Home Car insurance Car insurance claims Padding insurance claims hits everyone’s wallets Padding insurance claims hits everyone’s wallets View Carriers Please enter valid zip Compare top carriers in your area Written by Barbara Marquand Reviewed by Penny Gusner Penny Gusner Penny is an expert on insurance procedures, rates, policies and claims. She has extensive knowledge of all major insurance lines -- auto, homeowners, life and health insurance. She has been answering consumers’ questions as an analyst for more than 15 years and has been featured in numerous major media outlets, including the Washington Post and Kiplinger’s. Posted on: January 23, 2015 Why you can trust Insure.com Quality Verified At Insure.com, we are committed to providing the timely, accurate and expert information consumers need to make smart insurance decisions. All our content is written and reviewed by industry professionals and insurance experts. Our team carefully vets our rate data to ensure we only provide reliable and up-to-date insurance pricing. We follow the highest editorial standards. Our content is based solely on objective research and data gathering. We maintain strict editorial independence to ensure unbiased coverage of the insurance industry. Whether to get even for poor service or to get their money’s worth for years of premiums paid, a troubling number of consumers fudge the numbers or add extra items on home or car insuranceclaims. Experts say the insurance industry probably loses more money overall from fraud committed by normally law-abiding folks, not from organized criminal rings that perpetrate insurance fraud on a grand scale. A recent survey by consulting company Accenture found that 38 percent of U.S. consumers overstated the value of their losses on their last home insurance claims, and 20 percent overstated the values on their last auto insurance claims. Little lies add up The FBI puts the annual cost of insurance fraud (excluding health insurance fraud) at $40 billion, which works out to $400 to $700 per year per family in extra cost. “This is really about honest people subsidizing dishonest people,” says John Lucker, a principal at Deloitte Consulting LLP and leader of its Global Advanced Analytics & Modeling practice. He says 3 percent to 5 percent of every claim dollar is lost to “hard fraud” — the kind committed by organized crooks — while 5 to 25 percent of every claim dollar is lost to “soft fraud” like claims padding. Hard fraud usually involves multiple people — crooked lawyers, shady doctors and scam artists — who work together, such as staging fake car accidents. “When it’s discovered you can typically prove it,” Lucker says. Soft fraud, he says, is tougher to nail down. And it’s costly to investigate, says Dennis Jay, executive director of the Coalition Against Insurance Fraud in Washington, D.C. “It’s a business decision for many insurers: Do you spend another $2,000 on an investigation into what may be an extra $500 on a claim? …. Many insurers don’t look at the soft-dollar losses as much as the hard losses.” Insurance companies try not to be asleep at the wheel But that’s changing for two main reasons. One, insurance companies are taking a harder look at improving efficiency. Insurers make money on the returns from investing the premiums customers pay. With interest rates and investment yields down since the recession struck in 2008, they’re placing growing emphasis on controlling losses. Two, with greater computer power and more data at their disposal than ever before, insurers have a keener ability to detect and fight fraud than a generation ago. A growing number of companies are using technology to sift through claims to find anomalies that may indicate fraud, Lucker says. The computer system may flag an unusually large claim for a particular type of household or circumstance, for instance. A red flag doesn’t prove fraud, but it tells the insurance company which claims deserve extra attention. Insurers “have to develop methods to tease out truth from fiction without wagging a finger in the face of a person,” Lucker says. If your claim is flagged, an insurance company might require you to produce more detailed documentation to support a loss, for instance. Or it might initiate more contact with you throughout the claims process. That sort of enhanced attention can improve service as well as let you know the insurance company isn’t asleep at the wheel. Angry about customer service According to the Accenture report, 43 percent of U.S. consumers who admitted to claims padding said they did it because they received poor customer service. Insurance companies need to explain how the claims process works, resolve claims as quickly as possible and be open to receiving information through whatever channels customers want to provide it, says Michael Costonis, a managing director in the insurance industry practice at Accenture. “I think there has to be better education and outreach about what insurance is and does,” he adds. A lot of people misunderstand what they’re paying for when they buy insurance, Lucker says. Many who pad claims think it’s OK to exaggerate so they can recover their deductible, particularly if they’ve paid their premiums on time for years and have never made a claim. But even if you haven’t filed a claim, you’ve still “used” the insurance. The policy enabled you to hedge your risk, Lucker says. When you paid the premium, you purchased peace of mind. Of U.S. consumers who admitted overstating claims, 38 percent said they did it because the premiums were too high, according to the Accenture report. Another 12 percent said they did it because they could get away with it, and 7 percent rationalized that everyone else does it. Although a lot of people have gotten away with padding insurance claims, you might not. “More companies are realizing it’s in their best interest to have good anti-fraud programs,” Jay says. If the fraud is for a small amount, you may not be criminally prosecuted, but you could get hit with a hefty civil fine. Depending on state law, your entire claim might be denied — even the legitimate parts — and you’ll have a harder time getting insurance coverage in the future, Jay says. “Even if you can get away with it, it’s not a good thing to do,” he says. QuickTake Car insurance claims: Who gets the claims check? Does insurance cover damage from road debris? What happens if you keep auto insurance claim money instead of making repairs? 7 magic words to expedite insurance claims Want to sue your insurance company? Here's what will happen "What insurance companies say about you" series: Your C.L.U.E. report 16 non-crash car injuries -- and whether insurance covers them Are insurance settlements taxable? How your state's Unfair Claims Settlement Practices Act can help you When is it too late to file a car insurance claim after an accident? Self-inflicted car insurance wounds: I crashed into myself! How to spot flood-damaged cars If I was in an accident and my car insurance dropped me, can my new insurance company cover the cost of my accident? How long until I get my insurance money? They asked for what?! Insurers requesting tax, divorce and other documents You did me wrong: What to do before you sue your insurer Don't shoot yourself in the foot: When to file that auto insurance claim How to arbitrate a car insurance claim dispute See more > In case you missed it Best Car Insurance Companies of 2024 Car insurance rates by state in 2024 What is full coverage car insurance? How much does car insurance cost for seniors in 2024? A complete guide to adding a teenager to your car insurance policy in 2024 What to do after a car accident that’s not your fault Total warfare: What to do when your auto insurer totals your car Car insurance claims: Who gets the claims check? Used car insurance costs: Most and least expensive models to insure The Best Car Insurance for Bad Credit of 2021 The best car insurance companies for speeding tickets Car insurance after a DUI Guide to car insurance discounts Proper insurance coverage for college-bound children How to read your auto insurance policy A complete list of car insurance companies New driver insurance grace period: What you need to know How much do insurance agents make? Autonomous cars: 5 delightful and 5 distressing things Busted! Part 1: How insurance companies spot bogus claims Insurance options for rideshare drivers 10 things that are illegal but shouldn’t be 1/1 On this page Little lies add upInsurance companies try not to be asleep at the wheelAngry about customer service ZIP Code Please enter valid ZIP See rates