P&C Insurers Lose $45.3 Billion to Fraud Each Year
Many fraud cases go undetected or unreported, making it difficult to know exactly how much the industry loses annually.
August 21, 2026
Insurers are losing billions in premiums and claims to fraud, but it's not just the obvious cases they need to worry about.
Fraud and inaccurate information cost the U.S. personal auto and homeowners insurance market an estimated $45.3 billion annually, according to an analysis published by insurtech Clearspeed. While fraud rings and elaborate schemes contribute to these losses, opportunistic misrepresentation known as "soft fraud" can easily fly under the radar.
Soft fraud happens when policyholders embellish or withhold information in legitimate claims or policies, which can result in larger payouts. For example, a policyholder may not disclose risks that would require a higher homeowners premium or they might exaggerate the value of a stolen item.
Policyholders bear the cost of fraud through higher premiums, said the author of the analysis, Kim Garland, a retired insurance executive and Clearspeed advisor.
Garland, who held positions at State Auto Insurance and AIG, said that during his time in the industry, he noticed that carriers use rate increases to deal with ongoing problems like fraud and social inflation. "Rate increases are almost a cure-all," he said. "That can become too easy versus trying to deal with the underlying driver."
Rob Hoyt, a risk management and insurance professor at the University of Georgia, said that whether carriers uncover fraud or not, customers pay the price.
"It's embedded in loss costs, goes through the rate-making process, and ultimately ends up being a pretty important factor in what the premium levels are," he said.
Garland argued that after years of double-digit rate increases, policyholders won't be able to bear these costs forever.
Cost of fraud
Garland's analysis estimated that fraud and inaccurate information account for approximately $31.6 billion annually in personal auto insurance and $13.7 billion annually in homeowners insurance.
He arrived at these industry losses based on his estimate that about 10% of policies contain fraud or misrepresentations and that insurers lose about 15% of premiums from those policies. From there, he calculated the dollar amount for new policies, renewal business and claims that insurers lose based on total industry premiums.
Fraud occurs in approximately 10% of property-casualty insurance losses, according to the Coalition Against Insurance Fraud. The number of questionable claims is on the rise, according to the National Insurance Crime Bureau. While not all questionable claims are fraudulent, this activity signals a higher likelihood of fraud, the organization previously told P&C Specialist.
It's difficult to estimate the amount or cost of fraud because a portion of it goes undetected or unreported, said Brent Walker, director of government relations at the CAIF. In most states, carriers must report fraud above a certain threshold, but even within the cases that are investigated, a smaller percentage gets prosecuted, he said.
Fraud mitigation
Advances in technology are making fraud more complex and difficult to detect. For example, claimants can use AI to fabricate receipts or manipulate photos of damages.
"Insurers are starting to understand that technology is needed to fight technology," Walker said.
Insurers who detect and reduce fraud will become more competitive, Hoyt said. "They're going to be more cost effective and therefore be able to charge lower premiums potentially than the competitors."
Effective fraud mitigation could also be a differentiator, Garland said.
Any meaningful change will have to come from the top. "If carriers want to change this, it's got to be senior leadership that drives it," he said.
Read article here.
