Legal Definitions - insurance fraud

Insurance fraud occurs when an individual or entity intentionally deceives an insurance company to obtain an undeserved financial benefit or payment. This dishonest act can involve making false statements, misrepresenting facts, or fabricating events with the goal of receiving money or services they are not legitimately entitled to under an insurance policy. Such fraudulent activities contribute to higher costs for all policyholders.

Legal professionals often categorize insurance fraud into two main types:

• Hard fraud involves deliberately causing an event or damage to property specifically to file a fraudulent insurance claim. The entire incident is fabricated or intentionally caused for the purpose of collecting insurance money.
• Soft fraud typically involves exaggerating an otherwise legitimate claim or providing false information when applying for an insurance policy to secure lower premiums or better coverage.

Here are some examples to illustrate insurance fraud:

• Example 1 (Hard Fraud - Property): A struggling small business owner, facing severe financial difficulties, intentionally damages their own inventory and equipment after business hours. They then file a claim with their commercial property insurance company, stating the damage was caused by a break-in and seeking a payout for the alleged losses.

  This illustrates hard fraud because the business owner deliberately caused the damage to their property with the express intent of collecting an improper payment from the insurer. The entire incident was manufactured for financial gain.

• Example 2 (Soft Fraud - Auto/Injury): Following a minor car accident that resulted in a small dent to their bumper and no visible injuries, a driver tells their auto insurance company that they experienced severe neck pain and headaches, requiring extensive chiropractic treatment and preventing them from performing their usual job duties for several weeks. They then submit inflated medical bills and a claim for lost wages.

  This demonstrates soft fraud because while a legitimate accident occurred, the driver exaggerated the extent of their injuries and the resulting financial impact to obtain a larger payout than they were genuinely entitled to.

• Example 3 (Soft Fraud - Health/Life Application): When applying for a new health insurance policy, an individual omits information about a chronic medical condition and a recent hospital stay, knowing that disclosing these facts would significantly increase their monthly premiums or potentially lead to a denial of coverage.

  This constitutes soft fraud because the applicant intentionally provided false information during the application process to secure more favorable terms (lower premiums) for an insurance policy, which is a form of improper financial benefit.