Sample Social Work and Human Services Paper on Insurance Fraud


Fraud takes place when an individual intentionally deceives in order to obtain something, which is beneficial or of an advantage but is not entitled to or when an individual deliberately denies another person a benefit that is due and to which they are entitled (Derrig 1). Insurance fraud refers to a deceitful act carried out with the intention of obtaining an improper reimbursement from an insurer. The law enforcers classify insurance schemes into two, namely, hard fraud and soft fraud. The former seldom occurs but is perpetuated when an individual intentionally destroys property for purposes of collecting on an insurance policy. The latter occurs when the policy proprietor deliberately exaggerates a genuine claim, or when a person submits an application for an insurance policy but gives false information about certain conditions or situations in order to lower the premium of the policy.

The pervasive nature of insurance fraud has been linked to the increasing costs for all the consumers while losses in terms of billions of dollars on the part of the insurers annually (Derrig 4). One of the prevalent forms of insurance scam is evident when the worth of the insurance policy is of higher cost than the one of the covered property. In such a circumstance, the policy proprietor is inclined to perpetrate insurance fraud through the destruction of the property while making it appear as an accident in order to collect it. The detection of insurance fraud is a difficult task due to the surreptitious nature by which criminal behavior is performed. For instance, in some cases, the fraudsters often make insurance claims for mishaps that actually did not occur, and in other cases; the proprietors of life assurance policies feign their own deaths so that their families can collect the reimbursement while they enjoy the money in seclusion – in a remote area of an overseas location.

Categories of Insurance Fraud

Insurance fraud may be categorized as a hard or soft fraud. The former seldom occurs but is perpetuated when an individual intentionally destroys property or invents a loss for purposes of collecting on an insurance policy; for example, auto theft or fire. The latter, on the other hand, occurs when the policy proprietor deliberately exaggerates a genuine claim or when a person submits an application for an insurance policy but gives false information about certain conditions or situations in order to lower the premium of the policy. For example, when an individual is involved in a motor accident, they might claim there was more damage than there actually was (Derrig 349).

Types of Insurance Fraud

Fake Policies or Companies

This case involves persons that sell insurance products from nonexistent companies through the invention of fake company names that have slight alterations from the original names or by posing as representatives from legitimate insurance companies and create fake policy documents that may appear to be legitimate (Derrig 281).

Health Care Fraud

This is a form of scam performed by the medical care practitioners and the patients. The patients perform this fraud through acts, such as the inclusion of ineligible candidates, adjustments in the enrollment forms, hiding the pre-existing conditions, invented prescriptions, and concealing claims that are accidents related to work (Derrig 275). On the other hand, the health care providers perform this fraud by billing for the services they did not carry out, billing for higher-level services they are not licensed to provide, altering the claim submissions, or providing medical services when they are on suspension or when their practice licenses have been annulled (Perino 275).

This type of fraud lessens the money in programs funded by a taxpayer, such as Medicare. The majority of the physicians finds it necessary to provide care services or their patients but may bill a different service covered by the policy in place of the service they have offered, while the patients on the other hand may disapprove the health insurance fraud but accept it if it favors their own medical care.

Life Insurance Fraud

This involves an individual faking their own death, claiming the money through their beneficiaries, and disappears to remote or overseas locations (Derrig 275). They may reappear later but claim memory loss so that they are not in a position to give a recollection of their past. A case in point of this scenario is the former British minister, John S., who vanished in 1974 but was traced in Australia. Later, he was taken back to Britain, where he was charged with fraud and burglary, and imprisoned for 7 years.


Automobile Insurance Fraud

Individuals may forge traffic deaths or stage accidents or exaggerate claims in order to obtain money from the insurance company. It may also be accompanied by other persons that adjust the claims or invent fake police reports in the process of the claim (Artís et al. 325). One of the most notorious tactics used by motorists in the UK involves an individual driving to a busy roundabout and then brakes sharply so that the motorist behind is forced to drive into their backs. They then carry on to falsify statements and exaggerate the cost of damages to the motorist’s insurer. The records by the Insurance Research Council estimate that about 36% of motor insurance claims were alleged to be fraudulent in 1996.

Property Insurance Fraud

This includes claims that are an overstatement of the actual value of the property razed and claims over some kinds of insured property that cannot be traded. Most of such crimes are carried out using fire on the basis that the fire destroys the evidence that could be used to determine the truth (Derrig 275). The United States Fire Administration estimates approximately $755 million losses in around 31,000 incidences of fire due to arson. A further incidence of such a case involved Mr. John M. of Canada that got other people to aid in setting fire on his hardware store to obtain insurance.

Council Compensation Fraud Claims

This type of insurance fraud involves the council insurers that stage damages that may be a result of faults by the local authorities or inflate the value of the real damages when claiming compensation (Derrig 278).

Causes of Insurance Fraud

Any insurance contract predisposes both the insurer and the insured with an occasion of exploitation, but the main intention in all cases of insurance fraud is financial proceeds. Records by the Coalition Against Insurance Fraud indicate that there are various causes, but they are often on the basis of greed and gaps in the fight against fraud (Viaene and Guido 313). The individuals who commit insurance fraud perceive it as an enterprise characterized by low risks and quick riches. Drug dealers perceive it as a safer and more profitable means of making money compared to working on the corners of streets. The court sentences for insurance fraud are perceived to be lenient compared to sentences for other crimes; therefore, fraudsters tend to take advantage of the court system. On the other hand, the insurers sometimes settle suspicious claims because they deem such claims cheaper than following through the legal system (Viaene and Guido 316).

Some states in the US do not have specific laws that cater for fraud cases, which in turn discourage many prosecutors from dealing with grave fraudulent cases. Some courts are hard on arrested scammers, but the detention terms are habitually low with the courts setting aside space in the already overcrowded jails. At times, there is also a general feeling that the professional organizations supervising the actions of doctors and lawyers are reluctant in disciplining them whenever they are caught up in insurance fraud circles (Viaene and Guido 316).

Low legal priority may also be a contributor to the causes of insurance fraud in that, the prosecutors usually bestow top priority to combating crimes like drug peddling, violence, and other forms of high profile crimes, then they do with fraudulent cases (Viaene and Guido 322).

False claims may be vented and come out as legitimate claims, thus be used to defraud the insurance company (Viaene and Guido 313). The likelihood of success in such cases motivates the fraudsters to engage in such acts by filing claims for damages, which never transpired, and therefore acquire reimbursement with lower or zero initial cost.

Over-insurance is another cause where the sum insured surpasses the value of the insured item and is one of the most challenging cases to avoid. The insurer may at times encourage the situation because it provides an opportunity to obtain greater proceeds (Viaene and Guido 319). This motivates the fraudsters to raze their insured possessions since the payments they are likely to be given are of much higher value compared to the ones they raze. On the other hand, customers at times tend to inflate the genuine losses in order to acquire greater payment than what they deserve.

Implications of Insurance Fraud

Fraudsters always design their crimes in a way that is very difficult to detect, and therefore, the exact sum of the money stolen from the insurance companies may not be accurately estimated. This means that the figure recorded for detected insurance fraud instances is to a great extent lower than the actual figure of the actual crimes carried out.

Insurance fraud affects everyone in society, as the evidence provided by the Coalition Against Insurance Fraud indicates in a recent report. It approximates that over eighty billion dollars are lost owing to insurance fraud crimes. This, consequently, drives up the costs consumers have to incur when paying for their insurance needs (Tennyson 247). Furthermore, it leads to an increase in the costs of other goods and services that are needed by the people.

A report by the Business Council of NY on employees indicated that the costs of worker’s compensation encourage the company owners to relocate their businesses out of the state, but when such an event occurs, new businesses may not afford their positions thereby resulting in job losses, erosion of tax base, and a rundown of neighborhoods and schools.

Statistics show that one of the most vulnerable groups in insurance fraud in America is the immigrants, as their numbers are continuously growing. The Asian and Hispanic immigrants are major targets due to the nature of immigrant’s trust, inadequate language skills, and sometimes ignorance on how the framework of insurance functions.

There are penalties that follow the insurance fraud offenders that are in the form of fines, and imprisonment ranging between one and twenty-five years or both. There are also other forms of costs that may inflict social harm like an embarrassment to family, friends, community, and the company, which could be far higher than the fines imposed.

Detection of Insurance Fraud

There are two ways in which the insurance companies are able to establish when a claim over insurance compensation is not real. One way is to identify suspicious clients, providing claims that seem fraudulent. The insurance agents then examine the circumstances to recognize apprehensive claims. In addition, computerized statistical analysis is used to determine whether a claim is genuine or not by considering cases that have occurred in the past (Albrecht et al n.p.). Claim adjusters are very significant in detecting fraudulent claims from suspicious clients. Sometimes the public provides information to the law enforcement if they suspect that someone is faking an insurance claim.

Insurance companies and other organizations get to receive information from the public when they suspect someone faking their insurance claims (Albrecht et al n.p.). The public may suspect a person faking an insurance claim, observe it or hear another individual admit the hideous intentions of the client over the insurance fraud. Despite the origin of the information, the subsequent step by the insurance company is usually to launch investigations over the matter. However, despite the rising rates of insurance fraud, insurance companies cannot afford to investigate every claim to determine whether it is genuine.

Currently, insurance organizations have resorted to using a computerized statistical for analysis in attempts of determining whether the claims are genuine. This is much cheaper than having to employ staff to investigate every claim filed. These computerized statistical can be either supervised or unsupervised and they both operate to produce results by comparing data over the expected values and the claims filed. A distinction between these two methods comes from how the expected values are obtained. In the supervised methods, accounts of fraudulent versus non-fraudulent are compared and thoroughly analyzed to determine the projected amounts (Albrecht et al n.p.). However, this method has drawbacks as it gives results only if the records are for real fraudulent and non-fraudulent, and only detects some specific types of insurance fraud. Conversely, unsupervised techniques detect claims that are atypical, where there are suspicious claims so that further investigation can be put in place. Claim adjusters as well as computers have the ability to identify a forged claim based on the past history of the insurance fraud.

Insurance frauds can be that which is legitimate but extremely exaggerated to benefit the claimant or that which never essentially occurred. When an exaggerated claim happens, the insurance companies negotiate with the claimant to settle for an appropriate amount. Investigations are also put in place to deal with suspicious claims. When evidence is generated that these claims are fraudulent, payment may be denied and in worse cases, prosecution of the fraudsters is applied (Albrecht et al n.p.).

Prevention of Insurance Fraud

There are various ways in which individuals can protect themselves from being defrauded by scammers. Foremost, a majority of insurers have made the fight against fraud their top priority by tripling their expenditures on anti-fraud mechanisms in recent time (Biegelman and Joel n.p.). A majority of insurance companies have created specialized fraud-busting units, which are usually staffed by individuals that were formerly detectives or police officers.

Individuals should always ensure that they are working with reputable companies or agents. It is important for them to carry out research through their state insurance departments, which keep a myriad of information pertaining to different insurers (Biegelman and Joel n.p.). They should also ensure that the agents they are dealing with are licensed by the state to which they belong. They may also need to ask the prospective agents for their references or inquire with their friends or relatives for recommendations.

Another way of preventing insurance fraud is by embracing technology, in that, the individuals should get insurers that provide online services and account access (Biegelman and Joel n.p.). By so doing, they will be in a position to quickly detect any instances that something is amiss in the policy statement. Currently, a majority of insurance companies that offer comprehensive cover provide all the policy information online. The policy proprietors can then view the information about their accounts, such as the payment history. This way they will be in a position to notice early enough if the payments are not reflected online shortly after it has been made and take necessary action.

The insurance providers should actively educate their consumers on how to detect and protect themselves from fraudulent practices (Tennyson 249). Some insurers have sponsored active fraud hotlines that enable the public to call in and give out tips. Most insurers have also invested in training their employees and agents to be able to spot fraudulent instances immediately.

It is also important for individuals to look out and take heed of the warning signs, which are provided by either the National Association of Insurance Commissioners or the Coalition Against Insurance Fraud to be a sign of suspicious fraudulent activities by the insurers. One example of common red flags is the failure of the insurance company to provide an auto insurance proprietor with an insurance card or failure to receive a duplicate of the policy shortly after it has been drafted (Artís et al. 325).

It is also recommended that the prospective policyholders should pay attention to their intuition and utilize their common sense (Biegelman and Joel n.p.). For instance, if approached by an insurance agent that offers extraordinarily low premium payments or one that persistent in convincing them to immediately enroll in their type of policy, the prospective policyholders should be cautious.


Insurance fraud is ranked as one of the fastest-growing businesses across the US and may be committed at different spots of an insurance transaction by different individuals ranging from policy proprietors; third-party claimants to insurance providers. Common forms of fraud include inflation of the actual value of the claims, misrepresentation of facts during applications for insurance, submission of claims for injuries or damages that never transpired or staging accidents, and damaging possessions to obtain reimbursement from the insurer.

The costs of insurance fraud incidences affect everyone by driving up the costs consumers have to incur when paying for their insurance needs. It also leads to an increase in the costs of other goods and services that are needed by the people. Therefore, it is everyone’s responsibility, including the law enforcers to be vigilant in order to recognize and report any suspected fraudulent activity. The combined effort by everyone will help minimize the high costs incurred



Works Cited

Albrecht, Steve W, Gerald W. Wernz, and Timothy L. Williams. Fraud: Bringing light to the dark side of the business. Irwin Professional Pub., 1995.

Artís, Manuel, Mercedes Ayuso, and Montserrat Guillén. “Detection of automobile insurance fraud with discrete choice models and misclassified claims.” Journal of Risk and Insurance 69.3 (2002): 325-340.

Biegelman, Martin T., and Joel T. Bartow. Executive Roadmap to Fraud Prevention and Internal Control: Creating a Culture of Compliance. John Wiley & Sons, 2012.

Derrig, Richard A. “Insurance fraud.” Journal of Risk and Insurance 69.3 (2002): 271-287.

Perino, Michael A. “Fraud and Federalism: Preempting Private State Securities Fraud Causes of Action.” Stanford Law Review (1998): 273-338.

Picard, Pierre. “Economic analysis of insurance fraud.” Handbook of Insurance. Springer New York, 2013. 349-395.

Tennyson, Sharon. “Economic institutions and individual ethics: A study of consumer attitudes toward insurance fraud.” Journal of Economic Behavior & Organization 32.2 (1997): 247-265.

Viaene, Stijn, and Guido Dedene. “Insurance fraud: issues and challenges.”The Geneva Papers on Risk and Insurance-Issues and Practice 29.2 (2004): 313-333.