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The Most Pervasive Types of Insurance Fraud Uncovered

According to Yin Huey Yeoh, a research analyst from IBISWorld, the insurance industry in Australia earned $70.1 billion during 2020-21. This is forecasted to increase by 3.4% through to 2026. In such a large and growing industry, the more important it is to assess the risk of potential fraudsters ready to cheat the system such as by deliberately causing minor car accidents or staging house fires.

Did you know that insurance fraud steals at least $1.4 billion yearly from Australian consumers? Insurance fraud can be defined as an illegal act by either the insurer or the policyholder. From the policyholder’s side, insurance fraud involves falsifying information, making exaggerated claims, and using post-dated policies to claim insurance.

Red List is a risk management search and reporting platform, allowing insurance providers and their business insurance policyholders to conduct a more informative background check by performing an instant search of potential customer details.

Let’s discuss the most common insurance fraud schemes in detail.

5 Most Common Types Of Insurance Fraud

1.   Healthcare Fraud

Healthcare fraud can be defined as a white-collar crime in which a false claim is dishonestly filed to profit from the payments received. The policyholder or the healthcare provider can commit healthcare fraud.

As mentioned above, many types of healthcare fraud are committed by the policyholder and health service providers; let’s see how they differ.

  • Healthcare fraud by the consumer
    • Using insurance benefits to pay for prescriptions that practitioners did not prescribe.
    • Selling and forging prescription drugs.
    • Providing false information when applying for programs and services.
    • Using someone else’s identity to claim their insurance and pay for your healthcare services.
    • Claiming transport payments.
  • Healthcare fraud by a healthcare provider
    • Billing a service that was not provided.
    • Charging more than usual for services that were provided
    • Modifying medical records
    • Falsifying a patient’s diagnosis to prescribe more treatments, tests, and procedures.
    • Filing claims for medical services not provided or filing the same claim multiple times.
    • Billing each step of a procedure individually to show they were separate procedures.
    • Excluding members from co-pay.
    • Representing non-covered services as a medical necessity.

The complex procedures, political situation, and presence of audits and supervision contribute to healthcare fraud.

2.   Workers’ Compensation

Workers’ compensation provides benefits to employees. For instance, if an employee gets sick or injured at work, the employer will be responsible for paying their medical expenses and replacing lost wages as a result of missing work.

Workers’ compensation fraud involves providing false information or concealing information to claim workers’ benefits or prevent employees from getting them. Thus, it can be committed by an employer, employee, and healthcare provider.

  • Fraud committed by an employee
    • Claiming a job-related injury that didn’t occur.
    • Claiming workers’ compensation and working, also known as double-dipping.
    • Exaggerating symptoms and falsifying reports.
    • Claiming a non-work-related injury as a work-related injury to gain benefits.
  • Fraud committed by an employer
    • Knowingly reporting false claims.
    • Failure to report legitimate claims.
    • Underreporting payroll.
    • Misclassifying employees for lower insurance premiums.
    • Knowingly not having workers’ compensation coverage.
  • Fraud committed by healthcare providers
    • Billing the workers’ compensation and the worker’s health insurance for the same services.
    • Billing for services that were never provided.

3.   Auto Insurance

Among the most common types of insurance fraud, auto insurance tops the list. Recent modelling conducted by Verisk, a leading source of insurance risk information, estimated in 2016 that auto insurers lost at least $29 billion annually to “information failures and fraudulent practices.”

Auto insurance protects you against financial loss in the event of an accident or theft. Auto insurance covers property, such as damage to your car, medical, and legal liability (your responsibility to cover the medical expenses and property damage done by your car).

Auto insurance fraud involves deliberately providing false information to reap the benefits of the insurance. It can range anywhere from false injuries to causing minor car accidents. Let’s discuss some examples below:

  • Car owners dump their car somewhere to claim insurance by reporting it was stolen. In cases where the vehicle was sold before being reported as stolen, the fraud is intended to pay in two ways; the sale of the original car or the insurance settlement to replace the stolen car.
  • Opportunistic fraudsters glorify the damage and even claim for damage that was done before the accident.
  • Staging car accidents and then reporting claims to multiple insurers to avoid detection.

4.   Forgery And Identity Theft

Another common type of insurance fraud is identity theft. Identity theft involves unauthorised or attempted use of an existing account, personal information to open a new account, or misuse of personal information for fraud.

The most common form of identity theft is medical ID theft. Medical ID theft ruins a patient’s credit and embeds wrong information in the patient’s medical records, which can take thousands of dollars to clear up.

Overall, 11% of Australians aged 15 years and over (2.1 million) experienced personal fraud in 2020-21, out of which card fraud and scams were most prevalent. Card fraud involves the use of credit, debit, or EFTPOS card details to make purchases or withdraw cash without the account owner’s permission. An estimated 6.9% of Australians aged 15 years and over (1.4 million) experienced card fraud in 2020-21.

Identity theft can be used for multiple purposes, such as applying for housing or income benefits, opening a bank, applying for a credit card, registering a vehicle, or obtaining a loan in your name.

5.   Homeowners’ Insurance Fraud

Homeowners’ insurance fraud is when a false, misrepresented, or inflated claim is made on a homeowner or renter’s policy to claim the benefits. These false claims are made to drive up the cost of repairs and damages to far more than their actual worth. Homeowner’s insurance fraud can take many forms, such as:

  • Lying about the severity, cause, and location of the damage.
  • Concealing the fact if the residence is used for commercial or rental purposes.
  • Fabricating supporting evidence, such as bills and receipts.
  • Intentionally damaging the property.
  • Faking theft and burglaries and making phony calls.


The Insurance Fraud Bureau of Australia (IFBA) is a functional element of the Insurance Council of Australia that was established to combat insurance fraud in all its forms. It is working with government officials and police to prosecute cases when identified.

Insurers can also mitigate the risk of insurance fraud by using the Red List. The Red List analyses the database to determine if a report has been made about an individual from any previous incidents and provides instant results.

To identify risk in various contexts and protect your assets, reach out to Red Risk Management today.