How it works
Fraud is often grouped into two kinds:
- Hard fraud: deliberately causing a loss to collect on a policy, such as destroying your own car.
- Soft fraud: the more common kind, such as exaggerating a real claim or lying or leaving facts out of an application to get a lower premium, for example giving a false garaging address or not listing a driver.
Insurance professionals can commit fraud too. One example is premium diversion, where an agent or broker keeps premiums instead of sending them to the insurer, which can leave a driver without the coverage they paid for.
Fraud has consequences. An insurer that finds fraud or a material misstatement on an application can cancel the policy, and fraud in a claim can lead to criminal prosecution. Most states have insurance fraud bureaus that investigate.
You can report suspected fraud to your state insurance department or through the NAIC's online fraud reporting system. Before you buy, you can check with your state insurance department that a company and agent are licensed.
Related terms
Sources
- NAIC, Insurance Fraud definition, hard and soft fraud, premium diversion, fraud bureaus and reporting
- New York Department of Financial Services, Auto Insurance cancellation for fraud or material misstatement, criminal prosecution for claim fraud
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