According to David Glawe, president and CEO of the National Insurance Crime Bureau, insurance fraud is a widespread and ongoing problem in the United States. According to him and other industry experts, fraud is a factor in about 10% of property and casualty claims, which includes auto and home insurance.

How does insurance fraud affect premiums?

You are mistaken if you believe insurance companies are content to pay the $80 billion annual bill for fraud out of their own pockets. The massive deficit caused by fraud “directly translates into higher premiums for you and [me],” according to Glawe.

According to the FBI, insurance fraud costs the average American family $400 to $700 more in premiums each year.

What is insurance fraud?

Fraud manifests itself in a variety of ways and is not limited to serious and obvious acts of deception. These are all examples of insurance fraud:

• Setting fire to your own home and then filing an insurance claim for the damage.
• Making the claim that your stolen television was newer and larger than it was.
• Registering your vehicle at a friend's address in order to obtain lower auto insurance rates.

Bottom line: Insurance fraud occurs when you knowingly mislead your insurance company in order to profit.

You may even be a victim of insurance fraud without even realizing it. Following are some examples:

• Following a car accident, your repair shop replaces your air bags with salvaged ones but bills your insurance company as if they were brand new.
• An agent collects your insurance premiums but keeps the money for himself.

In general, you would not be held liable if someone else committed the actual fraud, according to Glawe.

Fighting insurance fraud

Insurance companies are fighting back with digital technology. According to Matthew Smith, executive director of the Coalition Against Insurance Fraud, or CAIF, 95 percent of businesses use anti-fraud technology, with nearly 60 percent using artificial intelligence.

This technology can detect potential insurance fraud in a variety of ways. Artificial intelligence can scan hundreds of thousands of claims for duplicates, for example, or notify the insurer if a claimant posts a beach volleyball selfie online.

According to Smith, while automating fraud investigations can save insurers a lot of money, it may not lower your premiums. He is concerned that insurers will over-rely on fraud-detection software, viewing it as a low-cost substitute for human investigators and pocketing the savings.

According to Smith, this approach is one aspect of insurance fraud that organizations like CAIF are keeping a close eye on. “In our opinion, insurance fraud occurs when a company knowingly and intentionally passes along the cost of insurance fraud while not doing everything reasonably possible to investigate it,” he says.

How to prevent insurance fraud

So, how can consumers assist in the prevention of insurance fraud?

One method is to maintain close contact with your insurer after filing an insurance claim. Most people can recommend reputable auto repair shops, home contractors, and other service providers.

Vigilance will also assist you in avoiding fraud. If someone calls you looking for sensitive information or using a number you haven't seen before, don't answer. Conduct your own research to ensure you are not a victim of a scam.

If you suspect a scam, contact your insurer, consumer-focused organizations like CAIF or NICB, law enforcement like the FBI, or insurance industry organizations like the National Association of Insurance Commissioners.