SOFT FRAUD, THE CRIME YOU PAY FOR  

“Pocatello Resident Sentenced for Insurance Fraud.” “Sanchez Sentenced in Boise Insurance Fraud Case.” These two headlines from 2006 show that, even in Idaho, hard insurance fraud isn’t uncommon. “Hard fraud” describes organized and deliberate attempts to stage or invent an act such as an accident, injury, theft, arson or other loss in order to collect money illegally from insurance companies. “Insurance fraud is a serious crime,” Idaho Attorney General Lawrence Wasden says. “It harms all Idahoans and causes the cost of insurance to increase. My office works very closely with the Idaho Department of Insurance to see that insurance fraud crimes are thoroughly investigated and vigorously prosecuted.”    

With the fight against hard fraud well underway in Idaho, it’s easy to lose sight of another type of fraud known as soft fraud. Soft fraud, which is sometimes called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim. One example of soft fraud is the policyholder who exaggerates the number and value of items stolen from a home or business. Another type of soft fraud occurs when people deliberately give false information to an insurance company in order to lower insurance premiums or increase the likelihood an application will be accepted. An example of this is the policyholder who underreports the number of miles driven. According to the Insurance Research Council, soft fraud “Is far more frequent than hard fraud… Because of the frequency of soft fraud, it adds more to overall claims cost than hard fraud does.”  

While most people have a moral objection against hard fraud, recent surveys show that more than 35% of respondents thought it was acceptable to increase the amount of a claim to make up for a deductible. (The Insurance Research Council, 2000) Even more people felt it was reasonable to distort policy information to reduce their premiums.      

Given these findings, a logical question is: Why? Why does soft fraud occur so frequently? Robert Hoyt, a professor of risk management and insurance at the University of Georgia, says that, “The biggest problem is that many people view insurance fraud as a victimless crime. They rationalize that insurance companies have lots of money and if they get some they are not hurting anybody.” David Russell, a professor of finance and insurance at California State University in Northridge says, “People believe they are owed something, especially if they’ve been paying over time.”     

Other experts believe these attitudes show up in the surveys because of the failure to punish soft fraud. If penalties were enforced, they argue, responses to the surveys would be different and behavior would be different.     

But is soft fraud really a victimless crime without penalties? It’s not when you consider that the cost of soft fraud is passed on to the consumer in the form of higher premiums. And when the consumer is a department or grocery store, they will also pass along their higher costs to you.     

For every dollar Americans pay for insurance, between 11 and 30 cents are being lost to soft fraud. According to the Coalition Against Insurance Fraud, this adds up to over $96 billion a year, or almost $950 a year for each family.

But you don’t have to pay for insurance fraud. There are things you can do to help win the fight against this growing problem. Tell your family and neighbors about soft fraud and how it affects everyone if the form of higher premiums. If you know of insurance fraud, report it to the Idaho Department of Insurance at 1-800-721-3272, and select option “1.” You can also contact your legislators and request new laws to fight insurance fraud. If enough people take action, we can win the fight against soft fraud.