What causes fraud?

Find out why people might commit insurance fraud and in what circumstances.

Why do people commit fraud?

There are lots of reasons people may commit insurance fraud.

  • Some people may do it because they’re struggling financially.
  • Others may not understand they’re committing a crime and think what they’re doing is harmless.
  • A small number of people may do so in a more systematic and deliberate manner, seeking to make money at the expense of other policyholders.

Psychology of fraud

The reasons people commit fraud can be illustrated using the fraud triangle, which describes the factors that enable fraudulent behaviour.*

The Fraud Triangle: Motivation, Opportunity, Rationalisation.
  1. Motivation: what drives fraudulent behaviour.
    Examples: Financial stress, greed, addiction, sense of entitlement.
  2. Opportunity: occurs in most interactions with an insurer and is often a temporary situation with a perceived low risk but high financial gain. The most common opportunity is when making an insurance claim for actual loss or damage.
  3. Rationalisation: the mindset of the person committing the fraud and the justification they make for doing it.
    Examples: “insurers make a lot of money; they can afford it” and “I won’t get enough money to replace my damaged item with the one I want”.

When these 3 factors interact, they create a climate where a person feels it’s necessary or acceptable for them to commit insurance fraud.

Want to know more? Check out Gen Re’s deep dive into why people commit small-scale insurance fraud: Soft Fraud and Possibilities for Prevention

Keep reading: Impact of fraud

*The fraud triangle is a framework developed in 1953 by Dr Donald Cressey, a noted criminologist