Insurance fraud costs $309 billion a year — nearly $1,000 for every American
What would you do with an extra US$932.63 in your pocket?
That’s how much insurance fraud costs every American a year — $309 billion in total, according to the findings of a recent research study that I led. For a family of four, that adds up to nearly $3,800 — about enough to finance a small family vacation.
This additional cost comes from increased premiums that consumers have to pay to help offset the cost of fraud to the insurance industry. Yet despite the incredible financial impact on the average consumer, the research also suggests that almost half of Americans feel that it is an “acceptable” type of crime.
The way insurance claims are processed makes the system a very easy target for scammers. Jeffrey Coolidge/Stone via Getty Images
This little-known type of fraud comes in many forms, such as misrepresenting facts on an insurance policy to receive a lower premium. This would involve not disclosing additional drivers in the household, understating the miles driven per year and using an address that is in a lower-premium and -risk neighborhood.
Another example is a patient exaggerating an injury in the hopes of gaining additional benefits, such as better medical treatment, additional time off from work due to disability and even attempting to get an injury covered that was not part of an auto accident. Besides resulting in inflated bills that others ultimately pay for, the fraudulent claims clog up an already busy and stressed medical system, which could potentially take valued treatment away from a patient who does need it.
Insurance fraud also involves large-scale organized fraud whereby organized international criminal groups and terrorist cells launch highly detailed campaigns targeting specific insurance carriers. In the past, organized criminal rings would focus on crimes such as kidnapping, drugs and extortion as a means to fund their organizations. My colleagues and I found, however, that most of those groups have moved to insurance fraud because it is much less dangerous, the payout is greater and the punishment is low or nonexistent.
What’s unique about insurance fraud
The fact that insurance fraud is high reward, low risk is what makes it stand out among other types of fraud.
There are dozens of other kinds of scams that fraudsters engage in, all with the goal of either gaining a monetary profit or securing valuable personal information for use in other identity theft schemes. From romance and travel scams to schemes related to work or COVID-19, these all have the same “fraud DNA” of using psychological tricks to manipulate.
But the nature of the insurance system, with many gaps in how claims are processed, makes it a very easy target and creates additional opportunities to commit fraud.
In addition, it’s a crime that receives very little media and prosecutorial attention. From a legal perspective, insurance fraud cases often move to the bottom of the priority list of law enforcement and prosecutors, which is why fraudsters are so tempted by this type of crime.
And given how easy this fraud is to commit, how acceptable it seems to many Americans and how hard it is to detect, the level of insurance fraud in the U.S. is only expected to grow.
Michael Skiba does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
This article is republished from The Conversation under a Creative Commons license.
-
Think you’re immune to cybercrime because you’re young and tech-savvy? Think againBestForBest // Shutterstock
While generalizations are rarely true, there is one that holds up pretty well: People tend to believe (and take comfort in the idea) that different kinds of crime could never happen to them—notably cybercrime. They're too smart, too careful, and too tech savvy.
But, of course, the truth is more complicated than that.
A 2021 study by the Federal Trade Commission found less than 5% of mass-market consumer fraud victims report their experiences to either the Better Business Bureau or a government agency. This study also described an interesting variation in the inclination of victims of various forms of fraud to report malfeasance in any way.
For example, while 58% of people duped into purchasing a product or service that was never delivered registered a complaint to the vendor, less than 20% of victims of fraudulent credit card insurance or computer repair logged complaints. And overall, only 12% of victims of any form of digital fraud complained to their credit card company, bank, or other financial service provider, despite the protections such institutions provide their clientele.
One could speculate that embarrassment keeps many people from seeking justice, or perhaps they assume filing a complaint won't get them anywhere. Age is most certainly a factor. Older Americans lose more money overall from cyber scams than younger age groups, though those younger age groups experience a higher total volume of cybercrimes—meaning that while it costs older folks more cash, there are more young victims than old.
While age is one of the easiest ways to categorize and reduce fraud, especially cybercrime, there are nonetheless valid (and quite alarming) variations in instances of cybercrime that can be qualified by looking at the issue through the lens of age. Twingate collected and analyzed information from the FBI's Internet Crime Complaint Center and the Federal Trade Commission's Consumer Sentinel to understand how online crime differed between age groups in 2021.
The FBI receives an average of 2,300 complaints per day about online crime, and the bureau estimates there was almost $7 billion lost to it in 2021 alone. No small potatoes. How it breaks down among the population's generations provides key insights into how cybercrime affects every American.
BestForBest // ShutterstockWhile generalizations are rarely true, there is one that holds up pretty well: People tend to believe (and take comfort in the idea) that different kinds of crime could never happen to them—notably cybercrime. They're too smart, too careful, and too tech savvy.
But, of course, the truth is more complicated than that.
A 2021 study by the Federal Trade Commission found less than 5% of mass-market consumer fraud victims report their experiences to either the Better Business Bureau or a government agency. This study also described an interesting variation in the inclination of victims of various forms of fraud to report malfeasance in any way.
For example, while 58% of people duped into purchasing a product or service that was never delivered registered a complaint to the vendor, less than 20% of victims of fraudulent credit card insurance or computer repair logged complaints. And overall, only 12% of victims of any form of digital fraud complained to their credit card company, bank, or other financial service provider, despite the protections such institutions provide their clientele.
One could speculate that embarrassment keeps many people from seeking justice, or perhaps they assume filing a complaint won't get them anywhere. Age is most certainly a factor. Older Americans lose more money overall from cyber scams than younger age groups, though those younger age groups experience a higher total volume of cybercrimes—meaning that while it costs older folks more cash, there are more young victims than old.
While age is one of the easiest ways to categorize and reduce fraud, especially cybercrime, there are nonetheless valid (and quite alarming) variations in instances of cybercrime that can be qualified by looking at the issue through the lens of age. Twingate collected and analyzed information from the FBI's Internet Crime Complaint Center and the Federal Trade Commission's Consumer Sentinel to understand how online crime differed between age groups in 2021.
The FBI receives an average of 2,300 complaints per day about online crime, and the bureau estimates there was almost $7 billion lost to it in 2021 alone. No small potatoes. How it breaks down among the population's generations provides key insights into how cybercrime affects every American.
