Why So Much Fraud?

Originally published in IASIU's SIU Today Summer 2026 Newsletter

I have been in the fraud fight for over 44 years. I can’t honestly say that I have seen it all, but I certainly have seen a lot. When I started in SIU at my old company in 1981, insurance fraud was mainly automotive related. Thefts, staged accidents, and old damage schemes were just some of the frauds on which we focused. While our profession has evolved, so has the complexity of insurance fraud.  In the early days, the SIU was an experiment. Now it is a high-level part of most companies. Protecting policy holders, members, shareholders is a vital element of our industry. The mission of the SIU community is so much more than auto now, and the methods that fraudsters use to separate our customers from their money have become a true catastrophic scenario.  

Insurance fraud has grown exponentially in my years focusing on this problem. When I first joined the Coalition Against Insurance Fraud 30 years ago, we spoke of an $80 billion problem for our industry. A recent research study puts that number over $308 billion, and with the study now being over 2 years old I would posit that that number is understated.  

So, why so much fraud?  

One of the concepts that I have spoken to and written about is what I term the decline in social ethics. It is much more acceptable to commit fraud now than ever before in my opinion. Many of what I would term “regular people” will not think twice about committing insurance fraud. The bottom line is that there are many “honest” people committing fraud. I realize that sounds like an odd statement, but the reality is that many people may not consider insurance fraud a criminal act, a crime recognized in almost every state.  

For example, people will commit rate evasion, lying on an application or renewal, to obtain a lower premium. Dan Ariely, in his book The (Honest) Truth About Dishonesty, talks about the Simple Model of Rational Crime, which shows that people will make an analysis about their actions. This analysis surrounds the level of fraud that people commit and still keep their self-esteem in good stead. In essence, these “honest” folks don’t think of fraud as criminal. They see it as almost an entitlement. It has a parallel with income tax evasion, big insurance companies, like the Federal Government, will not miss a little bit of money resulting from the “honest” people’s actions.  It may be a form of retaliation against perceived injustice by their insurance provider. Their justification is the notion that insurance costs too much, it is forced on the public, claims are not paid to their satisfaction, and this results in a desire to get back at the company.  

Going back to my concept of social ethics, society has become all too tolerant of certain low levels of crime. This is also being fostered by the criminal justice system being soft on minor offenses and insurance fraud, unfortunately, falls into that category. How many of us in this fight have felt the frustration over a good case being turned down by a prosecutor? We are told it is not an impact crime, it is a civil matter, it is the insurance company’s problem. I guess when you compare fraud against more heinous acts, there may be some truth to that. However, it is one of the only crimes that impacts everyone. The NY Alliance Against Insurance Fraud has a tag line that reads, “INSURANCE FRAUD, THE CRIME YOU PAY FOR.” That is the most accurate statement. Fraud results in increased premiums, obviously, but also impacts the overall cost of all goods and services. Every business in every industry must have insurance. The cost of every product and service will be increased because of the impact of insurance fraud. That is something that is rarely considered when talking about the impact of the crime we fight.  

So why is there so much fraud? Part of the blame falls directly on our industry. When presented with fraudulent acts, either in the claim or the distribution process, what usually occurs? Mitigation is all too often the result. Taking out the fraudulent part and paying the rest. Overlooking the direct attempt at claim fraud and rate evasion and adjusting the claim or premium will only embolden the people perpetrating this scheme. We see it repeatedly. If thwarted, some individuals will just change companies and try it again.  

What can we do to try to curb fraud? Our combined efforts need to be upgraded. Companies need to increase their SIU programs, not decrease them. Companies need to fight fraud at every opportunity. Companies need to defend nebulous lawsuits that are fraud driven. Companies need to cooperate with each other in matters of fraud. The judicial system needs to look seriously at this problem that affects everyone, focusing on making an example of people committing insurance fraud. Publicizing those fraudulent acts that are prosecuted is a “need to have.” The public needs to know that fraud is not a way out of any financial problems. We may never eradicate fraud, but we can certainly stem the tide by fighting it at every opportunity.  

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