According to ALFA (Agence pour la lutte contre la fraude à l'assurance), identified insurance fraud in the property and casualty sector (fire, accident and miscellaneous risks covering car and home insurance) will amount to €360 million in 2020. This massive fraud is detrimental to all insurers: the sums wrongly paid out have an upward impact on the premiums of each of their policyholders.
This deception manifests itself in a variety of ways, from misrepresenting claims to creating fictitious claims...
What are the different types of insurance fraud?
Insurance fraud can take many forms, but generally involves the deliberate manipulation of information to gain an illegitimate financial advantage. Among the most common fraudulent practices are :
Underwriting fraud
Fraud - in car or home insurance, for example - can first occur when the policy is taken out. In this case, the policyholder acting in bad faith may :
- Make false declarations to reduce premiums (number of items, property values, insurance history, secondary driver, etc.).
- Produce a false document, such as a falsified statement of information
The main aim of underwriting fraud is to minimize the risk to be insured, in order to reduce the premium and/or benefit unduly from coverage.
This practice can have numerous consequences from an insurance point of view: in particular, it can lead to the nullity of the contract and the reimbursement by the insured of any compensation received in the event of a claim.
Misrepresentation to the insurance company
In the event of a claim, insurance misrepresentation can manifest itself in a number of ways. Several examples of insurance fraud:
- Declare a claim that has not taken place (fake car accident, fake burglary, fake act of vandalism, fake glass breakage, fake water damage, etc.);
- Declare a claim by changing the circumstances of the event (e.g., declare that a friend has broken his telephone when the insured himself has dropped it, or voluntarily damage his car in order to receive compensation).
Fraudulent insurance claims - whether for a car, a home or a personal accident - can result in forfeiture of cover, reimbursement of claims paid out by the insurer, or even cancellation of the policy.
Fraud on the reality or the amount of the loss
Although the loss did occur under the circumstances described, the insured may exaggerate the amount of damage when making a claim, in order to obtain better compensation. This intentional act of bad faith is considered insurance fraud. This can manifest itself in several ways:
- Add undamaged goods
- Declare goods that were already damaged before the loss (a previous glass breakage to obtain windshield repairs, for example).
- Exaggerating the value of damaged goods
- Submitting false invoices to the insurer
Socio-economic impact
The consequences of insurance fraud go far beyond the mere financial cost to insurance companies. Here are some of the most significant impacts:
Premium increases for all policyholders
When insurers incur losses due to fraud, they have to compensate by increasing premiums for all policyholders. This can increase the financial burden on consumers, and discourage some from taking out insurance.
Loss of confidence in the insurance system
This fraud damages the reputation of the insurance industry, and can lead to widespread distrust of insurance companies. It can also deter consumers from purchasing insurance, compromising the viability of the system.
Effects on the economy
In addition to direct financial losses for insurance companies, insurance fraud can have a negative impact on the economy as a whole. It can lead to additional costs for consumers, discourage investment in industries where fraud is prevalent, and even contribute to rising crime rates.
Strategies to combat insurance fraud
To effectively counter insurance fraud, it is necessary to implement preventive and repressive measures. Effective strategies include
Tighter controls and investigations
Insurance companies need to put in place robust detection systems and investigation procedures to spot potential fraud.
Raising public awareness
Awareness campaigns are essential to inform consumers about the consequences of insurance fraud and encourage them to report suspicious behavior.
Collaboration between stakeholders
Cooperation between insurance companies, government agencies, law enforcement and other stakeholders is crucial to effectively combat insurance fraud.
What are the penalties for fraud?
The Insurance Code provides for civil penalties in the event of insurance fraud:
At the time of underwriting, any lie or omission concerning the insured's profile or the risks to be insured may render the insurance contract null and void. In this case, in the event of a claim covered by the insurance, the insured must reimburse the indemnities paid prior to the discovery of the false declaration. The insurer may also retain any premiums paid, and demand payment of any outstanding premiums as damages.
Insurance contracts stipulate that the insured's right to coverage is forfeited in the event of intentional misrepresentation of the cause, circumstances or consequences of the loss.
The law also provides for criminal penalties:
Insurance fraud is characterized by forgery and swindling.
Seeking to obtain compensation in excess of that due by fraudulent means (issuing a false invoice, setting fire to one's car, etc.) can be punishable by up to 5 years' imprisonment and a 375,000 euro fine (article 313.1 of the French Penal Code).
In conclusion, insurance fraud is a complex and widespread problem that harms both insurance companies and honest policyholders. Its financial and social consequences are significant, generating higher premiums for all, a loss of confidence in the insurance system, and wider economic repercussions. However, thanks to preventive measures, effective detection and dissuasive sanctions, it is possible to combat this scourge. Raising public awareness, strengthening controls and collaboration between stakeholders are key elements.
