Insurance Fraud in the U.S.: Legal Penalties and How Consumers Can Protect Themselves

Insurance fraud is costly, widespread, and prosecuted at both the state and federal level. From staged auto accidents and bogus property claims to large-scale health-care billing schemes, fraud drives up premiums, wastes taxpayer and insurer resources, and can put honest consumers at legal risk if they unknowingly participate in—or fail to report—suspicious activity. This article explains the key federal and state laws used to prosecute fraud, typical penalties, and practical steps consumers can take to protect themselves. (NAIC)

What counts as insurance fraud?

Insurance fraud takes many forms. Common examples include:

• Fabricating or exaggerating a claim (staging an accident; inflating damages).
• Submitting false information on an application to get a better premium.
• Identity theft that results in fraudulent policies or claims filed in your name.
• Health-care billing schemes where providers or billers submit false claims to insurers or government programs.

States treat many of these acts as criminal offenses; a single scheme can also trigger federal charges (mail/wire fraud, health-care fraud) when interstate communications or federally-insured programs are involved. (NAIC)

Federal laws commonly used in prosecutions

Several federal statutes are used when an insurance fraud scheme crosses state lines, involves electronic communications, or targets federal programs:

• 18 U.S.C. § 1347 (Health-care fraud): Prohibits schemes to defraud health-care benefit programs and is used heavily in prosecutions of fraudulent billing or kickback schemes. Penalties include fines and imprisonment — generally up to 10 years, with enhanced terms (up to 20 years or life) if serious bodily injury or death results. (Legal Information Institute)
• 18 U.S.C. §§ 1341 and 1343 (Mail and Wire Fraud): These statutes criminalize schemes to defraud using the postal service or interstate electronic communications (email, phone, online billing). Each offense can carry severe federal penalties — including up to 20 years’ imprisonment in many cases, and higher sentences when the fraud affects disaster relief funds, financial institutions, or federal programs. (Legal Information Institute)

Federal prosecutions are often brought by U.S. Attorneys, sometimes working with agencies such as the Department of Justice, FBI, and Health & Human Services–Office of Inspector General in health-care matters. The DOJ’s criminal guidance explains how multiple statutes may apply and how penalties are calculated. (Department of Justice)

State laws and enforcement: who investigates?

Every state treats insurance fraud as a crime; many have dedicated anti-fraud bureaus or divisions that investigate and refer cases for prosecution. The National Association of Insurance Commissioners (NAIC) reports that dozens of states operate specialized fraud units and even runs an Online Fraud Reporting System to route tips to the correct state agency. States’ specific statutes and sentencing schemes differ (felony vs. misdemeanor, fines, restitution, prison terms), but penalties commonly include fines, restitution, license revocations (for brokers/providers), probation, and state imprisonment. (NAIC)

For example, state consumer-facing resources such as the California Department of Insurance emphasize that many insurance-fraud referrals are prosecuted as felonies and can lead to jail or prison plus fines and restitution. Other states publish similar guidance and provide hotlines or online forms for reports. (California Department of Insurance)

Typical penalties — a quick snapshot

Penalties vary by statute and facts, but here are representative outcomes you may see in prosecuted cases:

• Federal health-care fraud (18 U.S.C. §1347): Up to 10 years’ imprisonment (longer if serious injury or death), plus fines and forfeiture. (Legal Information Institute)
• Mail/wire fraud (18 U.S.C. §§1341, 1343): Generally up to 20 years’ imprisonment; up to 30 years and larger fines if the fraud involves a financial institution or federally declared disaster relief funds. (Department of Justice)
• State insurance-fraud statutes: Penalties range from misdemeanor fines and probation for small false claims to felony sentences (years in prison), heavy fines, restitution to victims, and professional license loss for agents or providers. See your state insurance department for exact penalties and reporting details. (California Department of Insurance)

High-profile fraud rings — such as medical billing networks that submitted millions in false claims — can lead to long federal sentences and forfeiture of ill-gotten gains. (AP News)

How consumers can protect themselves

Being proactive reduces your risk of becoming a victim or unwittingly entangled in fraud. Follow these steps:

1. Guard your personal information. Don’t share Social Security numbers, policy numbers, or account logins unless you initiated contact with a verified insurer or provider. Shred documents containing financial/ID data. (FTC guidance on identity theft is a helpful reference.) (Consumer Advice)
2. Monitor your credit and insurance accounts. Check credit reports regularly and monitor insurer portals for unexpected activity. Place a fraud alert or security freeze if you suspect identity theft. (Consumer Advice)
3. Verify agents and policies before you buy. Confirm a broker or carrier is licensed in your state by checking your state insurance department website. Beware of “too good to be true” offers or high-pressure sales. (insurance.kansas.gov)
4. Document legitimate claims carefully. Keep photos, receipts, repair estimates, and a timeline of events. Honest, complete documentation makes it harder for fraud to be conflated with your legitimate claim and helps speed processing.
5. Use secure communication channels. File claims through insurer portals or official phone numbers. Avoid sending sensitive documents over insecure email or to unknown third parties.
6. Know how to report suspected fraud. Use your state insurance department’s fraud tip line or the NAIC Online Fraud Reporting System to report suspicious activity. You can also file a police report if identity theft or criminal acts are involved. (ofrs.naic.org)

If you’re contacted by investigators or accused

If law enforcement or a state insurance fraud unit contacts you about a claim or suspected fraud, be careful:

• Respond politely but do not give long statements without counsel.
• Preserve documents and communications related to the claim.
• Consider consulting a lawyer experienced in insurance or criminal defense if the inquiry escalates.

Bottom line

Insurance fraud erodes market trust and costs honest consumers through higher premiums. The United States prosecutes fraud aggressively under both federal statutes (health-care, mail, and wire fraud among them) and state insurance laws — penalties include fines, restitution, license loss, and imprisonment. Consumers can fight back by protecting personal data, monitoring accounts, documenting legitimate claims, and reporting suspicious activity to state fraud bureaus or the NAIC’s Online Fraud Reporting System. If you think your identity or policy has been misused, act quickly: freeze your credit, contact your insurer and state insurance department, and, when appropriate, law enforcement. (Legal Information Institute)