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Insurance Fraud: The $80 Billion Cost of Lying

What could you buy with the $80 billion dollars that is lost each year on insurance fraud? - The answer you might be looking for is a ton!

However, insurance policy holders and claimants are not the only contributors to this rising problem for insurers. A statistic from the Utah Insurance Department says that nearly a third of doctors “exaggerate the severity of a patients illness to help the patient avoid early discharge from a hospital.” Conversely, 2 in 5 Americans don’t feel punishment is justified for people that intentionally defraud insurance companies.

This infographic shows some staggering statistics surrounding how much is wasted on insurance fraud and the affect it has for the average insurance policy holder.

Insurance Fraud: The Cost of Lying

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  • Anthony said Reply

    Ya know, this stuff is really bordering on propaganda when you consider how one sided it's evaluations are. The reason, most people have no compassion for the insurance companies, is because they do everything they can to deny coverage once you really need it, (they literally employ specialists to 'throw out cases' for clerical errors in how the customers filed their insurance forms). So, the fraud committed by insurance agencies, (technically not fraud in legalese, big surprise), is actually worse because while giant agencies get less profits, these 'clients' are often getting nothing after dutifully paying for their insurance, and desperately needing their promised coverage, but instead they put two letters too close together on the form and it's technically not legible and thus invalid or something equally as cheap. In ancient China, they paid the doctor every month they're healthy, and this way everyone's best profit incentive was to make people healthy. In this light, insurance companies, especially being 'for profit', are basically giant parasites. Anything they do could be better accomplished by an establishment which exists purely for the vital societal service 'insurance' represents. Where's the real fraud here? -Well who told us we're better off with for profit insurance agencies? -Oh yeah that was their job! It's really not one person's fault and we as a species are figuring out what is really the best way!

  • brownj said Reply

    Interesting insight Anthony. In the now infamous 1971 Nixon tapes, John Ehrlichman said: "All the incentives are toward less medical care" and "...because the less care they give them, the more money they make." And as we all know, that lead to the HMO act of 1973.

  • Michael said Reply

    Many states with insurance fraud bureaus or criminal investigative units dedicaed to investigating insurance fraud are woefully understaffed. In addtion, many states have MANDATORY reporting for the insurance industry, yet, the state I live in is the 3rd to 4th largest insurance market in the U.S.A. (26+ million people) and yet the state agency to whom insurance carriers are mandated to report suspected insurance crimes, the state only receives about 12,000 reports each year.

    It does not add up to me. Of the 12,000 reports, only about 1/3 have a fraud exposure mentioned by the carrier. So I am quite skeptical when I hear about the estimated fraud amount for insurance related crimes. I know for a fact that the insurance companies are NOT doing a good job of reporting it to my state.

  • John Bull said Reply

    Perhaps my interpretation for part of Anthony's short manifesto is incorrect and if so, please accept my humble and sincere apologies. However, the last 2 or so paragraphs seems to liken and/or suggest some sort of socialism in the Insurance Industry. In the words of my 12 year old daughter, Really?

    Please allow me the opportunity to rebut and apply a bit of common sense perspective to a topic that is worth discussing. In full disclosure I work for an Insurance Company and have done so for the last 17 1/2 years. I previously worked in State Law Enforcement and left that career years ago to become an Investigator. I've worked for 2 Companies, including the one of which I'm still employed as a Senior Investigator. With my disclosure being disclosed, I will be the first one in line to say and admit Insurance Companies have done and continue to some stupid things. Keep an open mind and understand this activity varies immensley from Company to Company. The claim handling and Investigative philosophy at Company "X" is not the same at Company "Y". Furthermore, things with Companies tend to be very cyclical. Apply the same Companies above and realize that Company "X" will likely have a different approach to the way they handle claims, Investigate supicious losses, Underwrite, etc. etc. as people leave, move up, retire, etc. and new leaders come into positions of leadership. To apply a "one size fits all" or blanket statement about the Industry is simply unfair. The Industry has, at times, truly earned the reputation and/or perception people have.

    Here are some things to take into consideration; You mention and talk about small print and/or "legalese", but where is the comment about people taking the time to read and understand their Insurance Policy? In this world of instant gratification, people do a couple of things;
    1) They typically shop based on price vs. value and service. You truly get what you pay for, it's not different in the Insurance Industry. 2) They are too lazy to read their own Insurance policies to understand what it does/doesn't cover. If they do read it and don't understand something, they can simply discuss it with their Insurance Agent. That helps ensure they understand what is/isn't covered. From there, they can adjust the policy with various endorsement to meet their specific needs. Let me use myself as an example. (Ex.) I just received the Delarations Page (Summary of Coverage Sheet) from my Insurance Company on a little house I rent because I haven't been able to sale it. Most people would look at it amake sure the policy is in force for the next year and assume everything was ok. They would stick it in a file and unless they had a loss of some sort, would most likely wait until next year before opening the folder again when another new Declarations was sent. After reviewing it for myself, I realized that we didn't have an endorsement for fair rental coverage. In the event I had a loss and it caused my tenants to move elsewhere, it would cover the loss of rental income for the period of time until the house was repaired, restored and/or claim resolved. Now, if we would've had a loss and I went to make a claim for loss of rental income, but failed to review my policy to ensure we had the coverage, who's fault is that? Some burden of responsbility may rest with the Agent because I know this was something we asked for, but I would also share much of the responsibility because I was too lazy to take the time to review something for myself.

    I think the point and/or intent of the original article was demonstrate the cost of Insurance Fraud. Guess what, you pay for! I pay for it! We all pay for it! Guess what else, it spills over into all other forms of businesses that provides goods and services we utilitze as consumers. Guess what? They are also purchasing insurance and their Insurance Rates are high because of Fraud. Guess what? It's passed along down the line to you, me and every other user end puchasing that particular product and/or goods. There is a very reason why Insurance Fraud is called the "Quiet Catastrophe". The cost of Fraud permeates almost any/every, person, business and Governmental Entity. It even permeates the Industry itself as Companies purchase Re-insurance to help lighten an exposure in the event of a catastrophic event.

    My point here is not too attack you or anyone else who may have a different opinion or perspective of the Insurance Industry. Again .. I get it, and more importantly, I understand why people can think/feel the way they do about the Insurance Industry. However, folks should remain objective and open minded. We can't allow ourselves to make assumptions, judgments or broad reaching speculations based upon what, in many instances, appears to be an emotional reaction. If we enter into some sort of discourse or dialogue on a particular issue, we owe it to ourselves to understand and/or seek more information to keep ourselves from "getting lost in the forest for the trees". Furthermore, when we are Consumers, we owe it to ourselves to research a product before purchasing it. I'm guessing nobody in this forum will just go out and purchase a new vehicle without doing some research before making the purchase and/or asking the sales consultant (note the gender neutral consideration) question about the vehicle? We would we do this with Insurance? I dare say Insurance can be a much more important purchase.


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