Why Insurance Fraud is Not a Victimless Crime: The Broader Impact on Communities

Many people assume that insurance fraud is a minor offense, affecting only large insurance companies. However, the reality is that insurance fraud has a significant and far-reaching impact on everyday New Zealanders. From increased premiums to strained public services and weakened community trust, the consequences extend far beyond those directly involved.

New Data: November 2024 Fraud Survey

Recent findings from the November 2024 Fraud Survey reveal just how widespread and damaging this issue is perceived to be. When asked how common various types of insurance fraud are in New Zealand, respondents demonstrated strong awareness:

• 61% believe exaggerated claims for lost or stolen items are common.
• 55% recognise non-disclosure or misinformation as frequent.
• 44% view entirely false events (fake thefts or accidents) as common.
• 39% consider staged losses (e.g., arson, staged thefts) to be on the rise—up from 30% in April 2020.

Although fully fabricated events rank slightly lower than inflated or exaggerated claims, the survey shows an uptick in concern about staged incidents, suggesting growing public vigilance, and perhaps greater concern for fraud’s wider effects.

The Cost to Honest Policyholders

Insurance fraud—whether through exaggerated claims, staged accidents, or deliberate misinformation—leads to financial losses for insurance companies. But these losses don’t just affect corporate bottom lines. As many kiwi’s are aware, to recover these costs, insurers are often forced to raise premiums for honest policyholders. In New Zealand, this means that everyday Kiwis end up paying more for their insurance policies due to the dishonest actions of a few.

Impact on Emergency and Public Services

Fraudulent claims, particularly those involving staged accidents, false injury reports, or arson, put unnecessary strain on emergency services. Firefighters, paramedics, and police are diverted from genuine emergencies to respond to fraudulent incidents. This misuse of resources can delay response times for real emergencies, putting lives at risk and stretching public services that are already under pressure.

The Ripple Effect on Businesses and Employment

Insurance fraud doesn’t just impact individual policyholders—it also harms businesses and the wider economy. Fraudulent claims increase costs for businesses, which in turn can lead to higher prices for consumers or even job losses if businesses struggle to cover unexpected expenses. Small businesses, in particular, may find it difficult to absorb these costs, leading to reduced growth or even closure.

Undermining Public Trust

Fraudulent activity erodes trust in the insurance system. When people perceive that insurance fraud is common or goes unpunished, they may be less likely to report fraud when they see it. Worse still, some may be tempted to commit fraud themselves, believing it to be an easy or acceptable way to gain financial advantage. This cycle of dishonesty ultimately weakens the integrity of the entire insurance system and harms the collective good.

A prominent case in recent years that upheld public trust is this case of a man who falsely claimed his car was damaged during Auckland’s 2023 floods – he ended up having his claim declined and flagged as fraudulent by his insurer. When a mechanic’s report revealed the damage was old wear and tear, the insurer wrote off the car and, after further investigation, found the claim to be dishonest. As a result, the man’s house and contents insurance policies were canceled by his other insurer, leaving him potentially at risk of losing his home. The Insurance and Financial Services Ombudsman says this case shows why it’s crucial to be truthful with insurers.

How You Can Help

Insurance fraud affects all of us, but we can work together to combat it. If you suspect insurance fraud, reporting it can help protect honest policyholders and maintain a fair insurance system for everyone. The Insurance Fraud Bureau (IFB) provides a confidential and secure way to report suspicious activity.

By taking a stand against insurance fraud, we can help keep premiums fair and uphold trust within our communities. If you have concerns about a potential case of insurance fraud, report it today and play your part in protecting New Zealanders from its widespread harm.