Good question! First, it's good to understand what does not constitute insurance fraud. A good-faith disagreement between an insurance company and a consumer about a claim is not insurance fraud. Neither is an insurance company's decision to decline your insurance application or to not renew your coverage.
Insurance fraud occurs when people deceive an insurance company or agent to collect money to which they aren't entitled. Similarly, insurers and agents also can defraud consumers, or even each other.
Insurance fraud can be "hard" or "soft."
Hard Fraud: Someone deliberately fakes an accident, injury, theft, arson or other loss to collect money illegally from insurance companies. Crooks often act alone, but increasingly, organized crime rings stage large schemes to steal millions of dollars.
Soft Fraud: Normally honest people often tell "little white lies" to their insurance company for the purposes of filing or maximizing a claim. Many people think it's just harmless fudging. But soft fraud is a crime, and raises everyone's insurance costs.
Insurance fraud can also be classified as either internal or external.
Internal Fraud occurs when the fraud is perpetrated against the insurance company or its policyholders by insurance agents, managers, executives or other insurance employees. Examples include:
Issuing fake policies, certificates, insurance identification cards or binders;
Making false statements in filings with the Minnesota Department of Commerce;
Pocketing premiums then issuing phony policies or failing to issue any policy at all.
External Fraud schemes are orchestrated against insurance companies by individuals or entities such as policyholders, medical providers, beneficiaries, vendors, chiropractors and career criminals. Examples include:
Arson for profit - An owner of a property, or someone hired by an owner, deliberately burns a business, home or vehicle to collect insurance money;
Falsifying theft reports - A property owner falsely reports that items were stolen or exaggerates the value of items taken in a burglary so they can collect insurance money;
Medical mills - Unethical medical providers working in concert with patients to create fictitious, accident-related work injuries for the purposes of filing fraudulent disability, workers' compensation and personal-injury claims;
Property fraud - An owner buys multiple policies on the same property or vehicle then purposely damages or destroys the property or vehicle and collects insurance money from all the policies;
Workers' compensation fraud - Business owners operating with inadequate or no workers' compensation insurance; or employees collecting benefits on phony work-related injury claims.
If you suspect insurance fraud, call the Fraud Tip Line at 1-888-FRAUD MN (1-888-372-8366).