By Sonya Sellmeyer, Consumer Advocacy Officer for the Iowa Insurance Division
According to the Coalition Against Insurance Fraud (CAIF), insurance fraud costs consumers an estimated $308.6 billion annually in the United States, translating into roughly $900 per consumer due to increased premiums caused by fraudulent claims.
Insurance Fraud is any act of deception or misrepresentation made to an insurance company with the intent of receiving benefits or payouts that one is not entitled to. This includes individuals and organizations making false claims, as well as those providing false information to avoid paying premiums or reducing their insurance costs, and it impacts everyone whether they are directly involved in a fraudulent claim or not. The financial consequences of fraud are significant, as insurance companies may charge higher premiums in order to ensure coverage for their customers. Fraudulent claims can also strain the resources of law enforcement, insurance adjusters, and investigators, leading to increased costs and delayed payouts for legitimate claims.
The Iowa Insurance Division’s (IID) Fraud Bureau has taken proactive steps to combat insurance fraud by investigating activities from false claims to misrepresentation during the application process. Each year the Fraud Bureau receives over a thousand reports of suspected insurance fraud in Iowa from reports from consumers and insurance companies, who are required to report suspected fraud.
There are two main types of insurance fraud: hard and soft. Hard fraud involves intentional acts like staging car accidents or setting fire to property to collect insurance money. Soft fraud or "opportunistic fraud" consists of exaggerating or inflating legitimate claims, such as over-reporting damages or lying about the extent of injuries. The growth of digital tools and the expansion of online insurance purchases have made fraud more sophisticated and harder to detect. Fraud may go unnoticed until a pattern emerges or an investigation is initiated.
Insurance fraud in Iowa is a felony with possible confinement of up to five years. Examples of insurance fraud cases include: presenting false information to an insurance company about an injury sustained in a hotel room, obtaining an insurance policy to cover damages for an accident that they would not have been entitled to, fraudulently withdrawing $170,416.66 from a victim’s insurance annuity and using the money for their benefit, a doctor billing an insurance company for services that were not rendered, and fake insurance policies.
Insurance fraud contributes to rising premiums, undermines the integrity of the insurance system, and diverts resources away from legitimate claims. Everyone—from individuals and businesses to insurers and law enforcement—has a role in reducing and preventing fraud. By reporting suspicious claims and maintaining transparency, the public can help protect the integrity of the insurance market and reduce the financial burden of fraud. The IID’s Fraud Bureau may be reached at 515-654-6556.