The Unseen Enemy: Insurance Fraud Costs Billions Every Year: Part I


Part One: What is Insurance Fraud?

Insurance fraud costs an estimated $40 to $80 billion per year in the U.S. alone. It’s been called an epidemic, and is a scourge of insurance providers, private companies and consumers alike. But what is it, how do companies detect it, and how does an insurance fraud investigator unravel it? In this part one of a three-part series, we will address the first question: What is insurance fraud?

Most of us deal with insurance in various forms throughout our lives. It’s a necessity in some cases through which we pay regular premiums in order to be protected from damages or liability from an unknown future event, such as an accident or illness. For large corporations, insurance can be worth millions, covering things like product liability, workers’ compensation, business interruption and other serious risks. It’s also rife for fraudsters, who often live by the well-known maxim, “follow the money.”

Every type of insurance is vulnerable to insurance fraud. Insurance fraud cases can be committed by opportunists – consider claim fraud, where perpetrators invent or exaggerate a claim; or application fraud, where they deliberately or recklessly provide false information when applying for insurance. There are well-known insurance fraud cases of highly organised criminal gangs with money-making enterprises based on motor-vehicle fraud or health care fraud, for example.

Insurance fraud cases also cover a wide range of schemes and crimes. For example, when looking at just motor vehicle-related insurance fraud, the types of schemes include the following:

  • Vehicle dumping or destroying
  • False registration
  • Exaggerated repair costs after a car accident
  • Faulty airbag replacement
  • Faulty windshield replacement

All of the above are intended to enrich the fraudsters at the expense of insurance providers, and, in some cases, other innocent victims. People have even been injured in schemes that involved faked traffic accidents for the purpose of insurance fraud.

The ‘Phantom Collision’ organised crime ring

In 2014 in Los Angeles, a ring of over a dozen insurance fraudsters were busted for fraudulent collision claims. The perpetrators of the frauds recruited family members and friends to help orchestrate fake accidents, ultimately stealing more than $300,000 from auto insurance companies before they were caught.

In some cases, the collisions didn’t even happen at all. All it took were willing participants to make claims in coordination with repair and auto body shops to make the fraudulent claims. In the end, insurance fraud investigators were able to detect a pattern to their claims, helping them unravel the scheme.

The case is reminiscent of a similar instance that made shocking headlines in 1996, when an organised crime ring (also in L.A.) made up of six perpetrators netted a jaw-dropping $20 million in phony claims. When they were caught, it was discovered that they had staged more than 100 fake accidents, filing $10,000 to $20,000 in claims per incident. For many people who read about the case in the newspapers, it was their first exposure to something of this magnitude, whereas they had previously thought of insurance fraud cases as “one-off” crimes of opportunity.

Doctors, clinics get in on insurance fraud in New York

Healthcare fraud is another area that is susceptible to major fraud conspiracies. Last year in New York City, more than 20 people and more than a dozen corporations were charged in a massive scheme to defraud Medicaid, Medicare and other insurance providers. The operation was so sophisticated, it allegedly involved “office staff, recruiters, managers, billers and money launderers.”

As is common with such insurance fraud cases, the fraudsters targeted poor and vulnerable people to help them execute the fraud. They went into low-income areas and in some cases approached homeless people, offering them cash ($30 to $40) in exchange for them going into clinics that were in on the scheme and ordering unnecessary tests. In many cases, the tests weren’t even performed and the “patients” didn’t even have a consultation with a doctor.

The massive fraud included doctors, and utilized shell companies to help launder the millions of dollars that were processed by the perpetrators. The case, with 878 indictments, is still in the court system.

The ten most common types of insurance fraud

In case you think that fraud is limited to automobiles and healthcare, consider all of the types of insurance that are available – and know that all of them are susceptible to fraud. In fact, insurance fraud investigators have provided the following list of the most common insurance fraud cases, and they include staged home fires and faked deaths:

  • Stolen car
  • Car accident
  • Car damage
  • Health insurance billing fraud
  • Unnecessary medical procedures
  • Staged home fires
  • Storm fraud
  • Abandoned house fire
  • Faked death
  • Renter’s insurance

Investigating insurance fraud is best left to the experts

With the enormous liability presented by insurance fraud, every organisation should address the risk in their due diligence and fraud prevention programs. The best way to do that is to bring in the experts at CRI Group to help implement this as part of a risk management plan.

When fraud is detected, CRI Group’s investigations cover the full range of insurance fraud cases, from health care fraud to disability and even fake death claims. CRI Group’s thoroughly trained experts are trained, for example, to look for the tell-tale signs of fraud carefully reviewing claims, medical and hospital records, conducting interviews, examining statements and documents and performing on-site inspections.

In Part Two, we will examine some of the telltale signs and red flags of insurance fraud, and how insurance fraud investigation companies can have a better chance at detecting it before it causes irreparable damage. Like many criminal schemes, insurance fraud cases are often well-hidden – the key is knowing what to look for.



  1. FBI, titled “Insurance Fraud.”
  2. Coalition Against Insurance Fraud, titled “By the numbers: fraud statistics.”
  3. ThinkAdvisor, titled “Counting the cost of America's insurance fraud epidemic.”
  4. CBS Los Angeles, titled “Arrests Made In Alleged ‘Phantom Collision’ Insurance Fraud Ring.”
  5. Los Angeles Times, titled “Six Arrested in Connection With Auto Insurance Fraud Ring.”
  6. ABC 7 NY, titled “4 NYC area doctors among 20 charged in massive health care fraud scheme.”
  7. Business insurance, titled “10 Most Common Types of Insurance Fraud.”