A practical guide for agents navigating today’s fraud landscape
Key takeaways
- Fraud isn’t always easy to spot. From outright scams to small embellishments, insurance fraud comes in many forms — and agents are often the first line of defense.
- Look for patterns, not just isolated red flags. Vague claims, unusual timing or pressure tactics are worth a second look.
- Preventative conversations pay off. Setting expectations early — especially after binding or during renewal — can deter future issues.
Insurance fraud costs Americans more than $300 billion annually, or about $900 per person a year, according to the Coalition Against Insurance Fraud. It’s one of the costliest — and most complicated — risks facing our industry.
Fraud affects carriers, raises premiums and chips away at the trust policyholders place in the process. But not all fraudulent claims are built on deliberate deception. Sometimes it’s a small exaggeration. Other times, it’s a scam targeting your insureds. For agents, that creates a tough balancing act: how do you spot the warning signs without treating every policyholder like a potential fraudster? And how can you protect your clients from falling victim to fraud themselves?
Related: How insurance fraud is becoming more sophisticated
Understanding hard vs. soft fraud
Most fraud lives in the gray areas.
Hard fraud refers to deliberately fabricated claims, like staging an accident or faking a theft. These are rare but costly.
Soft fraud, on the other hand, is more common and often rationalized as harmless. Think inflating repair costs, adding “just a few more” items to a loss list or exaggerating the value of stolen property.
Related: How widespread is insurance fraud? [infographic]
Many insureds committing soft fraud don’t even see it at dishonest, just “getting what they’re owed.” A 2013 study commissioned by the Insurance Research Council (as reported in PropertyCasualty360) found that a quarter of respondents believed it was acceptable to pad their insurance claim to ‘make up for past premiums’ or cover deductibles. That normalization makes soft fraud especially difficult to catch — and even harder to talk about.
However, even small misrepresentations can add up, leading to higher premiums for everyone and eroding trust in the system.
A delicate balance for insurers
Insurers face a difficult task: they must verify claims carefully without alienating the policyholders who are doing everything right. “Investigations can have a potentially devastating impact on customer loyalty,” PropertyCasualty360 reports. “Asking insureds too many questions about their claim may prompt them to choose a new company even if the claim is genuine and uninflated,” further fueling the perception that insurers don’t play fair.
That’s where agents can make a difference — not just in spotting red flags, but in building relationships grounded in transparency, education and accountability. When quoting new business, consider using that moment to set the stage for fraud prevention. A quick statement that underscores how your carriers handle claims — seriously, fairly and thoroughly — can help defuse the temptation to fudge details down the line.
For insurers, keep an eye on:
- Inconsistent or vague descriptions of what happened
- Delayed reporting of claims
- A client who’s overly eager to settle quickly
- Evidence that doesn’t quite match the reported damage or injury
- A history of multiple or suspicious claims across carriers
Fraud tends to spike after natural disasters, when chaos gives cover to inflated or falsified losses. Be especially vigilant in CAT-prone areas or in the wake of wildfires, hurricanes or floods.
Related: How you can prevent business fraud at your company
For your clients, remind them to look for:
- Contractors who pressure them to sign contracts quickly or pay upfront
- Lack of proper licensing or insurance
- “Storm chasers” or vendors offering too-good-to-be-true services after disasters
- Anyone who asks them to exaggerate a loss or claim damage that didn’t occur
Unfortunately, moments of vulnerability are prime time for scammers to strike. A quick conversation after binding or following a storm event can go a long way. Encourage your clients to document their losses, verify the credentials of anyone they hire and consult with you before making coverage assumptions.
What agents can do
You don’t have to be a fraud investigator, but your frontline role gives you the advantage of context and instinct. If something feels off, ask more questions. A few thoughtful questions and reminders today can help prevent bigger problems tomorrow:
- Encourage your clients to report claims promptly and provide clear documentation
- Help them understand the full implications of exaggerating or misrepresenting facts
- Communicate directly with your carriers when you notice potential fraud indicators
- Share fraud prevention tips during renewal conversations or post-disaster outreach
- Promote a culture of honesty by leading with transparency
Related: How to prevent workers’ compensation fraud
Fraud prevention doesn’t happen in one conversation. By reinforcing best practices over time and staying alert to subtle changes in behavior and claims, you’re helping clients stay protected and carriers stay informed. It’s one more way your relationships make a difference.
The bottom line
Fraud is constantly evolving — and so is your role in preventing it. Whether it’s guiding clients through confusing post-disaster claims or noticing a suspicious detail during underwriting, your awareness makes a difference. With strong relationships, good questions and an eye on the red flags, you can help protect your clients, your carriers and your book.
Not yet an Arrowhead producer? Start here.
Arrowhead’s products are built with your needs in mind — offering smart coverage backed by carrier strength, proactive support and resources that help you and your clients navigate risks confidently.
This material has been prepared for general informational purposes only, is intended to apply generally rather than to any specific company, and presumes appropriate discretion will be exercised regarding any particular situation.