How does an insurance fraud scam target policyholders?
Insurance scams either sell fake policies that pay nothing at claim time, or claim-pad and stage incidents to extract fraudulent payouts — with consumers sometimes victimised and sometimes unknowingly implicated.
Last reviewed: 10 June 2026
Explanation
Fake insurance sales are a form of advance-fee or subscription fraud in which a fraudster sells a convincing policy — motor, health, travel, or pet — collects premiums, and then becomes unreachable when a claim is made. These operations often exploit the desire for cheap cover by pricing slightly below legitimate providers. The policies look real: documents, policy numbers, and branded correspondence are fabricated.
A second category involves fraud against insurers that harms honest policyholders indirectly. Staged car accidents are a common example: a victim is deliberately caused to drive into another vehicle, whose driver and passengers then fabricate injuries and make exaggerated claims. This 'crash for cash' fraud pushes up premiums for all policyholders and may implicate the innocent driver in a fraud investigation they were not party to.
Claim padding — adding unrelated or nonexistent items to a genuine claim — is technically fraud that some policyholders engage in without fully understanding the legal risk. Insurers now share fraud databases, and a flagged claim can result in policy cancellation, higher future premiums, and in serious cases prosecution.
A third consumer-facing variant involves fake 'claims management' companies contacting people after accidents, encouraging them to claim for injuries they did not sustain, sometimes without the victim understanding the legal consequence of signing a fraudulent claim form.
Common red flags
- An insurer offers coverage at a price significantly below every other quote for the same risk
- The insurer cannot be found on your national insurance regulator's register
- A stranger contacts you after an accident encouraging you to claim for injuries
- A claims management company contacts you unsolicited about a potential claim
- Premium payments are requested via bank transfer rather than the insurer's official payment platform
- Policy documents arrive as low-quality PDFs with inconsistent formatting
What to do now
- Verify any insurer on your national financial regulator's insurance register before purchasing
- If you discover your policy is fake, report to the regulator and seek legitimate cover immediately
- If involved in a staged accident, report suspicions to your genuine insurer and police immediately
- Never sign a claim form for injuries or losses you did not genuinely sustain
- Report fraudulent claims management approaches to your national financial ombudsman
Frequently asked questions
Am I covered if I unknowingly bought a fake insurance policy?
No. A fraudulent policy provides no real coverage. In the event of a claim you will have no insurer. Report the fraud to the regulator and your national compensation scheme if one exists for insurance fraud victims.
What is 'ghost broking'?
Ghost broking is when a fake insurance broker sells a genuine policy in your name but with false details, making the policy void. They pocket the premium while you carry an invalidated policy without knowing.
Can I be prosecuted for being an unwitting participant in a staged accident?
If you sign documents claiming injuries or losses you did not sustain, you may be considered a party to fraud. Seek legal advice and disclose what happened to your insurer honestly.