Preventing insurance fraud: Best industry tools and tips

It’s estimated that between 10–20% of insurance claims are fraudulent in some way. It might be as small as slightly exaggerating the extent of an injury for a slightly larger payout, or it could be as extensive as committing arson on your own car and filing a claim. People commit both extensive hard fraud and soft fraud with exaggerated or untrue details. Fraud can cause everyone else’s premiums to go up, so it’s important to reduce it as much as possible. Read on to learn more about insurance fraud and some of Truepic’s best practices for reducing it. 

What is insurance fraud?

Insurance fraud is the act of intentionally deceiving an insurance company or agent to obtain an illegitimate financial gain. There are several ways to commit insurance fraud, but generally, an individual or organization will provide the insurance company with false information, exaggerate the claims, doctor photos, or even stage an accident to get a payout. 

Insurance fraud is considered a felony, so there are serious consequences for someone who commits fraud. It also can hurt the entire insurance industry by driving up premiums and costs of coverage.  

Some of the most common forms of insurance fraud include: 

• Application fraud. Someone provides false information or omits relevant details during the insurance application process to secure lower premiums or coverage they’re not entitled to.
• Claims fraud. When an individual submits false or exaggerated claims for damage, injury, or loss that never occurred or was deliberately caused. This is one of the more common types of insurance fraud—and one that can be prevented with the right tools like Truepic. 
• Premium diversion. Agents or brokers misusing premium payments meant for legitimate coverage, often by pocketing the funds instead of forwarding them to the insurance company.
• Identity theft. Using someone else’s personal information to obtain insurance coverage or file fraudulent claims.

Common types of insurance fraud

Insurance fraud can occur across various types of insurance coverage. Some of the most common categories include:

• Auto insurance fraud. Auto insurance fraud includes staged accidents, false reports of vehicle theft, exaggerated damage claims, and faked injuries. 
• Home insurance fraud. This occurs when some submits fraudulent claims related to property damage, staged burglaries, or inflating repair costs to receive larger payouts from insurance providers.
• Business insurance fraud. This type of fraud involves falsifying records, exaggerating damage from accidents, or staging incidents to collect insurance payouts. This can also include manipulating workers' compensation claims or committing arson for the insurance payout.

Hard fraud vs. soft fraud

Insurance fraud can be broadly categorized into hard fraud and soft fraud. Hard fraud is deliberate schemes aimed at intentionally deceiving insurers, such as staging accidents, falsifying injuries, or committing arson to collect insurance payouts. If someone burns down their own business, this is considered hard fraud. If someone sends in fake images of an accident that never happened, that’s also hard fraud. These actions are premeditated and executed with the intent to illegally profit from insurance claims. 

In contrast, soft fraud involves exaggerations or inflations of otherwise legitimate claims. This may include overstating damage or loss, over-reporting injuries, or falsifying repair costs to receive a higher payout than what is warranted. For example, if someone did get in a car accident and scratched the paint off their door, they could submit a legitimate claim. However, if they edit the photo to make it look like there’s also a dent to get a bigger payout, that’s soft fraud. While soft fraud is often considered less severe, it’s still illegal. 

Is insurance fraud a significant problem?

Sometimes insurance fraud sounds like something that might happen in a movie and not real life. But insurance fraud is actually a significant problem that’s costing American consumers $308.6 billion every year. The FBI estimates that insurance fraud costs the average US household between $400 and $700 a year in higher premiums. Around 8,800 cars are burned annually to file fraudulent claims. And 78% of people are concerned about the possibility of insurance fraud. It’s a significant problem that’s widely spread and is hurting everyone who uses insurance. 

Preventing insurance fraud

Since insurance fraud is hurting so many people and companies, your organization can help cut down on the impact. You can implement strategies that will help you and your employees weed out the fraudulent claims and help make sure only the legitimate claims receive coverage. Some of the best practices for preventing insurance fraud include: 

• Enforce thorough claims investigations. Make it as hard as possible for someone to get a fraudulent claim through by conducting rigorous investigations of all claims. Use advanced analytics to point out any inconsistencies and cross-reference all the information to make sure everything lines up. With modern technology, you can perform thorough investigations and still approve claims quickly. 
• Employ rigorous verification tools. Use technology-driven solutions like photo authentication and artificial intelligence to detect inconsistencies in claims and verify the legitimacy of evidence. For example, image authentication technology from Truepic can determine if photos and videos are legitimate.
• Educate employees and customers. Awareness is a critical factor in preventing insurance fraud. Insurance companies should train employees to recognize signs of fraud, such as inconsistent statements, missing documentation, pre-existing damage, and multiple claims to help pinpoint when someone is being dishonest. You could also educate customers about the consequences of fraudulent claims to act as a deterrent.
• Work with trusted partners and professionals. Work with others in the industry to lower rates of insurance fraud. You might collaborate with other insurance companies, regulatory bodies, and technology providers that make anti-fraud tools. For instance, working with a compliance tool like Truepic can help you make sure your visual verification is authentic. 

Tips for extra protection

Some other ways to protect yourself from insurance fraud involves understanding your policy well. Familiarize yourself with what your insurance covers and what it does not. This knowledge can prevent misunderstandings during the claims process and reduce the risk of being taken advantage of by fraudulent actors.

In addition, keep accurate and thorough records. When you have detailed receipts, photos, and maintenance logs related to insured assets, you can easily prove the legitimacy of a claim if a dispute arises. Updated records also make it easier to spot inaccuracies or signs of tampering.

Finally, be cautious with your personal information. Identity theft is a common form of insurance fraud, so avoid sharing sensitive information unless absolutely necessary. Make sure that your insurance company and its representatives are legitimate and operate through secure, trusted channels to safeguard your personal data.

Safeguard the integrity of claims with Truepic

Truepic is here to help you prevent insurance fraud, so only legitimate claims are processed—something that benefits everyone. For policyholders, Truepic Vision helps you easily take authentic photos and videos to include with your claims and maintain an accurate record. That makes it easy to provide your insurer with real-time evidence and be able to participate in more convenient virtual inspections. 

For insurers, Truepic can help you quickly process claims by verifying if the visual documentation is legitimate. That can help you manage risk and build trust with your policyholders. 

Contact us to learn more about Truepic and how it can help prevent insurance fraud.