Insurance Fraud Jail Time

A 2022 report by the National Association of Insurance Commissioners (NAIC) mentioned that life insurance fraud is a common type of fraud, costing consumers and businesses around $74.7 billion.

Medicare fraud followed at $60 billion, while property insurance fraud came next at $45 billion. Health insurance fraud costs consumers $36.3 billion.

Such figures suggest that insurance fraud is a serious crime that can cost innocent people significant amounts of money.

What constitutes insurance fraud, and what are its penalties? Can insurance fraud lead to jail time?

What are the common types and examples of insurance fraud, and how can you detect them? How do you report insurance fraud when you suspect one?

This article discusses the penalties for committing insurance fraud and whether such a crime can land a person in jail.

This article also discusses the different types and examples of insurance fraud and explains how you can detect and report such activity.

Fraud happens when someone knowingly deceives another to obtain a benefit that the offender isn’t entitled to. Fraud also means knowingly denying a benefit meant for another person entitled to that benefit.

There’s no need for actual monetary loss as long as the suspect has committed an act to defraud and intended to commit the crime.

Learning about insurance fraud can help ensure that genuine claimants get their claims quickly and efficiently.

You can protect yourself from insurance fraud by understanding the factors constituting such fraud, including the circumstances that can lead to prison time.

If you know someone incarcerated due to insurance fraud or any other case, staging-lookupinmates.kinsta.cloud can help you locate them. staging-lookupinmates.kinsta.cloud offers a convenient online inmate search tool to help locate an inmate in any state in the United States.

Can an Insurance Fraud Conviction Mean Jail Time?

Jail time is possible if you’re convicted of insurance fraud. Still, convictions vary, depending on the state.

For example, insurance fraud penalties in Ohio include the following:

• If the fraud amount is below $1,000: A first-degree misdemeanor conviction and 12 months in jail
• If the fraud amount is between $1,000 to $7,500: A first-degree felony conviction and 12 months in jail
• If the fraud amount is between $7,500 and $150,000: A fourth-degree felony conviction and 18 months in jail
• If the fraud amount is $150,000 or more: A third-degree felony conviction and 36 months in jail

Definitions Under U.S. Insurance Fraud Statute

When you witness an insurance fraud case, you’ll likely encounter these terms:

• Defraud: To knowingly obtain a benefit for oneself or another through deception
• Fraud: A wrongful or criminal deception intended to cause financial or personal gain
• Insurance policy: Any policy, certificate, plan, or contract issued by an insurer
• Insurer: Any person authorized to engage in the business of insurance

Fraud Unit of the Department of Insurance

Each state’s insurance department has its own fraud unit to protect the public from potential economic loss due to fraud. This unit detects, investigates, and arrests insurance fraud offenders.

What Is the Punishment for Insurance Fraud?

States have different penalties for insurance fraud. Courts typically consider the amount lost, the defendant’s criminal history, and victim statements when handing out sentences.

Regardless of differences, insurance fraud is a serious crime that you mustn’t take lightly. Sentences usually include fines, restitution, probation, community service, and jail time.

Jail Time for Insurance Fraud

Some states have insurance fraud laws that impose misdemeanor penalties, including jail time of up to a year. Other more severe fraud cases have felony penalties that can carry possible prison sentences of more than a year.

Penalties Based on Amount

Some states implement insurance fraud penalties based on how much was involved in the fraud.

For example, in Illinois, if the offender defrauds an insurance company of $300 or less, the court considers the crime a misdemeanor, punishable by a fine of $2,500 and up to one year in jail.

If the amount involved in the fraud exceeds $300, the crime becomes a felony, punishable by up to $25,000 in fines and 15 years in prison.

Penalties Based on the Act of Fraud

States can also impose penalties according to the fraud’s extent. For example, a person overstates the damages in a car accident claim. This offense can turn into a misdemeanor if the offender gets caught.

However, if the person fabricates a certificate or sets the vehicle on fire, they can undergo harsher felony penalties if convicted.

What Is Insurance Fraud?

Insurance fraud occurs when the offender deceives an insurance company to collect money they’re not meant to receive. With insurance fraud, the offender uses an insurance policy, contract, or certificate to defraud others.

All 50 U.S. states classify this particular fraud as a crime. Most states have also established fraud units to identify and investigate insurance fraud cases.

Who Commits Insurance Fraud?

Anyone can commit insurance fraud. Police have arrested professionals like doctors, lawyers, car sales clerks, and individuals in positions of trust.

Even some of those working within the insurance industry have committed insurance fraud. Insurance agents can divert premiums, and adjusters can inflate insurance estimates and receive kickbacks.

Several people can also conspire to perform such scams, like when organized crime syndicates establish insurance fraud schemes.

Is Insurance Fraud a Federal Crime?

Federal laws don’t consider insurance fraud as a distinct offense. However, mail and wire fraud statutes cover such offenses. In such cases, the federal government has jurisdiction over insurance fraud affecting interstate commerce.

Although federal prosecutors consider insurance fraud a serious offense, they usually don’t pursue such cases unless they have solid evidence.

Insurance Fraud Is a Felony

Any person who commits a crime of insurance fraud through false statements or misrepresentations of a material fact to obtain or deny any payment or benefit can be charged with a felony.

But Is It Really Fraud?

If you’re unsure whether you’re committing insurance fraud, consider the following situations that can qualify your actions as fraudulent:

Buying the Needed Coverage After an Accident or Loss

Suppose your car has physical damage, but the insurance policy doesn’t cover that damage. You then ask your insurance company to add that coverage. Afterward, you submit a claim to have that damage fixed.

If you state that the damage happened after adding the new insurance coverage so you can get your claim, you’re committing insurance fraud.

Exaggerating a Legitimate Claim or “Padding”

Someone may break into your home and steal some of your personal items. Then you tell the insurance company that items you don’t own or weren’t there in the first place were among the stolen items so you can collect more insurance benefits.

In this case, providing false statements to the insurance company constitutes insurance fraud.

Misrepresentation

Suppose you tell your insurance company that you only use your vehicle within a rural area and drive it occasionally, but you’re using the vehicle primarily to drive to and from work daily.

This misrepresentation may help lower your premium rates, but knowingly providing such false statements is still fraudulent.

Lying About a Cause of Loss

An example of this situation is when your microwave stops working, and an electrical surge strikes your home a week later.

If you tell your insurance company that the surge damaged your microwave to claim homeowners insurance, you knowingly provided false information and have committed fraud.

Staging an Accident or Loss

Suppose you’re driving and abruptly hit your brakes in heavy traffic on purpose, causing another vehicle to hit you from behind.

If you file a claim to the other driver’s insurance company for damages to have your vehicle totaled and paid off, you’re staging an accident and committing insurance fraud.

State and Federal Crimes for Insurance Fraud

Whether a state or federal court handles fraud cases, prosecutors must prove the following elements to convict a criminal of insurance fraud:

Knowingly Making a False Statement or Claim

The defendant must knowingly make a misleading or false claim for the act to be considered insurance fraud. Not telling the truth isn’t enough because the defendant must be aware that the statement is false and still intend to make the statement.

Having the Intent to Defraud

Prosecutors must also prove that the defendant acted with the intent to defraud by submitting proof that the offender made a false statement or provided fraudulent documentation to the insurance company.

Hard and Soft Insurance Fraud

A fraudulent insurance scheme can qualify either as hard fraud or soft fraud.

• Hard fraud: Happens when someone intentionally fabricates an injury, accident, theft, property damage, or other loss events to collect money illegally from the insurance company
• Soft fraud: Happens when someone exaggerates, guesses, or provides false information to maximize an insurance claim

Common Types and Examples of Insurance Fraud

Several types of insurance fraud exist, such as the following:

Car Insurance Fraud

Car insurance fraud is when someone stages or exaggerates a claim to receive more benefits from their automobile insurance provider.

Automobile Property

This type of auto insurance fraud involves dishonest repair shops and automobile insurers using illegal or questionable methods like the following:

• Charging a higher final cost compared to the original estimate
• Reporting vehicle parts as lost or damaged when they weren’t before the vehicle entered the shop
• Billing for OEM (original equipment manufacturer) parts when the shop uses salvaged or third-party parts
• Falsely reporting vehicles as damaged, stolen, or vandalized so the insurance company can pay for the repairs

Automobile Collisions

Auto insurance fraud can also involve staging collisions like the following scams:

• Sudden stop: The driver abruptly stops the vehicle for no reason, causing the vehicle behind them to rear-end their automobile.
• Stuffed passengers: The offender fabricates a list of passengers not in the vehicle at the time of the collision.
• Right-of-way collision: An oncoming driver allows you to enter the roadway by giving you the right of way but purposely causes a collision.

Life Insurance Fraud

Offenders committing life insurance fraud do so by staging their own or someone else’s death to claim life insurance money.

Property Insurance Fraud

Property insurance fraud involves the property’s owner willfully damaging or setting fire to their home, business, or other real property like land or building to obtain insurance payment. This fraud also applies to personal property like jewelry.

Workers’ Compensation Fraud

Workers’ compensation fraud schemes include staging work-related injuries or falsifying medical billing for unrendered services. These activities include the following:

• An employee files a claim for an injury that didn’t occur in the workplace
• An employer convinces an injured employee not to file a workers’ compensation claim
• A medical or legal provider bills the company for services not rendered

Disability and Healthcare Fraud

A person or organization involved in healthcare fraud attempts to defraud a health insurance provider by making false claims to receive prescription medication or payments. Healthcare fraud can also mean using another person’s insurance card to acquire healthcare services.

Billing of Medical Services

Some dishonest healthcare providers engage in this type of healthcare fraud, which usually includes illegal or questionable billing of medical services.

Common types of fraud that these providers commit include the following:

• Billing for unrendered services using genuine patient information to fabricate or pad claims with charges for procedures that didn’t occur
• Upcoding or billing for procedures that are more expensive than the actual service provided
• Waiving patient deductibles or co-pays and overbilling the insurance company
• Performing unnecessary medical procedures to generate insurance payments

Investigating Insurance Fraud Crimes

Although most states have fraud investigation units, many private insurance companies also have their own fraud detection departments working with state units to detect, investigate, and file criminal charges against insurance fraud offenders.

These agencies share information and provide evidence to law enforcement and government prosecutors to convict fraud criminals.

Collaborative efforts between insurance companies, state agencies, and other law enforcement organizations help improve fraud detection and recovery.

Typical Elements of Insurance Fraud

Like any criminal case, insurance fraud requires prosecutors to prove certain elements for an offender to be considered guilty. States may have varying elements that make up specific insurance fraud types, but the primary elements usually include the following:

• The accused making false or misleading statements with the intent to deceive
• The false statement in connection with an insurance application, claim, or payment
• The false statement impacting the outcome of the application or claim

How Fraud Is Detected

Detecting fraud is an essential step in proving that insurance fraud occurred. Authorities can detect fraud through the following elements:

Special Investigation Unit (SIU) Investigators

Insurance companies usually have SIU fraud investigators whose primary responsibility is to detect, investigate and file charges against offenders performing fraudulent activities on the part of claimants or policyholders.

These investigators consist of claims adjusters with extensive training and knowledge about insurance claims and fraud. SIUs can also consist of law enforcement experts.

Anti-fraud Claims Databases and Bureaus

Fraud investigators use databases and bureaus containing claims data to determine relevant information. Information gathered includes the dates the individual or organization files insurance claims, the type of claim, and the nature of the loss.

Investigators can use these pieces of information to cross-check new claims against existing records and help reduce fraudulent or questionable claims.

Claimant Behavior

How a claimant behaves while filing an insurance claim can give insurance representatives and investigators an idea of what that person wants. For example, avoiding a question or answering in a roundabout way may indicate a potential deception on the claimant’s part.

Social Media

Many people post their daily lives, opinions, and locations on social media. Insurance representatives, investigators, and law enforcement can use these online activities containing pictures, videos, and comments for information that can help in an investigation.

Analytics and Data

Insurance companies, fraud investigators, and law enforcement use advanced data analysis techniques like data mining, pattern recognition, statistics, and machine learning to identify and recognize fraud.

Possible Defenses That Can Help Avoid an Insurance Fraud Sentence

If you’re accused of insurance fraud, your attorney can help gather evidence proving that the charges against you are insufficient or unfounded so you can file a motion to dismiss.

Sometimes, authorities gather evidence unlawfully, violating the defendant’s constitutional rights. The defendant may have the case dismissed by asking the court to exclude such evidence.

Defending Against Insurance Fraud Charges

In cases involving insurance fraud, the defendant can argue during a trial that they didn’t harbor any intent required to commit fraud or that the act was an oversight or innocent mistake.

An excellent way to help you defend against insurance fraud charges is to work with a criminal defense attorney experienced in fraud cases. This lawyer can help investigate and examine your case from all possible angles and provide the necessary defense during your trial.

Insurance Fraud Statute of Limitations

Insurance fraud, like many federal offenses, has a five-year statute of limitations with a possibility of extension in some instances. This statute means that the government can’t pursue criminal charges or prosecute the offender for this offense after this time has passed.

Insurance Fraud Costs Consumers

Insurance fraud can be a costly crime for insurance companies, consumers, and businesses.

The Coalition Against Insurance Fraud mentioned that fraud costs consumers and businesses $308.6 billion yearly.

The FBI (Federal Bureau of Investigation) estimates that fraud costs the average family between $400 and $700 in premiums. Such costs can result in higher premiums, taxes, and prices.

The Cost of Fraud

If you commit insurance fraud, you’re not only hurting an insurance company. If you get caught, you can face felony charges and jail time. In addition to imprisonment and paying fines, you must pay back the money you fraudulently obtained.

Examples of Insurance Fraud

The following situations demonstrate the different types of insurance fraud:

• You claimed insurance from a car accident caused by another vehicle when you (the policyholder) caused the damage.
• You didn’t disclose a pre-existing medical condition in a life insurance application to get lower insurance premiums.
• You changed your vehicle’s VIN (vehicle identification number) to hide the fact that it is a stolen or salvaged property.

Meanwhile, a medical provider commits healthcare fraud by exaggerating billing expenses or billing for rendered but unnecessary services.

Reporting Suspected Insurance Fraud

Each state’s department of insurance can have different reporting procedures for fraud. For example, the California Department of Insurance (CDI) lets you download and print a consumer insurance fraud reporting form from the agency’s website.

Filing a Complaint of Suspected Insurance Fraud

If you’re reporting suspected fraud, go to your state’s department of insurance website and fill out a fraudulent claim report form. You can report anonymously, but you must fill out the form with as much information as possible.

Fraud Division Overview

The fraud division is the law enforcement unit of your state’s insurance department. In California, CDI’s fraud division consists of four insurance fraud programs:

• Automobile insurance fraud
• Workers’ compensation fraud
• Property, life, and casualty fraud
• Disability and healthcare fraud

Fraud Division Regional Offices

Fraud division offices vary by region and serve the following states:

• East Central: Headquartered in Cleveland and serves Ohio, Delaware, Maryland, the District of Columbia, Michigan, Virginia, West Virginia, and Pennsylvania
• Midwest: Based in Chicago and serves Illinois, Iowa, Minnesota, Kansas, Nebraska, North Dakota, Indiana, Missouri, Wisconsin, Kentucky, and South Dakota
• Northeast: Located in New York and serves New Jersey, Connecticut, Maine, New Hampshire, New York, Massachusetts, Rhode Island, Vermont, Puerto Rico, and the U.S. Virgin Islands
• Northwest: Based in Seattle and serves Idaho, Montana, Washington, Wyoming, Oregon, and Alaska
• Southeast: Headquartered in Atlanta and serves Georgia, Florida, Alabama, North Carolina, South Carolina, Mississippi, and Tennessee
• Southwest: Based in Dallas and serves Texas, Louisiana, New Mexico, Arkansas, and Oklahoma
• Western Los Angeles: Based in Los Angeles and serves Southern California, Arizona, Southern Nevada, Hawaii, Guam, Northern Mariana Islands, and American Samoa
• Western San Francisco: Based in San Francisco and serves Northern California, Northern Nevada, Colorado, and Utah

Talk to the Department of Insurance

If you suspect a person or organization committing insurance fraud, check the contact information of your state’s insurance department.

Each insurance department has a directory website containing the department’s address and contact number. You can also visit the Insurance Information Institute (III) website at www.iii.org for each state insurance department’s contact information.

Talk to an Attorney Regarding Your Insurance Fraud Case

Fraud can result in fines, prison sentences, and criminal records. If you’re charged with insurance fraud, talk to a local criminal defense lawyer who can explain what those charges mean and provide the defense you need against such charges.

FAQs

1. How long can I stay in jail for insurance fraud?

Depending on the federal law provisions you violated and the state where you committed the fraud, you can spend 1 to 15 years in prison for insurance fraud.

2. Does the FBI investigate insurance fraud?

The FBI can investigate fraud schemes and partner with other federal, state, and local agencies for such investigations. You can report fraud to the FBI by calling 202-324-3000 or visiting www.fbi.gov or tips.fbi.gov.

3. Who can be accused of insurance fraud?

Anyone who willfully makes a false or misleading statement on an insurance claim or creates complex insurance fraud schemes involving many individuals can be accused of insurance fraud.

4. What happens if an insurance company finds me lying?

You risk being denied a claim or losing your policy entirely if the insurance company discovers that you’re lying about your claim’s causes, injuries, or damages.

5. How do insurance companies investigate fraud?

Many insurers have SIUs that help identify and investigate fraudulent insurance claims. These units consist of trained investigators like attorneys, accountants, former law enforcement officers, and claim experts.

References

1. Insurance Fraud
https://content.naic.org/cipr-topics/insurance-fraud
2. What is Insurance Fraud?
http://www.insurance.ca.gov/0300-fraud/0100-fraud-division-overview/05-ins-fraud/
3. Insurance Fraud is a Felony!
https://www.ncdoi.gov/fraud-control/insurance-fraud-felony
4. Insurance Fraud is a Felony
http://www.insurance.ca.gov/01-consumers/105-type/95-guides/15-gen/insur-fraud-is-felony.cfm
5. STATE INSURANCE DEPARTMENTS
https://www.iii.org/services/directory/state-insurance-departments
6. REPORT FRAUD
https://www.justice.gov/criminal-fraud/report-fraud