Why Life and Health Insurance Are Attractive Targets for Fraud

​By Marlon Fearon

The views expressed in this article are those of the author in his capacity as a member of the ICA Fraud Committee and do not necessarily reflect the views of Swiss Re or its affiliated entities.
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Life and health insurance exist to provide financial protection during some of the most vulnerable moments in a person’s life—illness, injury, disability, or death. Unfortunately, those same features that make these products essential also make them highly attractive targets for fraud. Across the insurance industry, life and health lines consistently experience significant fraud exposure due to a unique mix of emotional, financial, and structural factors.

​Understanding why these products are vulnerable is a critical first step in preventing abuse, protecting customers, and preserving trust in the insurance system.

1. High Emotional Stakes and Reduced Scrutiny

Life and health claims often arise during emotionally charged situations such as serious illness, long‑term disability, or the death of a loved one. During these moments, insurers, employers, and even family members are more inclined to act quickly and compassionately.

Fraudsters exploit this environment. Emotional sensitivity can unintentionally reduce skepticism, allowing suspicious claims or documentation to pass with less resistance than in other lines of insurance. When empathy replaces scrutiny, opportunities for misrepresentation increase.

2. Complex Products and Coverage Rules

Life and health insurance policies are among the most complex products in the insurance market. They involve:

• Medical terminology and coding
• Varying benefit structures
• Policy exclusions and waiting periods
• Multiple riders and supplemental benefits

This complexity creates information asymmetry—policyholders, providers, and sometimes even administrators may not fully understand all coverage rules. Fraudsters take advantage of this confusion by exaggerating conditions, misrepresenting eligibility, or billing for services that fall into gray areas.

The more complex the policy, the easier it becomes to hide fraudulent activity in plain sight.

3. Reliance Third-Party Documentation

Health and life insurance claims rely heavily on third‑party documentation such as:

• Physician statements
• Medical records
• Diagnostic codes
• Attending physician certifications
• Death Certificates (especially foreign)
• Police reports
• Burial or cremation documentation
• In certain environments, document verification may be more challenging

While most providers act ethically, fraud can occur when documentation is altered, exaggerated, or knowingly falsified. In some cases, claimants and providers may collude. In others, claimants exploit subjective conditions—such as pain, mental health disorders, or chronic fatigue—that are difficult to independently verify.

This reliance on documentation rather than direct observation makes life and health insurance especially vulnerable.

4. Long‑Duration and Recurring Benefits

Unlike auto or property insurance, many life and health benefits are paid over long periods of time. Disability income, long‑term care, and certain health benefits may continue for months or even years.

Long‑duration benefits increase fraud exposure in several ways:

• A small misrepresentation can result in large cumulative payouts
• Claimants may fail to report recovery or return to work
• Life changes (employment, marital status, health improvement) may go undisclosed

The longer a claim remains open, the greater the opportunity for fraudulent behavior to go undetected.

5. Large, Lump‑Sum Payouts

• Death claims often involve significant face amounts paid in a single transaction.
• One successful fraudulent claim can generate far more money than other insurance fraud types (e.g., auto or property).
• This high reward justifies the time and coordination fraudsters are willing to invest.

 
6. Financial Incentives Are Significant

Life and health claims often involve substantial financial payouts. A single life insurance policy can be worth hundreds of thousands—or even millions—of dollars. Disability and health benefits can replace income or cover costly medical treatments over time.

These high stakes create strong financial incentives for fraud, including:

• Application fraud (non‑disclosure of medical history)
• Claim exaggeration or fabrication
• Staged or misrepresented medical conditions
• Beneficiary or identity manipulation

For organized fraud rings, life and health insurance can be far more lucrative than other lines.

7. Application and Underwriting Vulnerabilities

Fraud does not begin at claim time—it often starts during application and underwriting. Applicants may intentionally omit pre‑existing conditions, understate risky behaviors, or provide inaccurate personal information to obtain favorable premiums or coverage they otherwise would not qualify for.
Because underwriting decisions rely heavily on self‑reported information, especially in accelerated or simplified underwriting models, early misrepresentation can remain hidden for years until a claim is filed.

8. Difficulty Proving Intent

• There is often no physical evidence of fraud
• The act may be indirect (e.g., nondisclosure, staged accident)
• Criminal standards of proof are high

As a result:

• Many suspicious claims fall into a gray area
• Civil payment may occur even without criminal resolution

9. Increased Use of Digital and Remote Processes

The rise of digital enrollment, telemedicine, and remote claims handling has improved efficiency—but it has also introduced new fraud risks. Identity theft, synthetic identities, and document manipulation are easier to execute when interactions are virtual.

Fraudsters can submit claims, alter records, or impersonate providers without ever appearing in person, increasing both the scale and speed of fraudulent activity.

10. Societal and Economic Pressures

Economic stress, rising healthcare costs, and job insecurity can push individuals toward unethical behavior they might not otherwise consider. When financial survival is at stake, some may justify misrepresentation as a victimless act—especially when insurers are perceived as large, impersonal institutions.

Industry research suggests that periods of economic downturn historically correlate with increases in life and health insurance fraud.

Conclusion: Protecting a System Built on Trust

Life and health insurance are built on trust—trust that applicants disclose honestly, providers document accurately, and claims reflect real needs. Fraud undermines that trust, driving up costs, increasing premiums, and ultimately harming legitimate policyholders.

Because of their emotional nature, complexity, and financial value, life and health insurance products are expected to remain attractive targets for fraud, given their structural characteristics. The challenge for insurers, regulators, and claims professionals is to balance compassion with vigilance—using data, analytics, and professional judgment to protect both customers and the integrity of the system.
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Fraud prevention is not about suspicion; it is about sustainability.