In today’s evolving insurance landscape, staying ahead of fraudsters is not just advantageous, it's imperative. For Property and Casualty (P&C) insurers in the United States, the need to employ advanced fraud detection approaches in 2024 cannot be overstated. The stakes are higher than ever, and the urgency to modernize outdated systems is essential.
Here are three compelling reasons why C-suite executives must prioritize this initiative without delay:
Fraudsters growing sophistication makes schemes harder to detect
Fraudsters are becoming increasingly sophisticated in their techniques, leveraging advanced technology and exploiting vulnerabilities in traditional fraud detection systems. What worked in the past may no longer be effective in combating modern fraud schemes. Currently, the insurance industry is witnessing a surge in complex fraud cases, ranging from falsified claims to organized crime syndicates orchestrating large-scale scams. Fraudsters are now leveraging genAI and even agentic AI to generate highly convincing documents, deepfakes, and orchestrated scam scripts, making detection far harder. These fraudulent activities not only result in substantial financial losses for insurers but also erode trust among policyholders and stakeholders.
An extensive investigation by the Inland Empire Automobile Insurance Task Force in 2024 uncovered a large-scale organized auto insurance fraud ring in Southern California, resulting in the arrest of 12 individuals. The ring engaged in multiple fraudulent schemes, including holding vehicles hostage and orchestrating collusive collisions, often with the cooperation of towing companies and auto body repair shops. Investigators also found that a non-sworn California Highway Patrol (CHP) employee unlawfully sold traffic collision report face pages, which were then used to contact victims under false pretenses, steal their vehicles, and extort insurers. That investigation ultimately led to charges against 15 suspects connected to 19 fraudulent claims. In 2025, the Inland Empire task force again highlighted the persistence of these schemes, charging 16 more individuals in Southern California with vehicle-hostage scams and staged collisions that defrauded insurers of nearly $217,000. Fraudulent tow companies also exploited wildfire victims during the chaotic aftermath of California’s Eaton Fire, seizing cars and demanding exorbitant fees for their release, underscoring how opportunistic and adaptive these fraud networks have become.
Act now or pay later: fraud losses are rising 10-15% annually
The financial repercussions of insurance fraud are staggering, with billions of dollars lost annually to fraudulent activities. According to the Coalition against insurance fraud (CAIF), fraud accounts for an estimated $308.6 billion in losses each year in the United States alone, of which $90-122b comes from Property & casualty (P&C). Recent studies suggest that 25-30% of the claims today involve GenAI altered fake images, medical reports, and valuation certificates. Detecting fraud in documents is especially challenging to scale, and without the latest capabilities, insurers will see an exacerbation of claims losses. These losses not only directly contribute to higher premiums for honest policyholders but also impact the bottom line of insurers. CAIF estimates insurance fraud costs the average US customer about $900/yr. Higher premiums drive good customers to switch to lower cost alternatives, creating retention challenges. Higher premiums also impede the insurers ability to attract new customers, slowing down growth. The ripple effects extend beyond monetary losses, tarnishing the reputation of insurance companies and undermining the integrity of the entire industry.
In 2025, the total cost of insurance fraud in the U.S. is now estimated to exceed $308.6 billion annually, a dramatic increase from the ~$80 billion cited just two years ago. Property & Casualty (P&C) fraud alone accounts for an estimated $90–122 billion of this total, or roughly $9–12 million in fraud costs per $1 billion of Gross Written Premiums (GWP). Post-disaster fraud remains a significant driver, with Florida-based insurers continuing to report billions in storm-related fraud losses after major weather events. If insurers fail to act now and modernize their fraud detection systems, the financial toll will escalate further. Industry-wide fraud losses are climbing 10–15% annually, translating to an extra $30–45 billion in yearly costs. With Combined Operating Ratios (COR) for P&C insurers hovering around or above 100% since 2020, this escalation is pushing many carriers into unsustainable financial territory. A higher COR means insurers are paying out more in claims and expenses than they earn in premiums, forcing premium hikes, eroding competitiveness, and accelerating customer churn. To buffer against these risks, insurers increased their loss reserves significantly: in 2024, reserves were raised by ~6–7%, or about $6–7 million per $1 billion of GWP, further straining profitability and capital requirements. Sustained financial stress continues to draw heightened regulatory scrutiny under both state and federal solvency oversight.
Regulatory crackdown: increased scrutiny brings fines, reputation risks, and imprisonment
The National Insurance Crime Bureau (NICB) reports that insurance fraud is subject to various federal and state laws, with penalties including fines, restitution, and imprisonment. In 2025, regulators stepped up enforcement: the National Health Care Fraud Takedown charged 324 defendants across the U.S., involving $14.6B in intended losses and seizing $245M in assets. California authorities also prosecuted a $1.3M Medi-Cal fraud scheme and multiple workers’ comp fraud cases. Insurers must also comply with regulations such as the Sarbanes-Oxley Act (SOX), which mandates rigorous internal controls and reporting standards to prevent fraud and financial misconduct. The False Claims Act (FCA) exposes insurers to penalties for fraudulent claims practices and misrepresentations to government entities. In recent years, regulatory frameworks such as the Fraud Act and Anti-Money Laundering (AML) regulations have been reinforced to combat fraud across various industries, including insurance. State-specific insurance statutes regulate auto claims handling and policy cancellations, holding insurers accountable for timely and accurate claims processing (Department of Financial Services). Additionally, the NAIC provides model laws and regulations that states adopt to ensure market conduct and consumer protection, which can result in significant fines for non-compliance. These regulatory frameworks collectively ensure that insurers adhere to fair practices and maintain transparency in their operations. Non-compliance with these regulations can result in severe penalties, including fines, legal sanctions, and reputational damage.
Legacy fraud detection systems vs, AI capabilities
Traditional fraud detection systems, which rely on simple rule-based methods, struggle against sophisticated and evolving fraud networks. These systems are good for spotting known patterns but often fail against new tactics and coordinated schemes. This makes insurers vulnerable to new threats if they rely only on government alerts or patient tips. Missing complex claims can seriously harm an insurer's financial health and reputation. Homegrown systems can't keep up with constantly changing regulations, exposing insurers to regulatory actions.
In contrast, Artificial Intelligence (AI) enhances fraud detection by analyzing large datasets to identify complex patterns and connections indicative of fraud. AI can proactively identify suspicious activity, process data efficiently for real-time responses, and integrate various data sources for comprehensive analysis. AI's network detection capabilities reveal complex fraud schemes by mapping connections among seemingly unrelated entities, a feature traditional methods lack. Partnering with a vendor that specializes in AI-driven fraud detection ensures regulatory compliance and leverages their expertise and scale.
Conclusion
The imperative for US P&C insurers to modernize their fraud detection systems in 2025 cannot be overstated. The convergence of rising fraud sophistication, escalating financial impact, and regulatory scrutiny underscores the urgency of action. C-suite executives must recognize that the cost of inaction far outweighs the investment required to fortify their defenses against fraud. By embracing technological advancements and prioritizing fraud detection initiatives, insurers can not only mitigate financial losses but also uphold the trust and integrity of the insurance industry as a whole. The time to act is now—there's no room for delay in the fight against insurance fraud.
About the Author
Head of Sales Enablement & Market Intelligence, Shift Technology
