It might not seem serious if you fudge your insurance application to get a lower premium or inflate the value of a claim to cover your deductible. But if you're not entirely truthful with your insurance company, you're committing fraud.
Claire Wilkinson, vice president of global issues for the Insurance Information Institute in New York City, says property and casualty insurance fraud cost insurers about $30 billion in 2004. Aside from blatant fraud, like submitting claims for damage that never occurred or staging accidents, common frauds include "padding," or inflating claims, and misrepresenting facts on an insurance application. Another common fraud happens when employers underreport the number of workers they have or misclassify employees to save on workers' compensation premiums. "When companies underpay workers' comp, it drives up premiums for every other business and shifts the burden for worker-related injuries to employers who report honestly," says Wilkinson.
Insurance companies can withhold payment where fraud is suspected, and they work closely with state and federal agencies to identify and prosecute fraud. If you are caught committing fraud, you risk fines and a possible prison term. For an entrepreneurial business, says Wilkinson, the impact could be catastrophic.