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What is an Insurance Fraud Investigation?

Mary McMahon
Updated May 16, 2024
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An insurance fraud investigation is a probe conducted to determine whether or not someone is submitting false insurance claims. The investigation may be done by a specialized insurance investigator who works for the insurance company or a private consulting firm, and it can also involve representatives of government law enforcement. Like investigations in law enforcement, the goal is to determine what happened, whether or not it was legal, and who was responsible.

Insurance fraud is a global issue with an annual cost that has been estimated in billions of US dollars. In addition to being harmful for insurance companies, which may lose money paying out on false claims, fraud also hurts everyone who buys insurance, because premiums must be higher to compensate for the expense. It can also involve the government, as in a case where someone profits from insurance fraud and files fraudulent tax documents, or when someone sets a fire which requires the fire department to respond, wasting public resources.

Investigations into cases of suspected fraud are triggered when insurance adjusters feel that a case they are evaluating seems suspicious, lacks key information, or is clearly fraudulent. The insurance company may alert law enforcement to the fact that someone is under suspicion, and the investigation begins. During the probe, the investigator may check the claimant's credit, perform surveillance, collect information from the scene, consult experts, and use law enforcement resources for assistance.

Some examples of insurance fraud investigation involve investigations into paperwork or claims that are suspected to be fake, investigations into staged accidents, and investigations that are designed to uncover collusion or lies. For example, if a doctor and patient collude to make it appear like the patient has had a medical test that didn't occur and both split the insurance money for the procedure that never happened, this is insurance fraud, and a well organized investigation can uncover the specifics of the situation.

If an investigation does determine that fraudulent activity occurred, the insurance company will not pay out the claim, and the claimant could be subject to legal penalties. People who are under investigation for suspected insurance fraud should retain a lawyer, whether or not they are guilty, and they should familiarize themselves with the laws surrounding insurance fraud and their legal options. In a conspiracy to commit fraud, for example, it may be possible to receive a reduced sentence or lowered fine in exchange for testifying against other members of the group.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By jameliz — On Nov 19, 2010

my insurance agent told me I was getting term life insurance but sold me an expensive whole life. what can I do?

By anon100157 — On Jul 28, 2010

My husband purchased a life insurance policy with United Investors Life in 1975. The agent who sold the policy requested that the premiums be automatically deducted monthly from our bank account.

Well, here it is 35 years later--over $30,000+ has been taken from our bank account and United Investors Life refused to honor the policy when my husband died a couple of months ago. I hope that Waddell and Reed and the salesmen find themselves face to face with some of their brotherly mafia types.

By Amphibious54 — On Jun 29, 2010

@ parmnparsley- There are organizations that dedicate their time to investigating and preventing insurance fraud.

The FBI is the federal government’s law enforcement agency that deals directly with fraud investigations. They have a department that only handles insurance fraud as well as separate divisions to handle internet, government, mortgage, telemarketing, corporate, bankruptcy, and healthcare fraud. As you can see, there are many different types of fraud out there.

Many different state and national fraud agencies exist to aid law enforcement in fraud detection. These organizations have members that specialize in different aspects of insurance fraud. A couple of notable agencies are the National Insurance Crime Bureau (NICB) and the Coalition Against Insurance Fraud (CAIF).

Insurance fraud is a large problem, but people must expect fraud to happen to some degree. The insurance industry in the country is a trillion dollar a year industry, like you stated, intruding in every aspect of our lives. Insurance fraud is estimated to cost the average family somewhere around $500 a year.

By parmnparsley — On Jun 29, 2010

Does anyone know if there are organizations dedicated to investigating insurance fraud? I always hear about all of these scams on TV. Scams like mortgage fraud, insurance fraud, car theft rings, and the likes.

It makes me mad to think that these dishonest acts cause my insurance premiums to go up. I feel that every year I am searching for a new car insurance company because my premiums go up.

I always ask the insurance agent why my rates increase even though I have no accidents, no claims, and a squeaky-clean driving record. The response is always the same, "There were a large number of claims in your state last year as well as an increase in insurance fraud”.

I feel like I spend about half the money I earn on different types of insurance. In a few years, who knows how much I will spend! Who is responsible for tracking down these crooks?

By Glasshouse — On Jun 29, 2010

An instance when an insurance fraud investigation might occur is worker compensation insurance cases. Worker compensation fraud is common and worker compensation claims can cost companies lots of money. In these cases, insurance fraud investigators will often follow claimants throughout their day-to-day activities, making sure they are as injured as claimed.

Say for example, a person claims that they have damaged their knee in a construction accident. If the doctor requires that they undergo six months of physical therapy and stay off their knee for three months, the company paying the claim expects the claimant to follow the doctor's orders.

This is especially true if the claimant is attempting to win a settlement due to lost capabilities. If the insurance fraud investigator observes the claimant doing things that s/he is not supposed to then that might be grounds to dismiss the claim.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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