Insurance Fraud

09 Nov 2021

Try to be “clever”and suffer the consequences: Don’t do this when buying insurance!

YG Financial Services reminds you: “white lies” are absolutely unacceptable!

The purpose of buying insurance is to buy protection and pass on risks. But, did you know that in New Zealand about 20% of general insurance companies refuse to pay?

There are many reasons for the refusal of compensation. Of these, the policy holder “concealing information” or “lying” to the insurance company accounts for a considerable proportion.

In many cases, the person concerned feels they are simply telling innocuous “white lies”, but once discovered, the insurance company will consider it to be insurance fraud. Not only are they refused compensation, but the insured may also face other consequences: being unable to buy insurance in the future, being unable to obtain loans (eg. to buy a house), and you may even be held criminally liable in serious cases.

Today, YG Financial Services is here to tell you about “insurance fraud” – a matter with serious consequences. Let’s look at which behaviours are considered insurance fraud, the consequences of insurance fraud and how to avoid it.

 1. What is insurance fraud

  •  Concealing information (Non-disclosure)

    When you buy insurance, you usually need to fill out a long form and answer many questions. This process is called “underwriting”, and is important because the insurance company needs to collect your relevant information to determine your premiums and insurance terms.

    For example, in health insurance, the insurance company needs to know your past health status and living habits, such as whether you smoke or not. Non-smokers are relatively less likely to suffer from various diseases, so the premium will be lower. Conversely, the premiums of smokers will be higher.

    At this stage, the policyholder needs to provide all relevant information honestly and frankly. If there is any concealment, the insurance company may refuse to compensate in subsequent claims.

    Case study:

    Mr. S runs a flooring business. Because it is the main source of income for his family, he has purchased income protection insurance for himself. But when he bought the insurance, he did not tell the insurance company that he had had depression, spinal issues, liver problems and related examinations.

    A year later, he submitted a claim to the insurance company because of a headache that rendered him unable to work. As a consequence, the insurance company retrieved and reviewed all his medical records, determined that he had concealed the information and rejected his claim.

    Mr. S argued that these were old conditions which he had forgotten about a long time ago. The insurance company replied that if Mr. S had truthfully informed them of his complete medical history at that time, they would not have provided insurance.

    Mr S regretted it but, as there was nothing he could do, he had to sell his own flooring business in the end.


  • Deliberate Fraud

    This refers to deliberate and planned actions to mislead and deceive insurance companies in order to obtain insurance money. For example, if someone sets fire to their own house or falsifies theft to obtain insurance compensation, they are committing deliberate fraud.

    Case study:

    Two years ago, Miss M, who had purchased property insurance, contacted the insurance company claiming that a diamond-encrusted necklace had been stolen. She demanded compensation, and provided the insurance company with a photo as evidence. The insurance company found that the photo of the necklace came from a shopping website, and the price of the necklace was 30 euros.

    The insurance company not only refused to settle the claim, but also cancelled all the insurance policies Miss M held with them. It also uploaded Miss M’s information to the New Zealand Insurance Claim Register (ICR) and noted”dishonest” next to the entry.

    When Miss M was about to buy a house last year, she found that she could not buy home insurance from any insurance company, so the bank refused to give her a loan. Miss M’s long-held dream of buying a house was shattered through her dishonest action, which she now regrets.



  • Exaggerating

    When making a claim to an insurance company, exaggerating the extent or value of the loss in order to obtain more compensation is insurance fraud.

    Case study:

    Mr. J lives in Canterbury and runs a motel that includes 20 parking spaces. He has purchased commercial insurance for himself.

    When there was an earthquake, he filed a claim with the insurance company for the loss of the motel and parking lot. However, the insurance company discovered after investigation that although his motel was indeed damaged in the earthquake, the parking lot was not damaged. In the end, the insurance company only compensated for the damage to the motel, and the claim for the parking lot was rejected.


2. Consequences of insurance fraud

Some people think that insurance fraud is a victimless crime, and the only “loser” is the wealthy insurance company.

But in fact, policyholders themselves suffer a big loss.A report by the New Zealand Insurance Fraud Bureau (IFB) stated that in 2020, insurance fraud caused New Zealand insurance companies and policyholders to lose $739 million, meaning that each household lost $398. It is conceivable that these costs will be passed on to many innocent policyholders in the following year. This is also one of the reasons why premiums have risen from year to year.

In addition, once insurance fraud is uncovered, the insured may face one of the following three situations:

  1. The insurance company refuses to settle the claim.
  2. The insurance company refuses to settle the claim, cancels the policy, and uploads the customer’s information to the New Zealand Insurance Claim Register (ICR).
    This database is shared by more than 95% of insurance companies in New Zealand to prevent and detect insurance fraud. Once registered and labelled fraudulent in the database, it will be difficult for this person to buy any insurance in New Zealand for many years.
    In New Zealand, banks need home buyers to provide housing insurance in order to issue loans. In this case, the possibility of this person having a loan approved to buy a house is also very slim.
    In addition, if the person has previously applied for a mortgage agains this own real estate, the bank will urge the person to repay the loan after discovering that the person cannot provide insurance.
  3. If the circumstances are serious, such as insurance fraud involving huge amounts or life-threatening situations, then the perpetrator will be prosecuted and it becomes a criminal case.


3. How to avoid insurance fraud

The consequences of insurance fraud are so serious. How can insurance companies help ordinary policyholders avoid committing insurance fraud by accident or through forgetfulness?

YG Financial Services reminds you: during the underwriting and claims process, you must provide true and accurate information. Don’t play tricks at this time or you are likely to bring down serious consequences on yourself.

Here is another useful thing to do when applying for personal insurance: in order to prevent yourself from missing details from your past medical history, you can ask your family doctor to provide your medical records, or you can download your own medical records after registering on the website.

Lastly, when applying for insurance and making claims, if you encounter uncertainties you need to consult a professional insurance consultant.


Still have questions about insurance fraud?

Worried about accidentally causing insurance fraud?

Want to update personal or family information in your policy?

Come and have a chat with YG Financial Services!

Contact us

Address: Unit 6, 33-35 Apollo Dr, Rosedale, Auckland 0632
Tel: 027 4321 454 (Yang Gu)
021 998 699 (Joanna Zhang)

Picture and case source:


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