bilking insurance companies and innocent people by blurring the lines of reality. These futuristic technologies work by replicating and blending real people into false images and videos, with almost zero work on a fraudster’s part.



If you suspect fraud or arson, report it to local law enforcement. Next, call your insurance agent or company or the state insurance department.

Anyone can call Grinnell Mutual's Fraud and Compliance hotline at 855-467-2372. Our fraud and arson reward program provides up to $10,000 for providing timely and credible information about a fraudulent or criminal loss to people or property insured by Grinnell Mutual or its affiliated farm mutuals. It’s our way of saying thank you for doing the right thing.


Report arson or fraud Learn more about causes of loss