Insurance fraud is on the rise, and it might impact you more than you think. Historically, in hard economic times, crime increases. Perhaps many people who are otherwise law-abiding citizens find themselves pinned between a rock and a hard place and must find a way to cheat the system in order to survive. People get desperate and try to file fraudulent insurance claims in order to find a source of income.

How Does Insurance Fraud Affect You?The insurance industry measures fraud by keeping track of “questionable claims.” A questionable claim is one where the insurance company, sends the claim to a separate nonprofit bureau for closer review based on their initial indicators which may show signs of fraud.

The number of questionable insurance claims in 2011 rose 9 percent over 2010 according to the National Insurance Crime Bureau. Fraud is committed by various parties for different reasons. Fraud can happen at any time from applications to claims.

The most common types of fraud include:

  • "Padding," or inflating, actual claims.

  • Lying on an insurance application.

  • Submitting claims for injuries or damages that never occurred

  • Submitting claims for services never provided or equipment never delivered.

  • "Staging" auto accidents.

There is an active fight against insurance fraud. To date, 42 states and the District of Columbia have set up anti-fraud agencies to try and detect, report, and convict those who commit insurance fraud. In recent years, these agencies have reported increases in all aspects of insurance fraud including referrals, cases, convictions and court-ordered restitution.

Health, workers' compensation and auto insurance are the types of insurance most vulnerable to fraud. Workers comp fraud saw an 8 percent jump in 2011, and inflated medical billing saw an overwhelming 113 percent increase over the last year. The National Insurance Crime Bureau report also highlighted questionable claims regarding faked and exaggerated injuries and "excessive" treatment.

The Consumer Federation of America official, says the increase in questionable insurance claims is bad for consumers. Those committing fraud are not the ones paying the price; it’s the rest of us who see our premiums go up. "Insurance fraud adds to the costs people pay for insurance," bureau spokesman Frank Scafidi says. "It is believed that roughly $30 billion in insurance fraud occurs each year, just in the property and casualty lines. That doesn't include health and life insurance fraud. At some point, that $30 billion gets underwritten by insurance consumers all across America through higher premiums and fees."

This is one of the unfortunate reasons insurance premiums go up each year. However, it is important to note that most insurance claims are legitimate. Research shows that fraudulent claims account for just 1 percent of all insurance claims. This means that the majority of citizens are not trying to cheat the system, but doesn’t change the fact that everyone must pay for the mistakes of a few.