What is insurance fraud, and how does it affect my home insurance? 

Lying to your insurer or exaggerating a claim could actually be classed as insurance fraud. If that happens, your policy could be completely void.

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What is insurance fraud?

Insurance fraud happens when you intentionally lie to your insurer so you can gain something. It could be misrepresenting facts to get a cheaper premium, making a false claim to get a bigger payout, or deliberately damaging your old belongings so you can get new ones.

If you're found out, there can be serious consequences. Part or all of your claim may be denied, you could face a hefty fine, or you could even find yourself in jail.

The Insurance Fraud Bureau of Australia (IFBA) describes insurance fraud as an act of purposefully misrepresenting facts, manipulating the complexities of the claims process, or deliberating exaggerating legitimate claims.

Types of fraud

There are four main types of home insurance fraud:

TypeWhat it meansExample
Inadvertent non-disclosureYou're not completely truthful to your insurer but it was an accidental omission.You give the incorrect information about when your home was built and which materials were used.
Intentional non-disclosureYou deliberately lie to your insurer.You lie about your criminal record when asked by the insurance company.
Exaggerated claimYou suffer a genuine loss but tell the insurer it was greater than it actually was.Your home is burgled and several items are stolen. You tell the insurer the items were worth $5,000 when they were actually worth far less.
Deliberate fraudYou deliberately cause an event so you can claim, or lie to say an event happened when it didn't.You move your belongings to a friend's house and claim you have been burgled.

How insurers detect fraud

Insurance companies have lots of different methods of detecting fraud. Here are just a few common ways they can spot deception:

Employees. Insurers employ fraud detection experts and train their employees in the tell-tale signs of fraud. The person lodging or investigating your claim will know what to look out for and will raise the alert if they notice anything suspicious.

Technology. Insurance companies invest millions of dollars into technology which can predict the likelihood of fraud and detect instances of fraud. They use data analytics, artificial intelligence and machine learning which is difficult for the average person to beat.

Reports. It's difficult to commit insurance fraud without somebody finding out. Many cases of fraud are uncovered when the policy or insurance companies receive a tip-off from someone in the community who is suspicious.

Can I get home insurance if I have a history in fraud?

You might find it harder to get home insurance if you have a history of fraud. That's because insurers are allowed to ask about your criminal history if it relates to the policy you're buying.

If you have committed fraud recently, the insurer will likely decide that you're a much higher risk and could charge you much more for your policy or deny you cover altogether.

If you're struggling to find home insurance due to your criminal record, try searching for high-risk home insurance or contacting an insurance broker.

Why you shouldn't commit insurance fraud

Some people claim insurance fraud is a victimless crime, but that's not true. The Insurance Fraud Bureau estimates it costs the economy up to $2.2 billion every year and adds roughly $75 to every insurance policy.

There are also serious repercussions for people who are caught. You can face huge fines, community services, and even jail time. Even after that, you may struggle to find insurance due to your criminal history.

Even in less serious cases, you could still see your entire claim denied or your policy void, simply because you stretched the truth. It's better to be completely honest and up-front.

It's easy to avoid insurance fraud

Even honest people can accidentally commit insurance fraud, but there are ways to make sure this doesn't happen. Just be as honest as possible and if there's anything you're unsure about, ask your insurance company for help.

If you're uncertain about home insurance, you can read our guide for first-home buyers here. Or check out our complete guide on home and contents insurance.

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