An insurance claim is considered fraudulent when it is based on facts that are simply untrue, such as an incident which never took place, or was orchestrated (ie. arson) or a genuine loss but is grossly exaggerated.
One of the most common forms of insurance fraud is non-disclosure at the time a policy is taken out. This causes the insurer to accept business which would otherwise be rejected, or to underrate the risk.
- A policyholder may say he/she has security installed but has none
- A policyholder fails to reveal his/her full claims history
- A policyholder fails to disclose past convictions
Non-disclosure may either be innocent (an oversight) or fraudulent. It is usually detected at the time of a claim and may lead to the claim being rejected.
The Insurance Council of Australia estimates that non-disclosure is represented in 20% of policies underwritten. This figure is probably indicative of the New Zealand level.
Facts on insurance fraud
- According to a survey of New Zealand general insurers undertaken by the Insurance Council in 1998, insurance fraud costs New Zealanders a conservative $62 million annually, or $62 per household.
- More than 15 percent of all claims probably have an element of fraud associated with them. Contents and travel insurance policies are the most attractive targets for fraud, with health and motor insurance following closely behind.
- A survey commissioned by the Insurance Council on attitudes to fraud among New Zealand policyholders in 1996, found that four out of five people had heard of insurance fraud and one in five personally knew someone who had put in a false or exaggerated claim.
- Seven out of ten policyholders considered all fraudulent claims to be serious, and 84 percent of policyholders understood that it was honest policyholders who lose when insurance fraud is committed.
- The survey indicated there was a high awareness of what constitutes insurance fraud. 95 percent of policyholders agreed that “exaggerating a claim is dishonest and represents fraud”, and 93 percent agreed that “a false claim represents fraud and insurance companies should encourage prosecutions”.
- 76 percent of policyholders surveyed said they would like to see insurance companies publicise the results of serious fraud cases.