Evolving attitudes toward insurance fraud

January 4, 2024

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Insurance plays a critical role in our society and economy by providing protection against risk and uncertainty. Every day, the insurance industry makes people whole again after something unexpected occurs. Regrettably, there are a few bad actors who attempt to take advantage of this trusted system by committing insurance fraud. While the majority of claims are completely legitimate, as many as 10% can raise suspicions and merit further investigation. 

This blog will aim to define what constitutes insurance fraud and highlight some of the latest trends. Additionally, we’ll offer a glimpse into our research on the rise of fraud and the role of generational differences in attitude toward fraudulent activity.

What is insurance fraud, and how bad is it?

Insurance fraud is a crime and distinct from malingering or abuse in that it must contain four specific elements. For those of us who work to combat insurance fraud, “Got MILK?” is not just a catchy advertising slogan; it’s our daily mantra, as fraud requires:

  • Materiality: The misrepresentation must be material to the claim, such that the truth would lead to the claim being handled differently. 
  • Intent: The claimant must intend to commit fraud. 
  • Lie: Evidence of lying distinguishes a fraudster from a malingerer or an abuser.
  • Knowledge: The claimant must know they lied and that doing so validates or enhances their claim for financial gain. 

Fraud includes such things as submitting a new insurance claim for damage previously incurred to your home or vehicle or filing for workers’ compensation for an injury unrelated to your job. The Coalition Against Insurance Fraud estimates that the amount lost to insurance fraud in the U.S. each year is about $309 billion. Just 10 years ago, that number was $80 billion a year.

Understanding the sharp increase 

The past few years have given rise to a great deal of anti-corporate sentiment in America. Many people today negatively view insurance companies as large employers who seek to deny coverage in order to turn a profit. They see corporations as faceless and increasingly automated. They detect an opportunity to get paid for this perceived imbalance of power and lack of caring and oversight, and who better to pay than an entity considered to have deep pockets. This attitudinal shift regarding responsibility and “fairness” has also fueled alarming trends like social inflation, litigation spikes and nuclear verdicts, as explained here

Some misguidedly view insurance fraud as a justifiable and “victimless” crime. However, it actually hurts us all, as fraud costs American families nearly $900 a year in additional insurance premiums. It also diverts resources away from those truly deserving of benefits, coverage and support in their time of need.

Varying attitudes toward fraud

With insurance fraud on the rise, our special investigation unit (SIU) leaders were curious to know whether age is a significant factor in this trend. We hypothesized that younger people (Generation Y — born between 1980 and 1994 —and millennials/Gen Z, born in 1995 or later) would be less likely than their older counterparts (baby boomers and Gen X) to view claims fraud as an egregious crime and more likely to pursue such activity. To explore our hypothesis, we did some digging into a combination of data sources, including Statista, the Coalition Against Insurance Fraud and 13 years’ worth of anonymized SIU files. What we found took us by surprise. 

In actuality, surveys show baby boomers (born 1945-1964) have similar attitudes about fraud to those in Gen Y, while Gen X (born 1965-1979) has much in common with Gen Zers. What informs their perspectives, in essence, skips a generation. 

Our findings can be explained by some of the traits these generations tend to share. On the whole, both boomers and Gen Yers favor the collective/team, are relationship-focused and doggedly pursue their goals; Gen X and Z, on the other hand, are more individualistic, autonomous and focused on work-life balance. This distinction in outlook gives the former groups a broader understanding of the societal impact of insurance fraud, while the latter groups may be more likely to focus on the individual impact.

Education is key to prevention 

There are, to be sure, many more nuances to this research than were provided in the synopsis above. (Anyone interested in the details of our findings is welcome to contact me for more information.) In my view, the overarching takeaway from our research is the troubling incidence of fraud and popular belief that falsifying an insurance claim is a harmless crime. That the national cost of fraud has gone up nearly 300% in 10 years shows that society has lost sight of the proper value of insurance.

Nearly one-third of the past decade was lost to the era of COVID, when people had minimal face-to-face interaction, saw a significant increase in automation, and experienced severe economic setbacks. Collectively, we lost a natural sense of order during the pandemic, and that includes an appreciation for the purpose of insurance. As that order continues to be restored — with many workers returning to offices and everyone adjusting to the new post-COVID “normal” — it’s never been more important for insurance professionals to demonstrate their commitment to taking care of people while sharing the latest trends and research findings.

We in the insurance industry have a lot of work to do in (re)educating the public about the societal value we’re intended to provide and the harm caused by attempts to fraud the system. Both the Coalition Against Insurance Fraud and Association of Certified Fraud Examiners offer valuable informational resources on the dangers of insurance fraud and what each of us can do to curb this alarming trend.

Learn more — read about how the efforts of Sedgwick’s special investigation unit (SIU) help companies combat claims fraud and promote financial and reputational stability