Insurance fraud can be classified by different criteria. There is a distinction between planned and opportunistic fraud. The former is distinguished by the total absence of the insured event, while it is characteristic of the latter that fraudulent circumstances are reported to get the highest compensation possible.


Planned and opportunistic fraud


In practice we usually use the terms criminal fraud and soft fraud to distinguish between planned and opportunistic fraud, although the division is not completely the same.


If during the investigation criminal elements of fraud are established and can be proved, the fraud is considered as the so-called criminal fraud, which is usually also planned. It is characteristic of such fraud that the perpetrator had the intent to deceive the insurance company and thus obtain illegal proceeds for him or herself or for a third party to the detriment of the insurance company.


In order to prosecute such offences, the perpetrator's criminal intent needs to be proved. In many cases this is too burdensome to do. Such cases are then usually resolved at a contract level between the parties to the insurance contract and through a civil procedure if there is a dispute between the parties. This is especially relevant in cases of soft opportunistic fraud. Nevertheless, the terminology may be a bit misleading. Namely, these types of fraud are anything but soft in terms of their cost impact. Several researches show that soft or rather opportunistic fraud is much more prevalent than criminal fraud, making it more expensive in total (see e.g. IRC and ISO (2001), IRC (1996)).


Insurance fraud according to the type of perpetrator


Insurance fraud can also be classified by the type of perpetrator. We distinguish between internal fraud committed by insurance agents, representatives, brokers, appraisers and other employees or insurance company representatives, and external fraud committed by policyholders, the insured and other beneficiaries of the insurance, suppliers and service providers. In the latter case, insurance fraud may occur as a result of their cheating the insured through excessive sales (excessive services or excessive prices).


Insurance fraud is most frequently associated with inflating, reporting fabricated or staged insured events. Insurance fraud occurring in the application phase is no less problematic. These are cases of misleading conduct upon the conclusion of an insurance contract with the intention of unlawful acquisition of broader or higher coverage, or negotiation of lower insurance premiums by concealing relevant circumstances, inflating the value of the insured item or concluding prohibited multiple insurance.