Insurance fraud or what if someone wants to “make a buck”

What is insurance fraud?

Insurance fraud occurs when someone deliberately misrepresents or conceals an important fact, either when arranging insurance or when claiming an insurance benefit. In other words, it is an attempt to extort money from the insurance company to which the person is not entitled.

While this may seem like a “harmless lie” to some, the consequences are serious – legally, financially and personally. It is a criminal offence that has a specific basis in the Czech Criminal Code and can even end up behind bars.

What does insurance fraud look like in practice?

To give you a better idea of insurance fraud, we have prepared some illustrative examples.

• Blown damage to a car: After a minor accident, the driver reported much more damage to the insurance company than actually occurred in order to receive a higher compensation.
• Fabricated theft: The client claimed that his bicycle was stolen, but he never owned it. He reported the theft to the police and sought compensation from the insurance company.
• Fake accident: Two accomplices arranged a staged traffic accident that was supposed to look like an accident – only the goal was to extort money from the insurance companies.

And that’s not all. Today, fraudsters are trying all sorts of tricks – and insurers need to be ever more prepared for them.

Insurance fraud is on the rise in the Czech Republic

According to the Czech Association of Insurance Companies, in 2023 insurance companies investigated 15,574 suspicious insurance claims, which was 13% more than the year before. They uncovered 6,242 cases of insurance fraud with a total value of CZK 1.664 billion – an increase of 17% year-on-year. The average amount of fraud uncovered was CZK 267,000.

The most common areas of fraud are:

• Property and liability insurance (65%)
• Car insurance (25%)
• Personal insurance (10%)

These figures clearly show that insurance fraud is not an isolated offence, but a widespread phenomenon with a billion-dollar impact.

What are the penalties for insurance fraud?

Insurance fraud is enshrined in Czech legislation in Article 210 of the Criminal Code. “Whoever makes a false statement or conceals a material circumstance when arranging insurance or making a claim…”

Fraud can take two basic forms:

1. When taking out an insurance policy – typically when someone conceals health problems when taking out life insurance.
2. When making an insurance claim – for example, when someone reports the loss of an item they never had.

Note: Attempting to commit insurance fraud is also a crime under the law.

Criminal rates are based on the amount of damage caused. The basic offence (damage up to CZK 50,000) carries up to 2 years’ imprisonment. If the damage is significant (over CZK 500,000), the perpetrator faces up to 5 years. And for large-scale damage (over CZK 10 million), fraudsters can go to prison for up to 10 years.

Possible penalties include suspended or unconditional imprisonment, a fine, a ban on activity and forfeiture of property.

The distinction between a misdemeanour and a criminal offence depends on the damage – up to CZK 10,000 it is usually a misdemeanour, above this amount it is a criminal offence.

Typical forms of insurance fraud

Typical forms of insurance fraud are very varied and include both individuals and organised groups. Among the most common is the concealment of material information when negotiating a contract – for example, concealing a person’s true health, whereabouts or risky employment. Another common trick is to add old claims to a new policy, often involving car or electronics insurance. There are also fake accidents involving so-called “accidental” witnesses who are actually part of the scam. In life insurance, fraudsters often resort to misrepresentation, for example, concealing hospitalisation or addiction treatment. Organised fraud is also quite sophisticated, with several people working together on a false claim – for example, a car repairer, a ‘victim’ and a supposed witness.

How is insurance fraud investigated?

Modern insurance companies have highly sophisticated systems for detecting suspicious cases. These include:

• Internal control mechanisms – analysis of unusual patterns of client behaviour.
• Central claims registry – used to share information between insurers and detect repeat offenders.
• Insurance company investigators – called forensic specialists who are tasked with assessing risk situations and detecting fraud.

If an insurance company has reasonable suspicion, it files a criminal complaint. Next, the police come in to investigate and collect evidence. The most important ones include witness statements, photo documentation, email and SMS statements and technical reports (e.g. an expert on how the vehicle was damaged).

The consequences cannot be swept under the carpet

committing insurance fraud means more than just risking prosecution. The consequences can be far-reaching. For example, the perpetrator will take away a criminal record which, even with a suspended sentence, can make it impossible to practise certain professions, such as banking or education. In addition, the insurance company can recover the wrongful payment, including interest. Another inconvenience is the loss of credibility, which can have fatal consequences, especially for businessmen or public figures. Last but not least, there is the risk of termination of the insurance contract – the insurance company may immediately terminate it and include the client in its internal database of risky persons, which makes it very difficult for the client to arrange further insurance.

How to avoid problems (even unintentionally)?

Insurance fraud is not an innocent lie or a “clever trick”. It is a criminal offence that can lead to jail, loss of money, insurance and trust. Statistics show that insurance companies today are well equipped to detect fraudsters – and criminal penalties are real. Whether as an insured client or a business owner, remember: the truth will out sooner or later – and lying is often more expensive. Of course, not everyone who gets into sport with an insurance company is a fraudster.

Even an honest client can get into trouble – often out of ignorance. Therefore:

• Provide truthful information – when negotiating a contract and when reporting a claim.
• Don’t sign anything without reading it – especially when it comes to settling an insurance claim.
• Keep evidence – photos, receipts, emails, testimonials.
• When in doubt, consult a lawyer – a professional can help you avoid making mistakes.

Summary

Insurance fraud is the deliberate misrepresentation or concealment of important information when arranging insurance or making a claim, with the aim of wrongfully obtaining money. Although some may consider such conduct to be a “clever use” of insurance, it is in fact a criminal offence that is subject to severe legal penalties in the Czech Republic, including the possibility of imprisonment. Insurance fraud is increasingly common and includes, for example, inflating damage to a vehicle, fake thefts or staged accidents, often carried out by individuals and organised groups. Thanks to modern systems and cooperation with the police, insurers are increasingly able to detect such fraud, with perpetrators facing not only criminal prosecution but also other consequences such as criminal records, recovery of sums wrongly paid, loss of credibility or termination of the insurance contract and inclusion in the database of risky clients. It is therefore important to provide truthful information, read contracts carefully and seek professional legal advice when in doubt, as even inadvertent mistakes can lead to problems, while lying is often costly.