What is the Fraud Triangle and its impact?

Cath Sandoval

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The insurance fraud has always existed and not only affects insurance companies, but also their policyholders, so in this article we will talk about the Fraud Triangle and its impact on the insurance industry.

To give you an idea, it is estimated that the cost of insurance fraud (companies’ losses) amounts up to 40 billion dollars a year, which directly affects the cost of premiums for policyholders.

Why is the fraud committed? What is the impetus for doing so?

Pay close attention to the content of this article, little by little we will be breaking down the Fraud Triangle Theory and how it generates the ideal conditions to generate fraudulent behavior.

What is the Fraud Triangle?

This is a model used to explain why an individual makes the decision to commit fraud. This helps us understand the motivation and mindset of fraudsters.

Starting by this, if we can understand why and how insurance fraud occurs, we can work to stop it, so let’s break down the 3 vertices of the triangle into:

01. The Oportunity:

Insurance fraud cannot happen unless an opportunity presents itself. That said, these opportunities can be difficult to mitigate and even more difficult for insurance companies to control.

An opportunity for insurance fraud can arise from any situation, including: “The ability to redefine or exaggerate claims.

Un informe de 2015, elaborado por investigadores económicos alemanes, descubrió que la “redefinición” y la “exageración” eran las dos formas más comunes de realizar acciones fraudulentas con los seguros.

A 2015 report by German economic researchers found that “redefining” and “exaggeration were the two most common forms of insurance fraudulent actions.

We give you an example about this!

Imagine that a claim is made for a loss due to damage that is not covered by the insurance policy. This person will redefine what has happened so that the damage fits with some coverages and with this, access the payment. 

These types of policyholders also take advantage of all the “loopholes” that are reflected in the company’s agent’s report to get their hands on an even higher amount of money than it should be. This is known as exaggeration.

02. Disinformation: an excuse to commit fraud

Misinformation is another form of opportunistic fraud. For example, a customer may see the price of his or her auto insurance policy go up by naming his or her 18-year-old daughter as the primary driver.

Faced with this situation, the insured has two options. Either he pays more or he remains the main driver despite the fact that his daughter is the person who will be using the car the most (this option involves a significant risk, but many policyholders opt for it).

Tras una investigación realizada por la Research commissioned by the Association of British Insurers se descubrió que la mayoría de los casos de fraude se realizan porque el asegurado confía y piensa, que nunca va a ser descubierto o que, simplemente, cree que lo que está haciendo no es ningún delito.

Following an investigation by the Research commissioned by the Association of British Insurers, it was discovered that most cases of fraud are carried out because the insured trusts and believes that he will never be discovered or that he simply believes that what he is doing is not a crime.


Finally, we can say that insurers have an advantage in combating fraud. To eliminate the opportunity, it is enough to close the doors through which fraud can be committed. 

To this end, we have two questions we can ask ourselves:

Are insurance agents trained to detect the warning signs of a claim, and do their systems encourage or facilitate the most common fraud?

Artificial Intelligence tools will be able to simplify the collection and verification of evidence of claims and also make it easier for customers to file claims, minimizing insurance fraud.

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