Fraud, inaccurate information, and misrepresentation cost the U.S. personal auto and homeowners insurance markets an estimated $45.3 billion annually, according to an analysis released by insurance risk-assessment company Clearspeed.
The analysis estimates the cost of inaccurate information and fraud at $31.6 billion annually for auto insurance and another $13.7 billion for homeowners insurance.
And those losses don’t necessarily stay on insurers’ balance sheets.
Instead, insurers can account for expected fraud and other losses when setting rates, passing on at least some of the expense to policyholders through premium increases.
The National Insurance Crime Bureau (NICB), citing research from the Coalition Against Insurance Fraud, estimates that insurance fraud results in roughly $900 in additional annual premium expense per policyholder.
The FBI has also estimated the impact at $400–$700 annually for the average U.S. family.
“It’s embedded in loss costs, goes through the rate-making process, and ultimately ends up being a pretty important factor in what the premium levels are,” Rob Hoyt, a risk management and insurance professor at the University of Georgia, told P&C Specialist.
$45.3 billion is an estimate, not a tally of documented losses
Clearspeed calculated its estimated figures by assuming about 10% of policies involve fraud or misrepresentation and that insurers lose about 15% of premiums associated with those policies.
For consumers already facing rapidly rising insurance costs, that could mean another hidden expense built into their premiums.
So far this year, 27 states have seen their insurance rates increase, according to Insurify data. Drivers in seven states and Washington, D.C., pay more than $3,000 annually for full-coverage car insurance. Meanwhile, Insurify projects the average annual cost of home insurance in the U.S. will increase by 4% in 2026, reaching $3,057 by year-end.
Fraud costs more than the fraudulent claim
Insurers have spent decades building systems designed to catch false information and suspicious claims. These systems can include additional documentation, verification, investigations, and other procedures — costs that apply even when a customer is telling the truth.
And those systems mean insurers now face not only the financial losses stemming from fraud and inaccurate information but the expense and customer inconvenience of trying to detect it.
The results show up on more than just a policyholder’s bill. Legitimate policyholders can face additional questions when buying coverage, requests for documentation, longer claim investigations, and delays in receiving claim payments.
Clearspeed contends insurers could reduce those costs by better distinguishing low-risk customers from cases that merit additional scrutiny.
Home insurance may be particularly vulnerable
Clearspeed’s research argues that homeowners insurance could be the first major personal insurance market where rising losses, affordability problems, and the costs of operating in a “low-trust” environment become unsustainable.
That’s because fraud and inaccurate information are just additions to a much longer list of forces putting upward pressure on home insurance costs. Rising construction and repair expenses, severe weather, reinsurance costs, and insurers’ reassessment of catastrophe risk all play roles in pushing home insurance premiums higher.
And the costs associated with all these perils are becoming increasingly visible to consumers via steep renewal increases, higher deductibles, non-renewals, and difficulty finding coverage.
Can insurers trust customers without treating everyone like a suspect?
Clearspeed’s report states insurers need to rethink the system because it subjects millions of legitimate customers to fraud-prevention measures designed to catch a relatively small number of bad actors.
“It is no longer arguable. The U.S. insurance system has evolved into a low-trust system that cannot run indefinitely, as the costs of a few overwhelm the many,” study author Kim Garland said in a statement announcing the analysis.
The challenge is finding a way to identify suspicious behavior without making insurance more difficult for everyone else — or creating new problems involving privacy, accuracy, or discrimination.
For policyholders, the stakes are substantial. If insurers can reduce fraud and the cost of detecting it, consumers could theoretically benefit from lower expenses and faster claims processing.
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