Soft Fraud: The Hidden Threat to Insurers in Home & Property Claims
In this article, we want to shine a light on what we consider one of the most under-reported issues facing insurers dealing with ‘Home’ claims: soft fraud. It is an often undetected or unprovable type of fraud that pervades wherever property insurance is sold.
By sharing our experience of investigating these claims, we hope to show that soft fraud is not inevitable. With the right processes and some simple but effective techniques, it can be identified, mitigated and – in many cases – prevented altogether.
The Scale of the Problem
When insurance fraud makes the headlines, it’s usually the dramatic stories: crash-for-cash, vehicle arson or Ghost Broking. But beneath the headlines lies the slow-burning ember of property claims soft fraud.
Soft fraud is not the work of elaborate criminal networks. It is usually a genuine claim that gets padded out: a damaged roof with a few extra items added to the loss list, or a broken appliance included in a claim but which actually failed long before the insured event. It may look minor. It may even seem harmless. But the reality is very different. Soft fraud costs the UK insurance market and honest policyholders billions of pounds every year.
The Association of British Insurers (ABI) reports that detected insurance fraud in the UK tops £1.1 billion annually. Property-related fraud makes up a significant share, with the average fraudulent household claim worth around £15,000. And while the public often thinks of fraud as outright lies, much of what is uncovered is exaggeration: your classic soft fraud. The consequences are severe. Fraud drives up costs for insurers and ultimately pushes up premiums. The ABI estimates that fraud adds around £50 to every household’s annual premium.
So, while the individual padding their claim may believe they are just “balancing the books,” in truth, they are passing costs onto every honest customer in the market. Soft fraud is rarely planned. More often, it’s a moment of rationalisation:
“I’ve been paying insurance premiums for years. This is my chance to get something back.”
“It’s only one extra item. They’ll never notice.”
In today’s challenging cost-of-living climate, with premiums on the rise, the temptation becomes even stronger. But normalising this behaviour undermines the trust that insurance depends on. Without that trust, the system simply doesn’t work.
But It’s Getting Harder to Hide
For years, soft fraud was hard to detect. Yes, a small exaggeration buried inside a genuine claim does still slip through. However, be under no illusions: the industry has invested heavily in fraud detection, and the toolkit is continually expanding. Here are some of the tools and initiatives that are applied.
- Weather data is cross-checked to confirm whether conditions were severe enough to cause the reported damage.
- Retailer databases verify purchase dates, purchase values and provenance.
- Smart-home devices and high-resolution imagery, including drone footage, are used to cross-check events.
- Specialist experts, from jewellers to surveyors, can spot inconsistencies and tell-tale signs of embellishment.
The ABI reports that detection improvements now prevent over £1 billion in false claims every year. And as analytics and artificial intelligence develop further, that figure will only increase.
The message is simple. What once slipped through is now less likely to do so. The consequences for policyholders, from cancelled cover to criminal prosecution, are serious. But despite this, too many soft frauds still slip through the net.
Learning From Innovation
At DLB Investigations, we witness first hand the damage caused when soft fraud goes unchecked until late in the claims process. Often, by the time we are called in, policyholders are frustrated, complaints have been raised, and costs have already escalated. Conventional investigation may not be sufficient. To address this, we developed IRIS (Intelligent Risk Identification System). IRIS analyses claims data at the point of instruction, cross-checking against multiple sources to flag inconsistencies early. Within 48 hours, we will have interviewed the Policyholder, checked key data sources, and reported back to the insurer, providing them with a clear view of where to focus further investigation or to execute a substantiated repudiation.
The key lesson here is not that one system or process is a panacea, but that early identification is always the answer. If the industry invests more heavily in spotting anomalies at the very start of the claim lifecycle, we can save money, speed up settlement for honest customers and rebuild trust in the process.
One of the biggest challenges with soft fraud is perception. Most people who commit it do not consider themselves fraudsters. In fact, most see themselves as upstanding citizens and come across that way in every interaction. For them, an exaggerated claim feels like levelling the playing field somehow. We’ve seen various examples of soft fraud, from exaggerated damage claims based on a simple spill, to supposedly “lost” necklaces and fake invoices for flood repairs. How can we be so sure that we encountered them? Because the policyholders confessed to doing it! More about that below.
Here’s What We Can All Do Better
Insurers
- Transparency: Be clear with customers that exaggeration is fraud and outline the consequences.
- Education: Public campaigns work. We need to highlight the real cost of fraud.
- Consistency: Apply rules fairly and visibly to reinforce deterrence.
Policyholders
- Honesty: Claims must reflect reality, not perceived opportunity.
- Awareness: The myth that “everyone does it” is false – and it’s indefensible.
Investigators
- Openness: Explaining the situation calmly often leads to honest disclosure, but accusations rarely do.
- Patience: Take the time needed to establish the full picture.
- Precision: Remind claimants that a “statement of truth” is just that, and inaccuracies must be corrected.
Changing Culture
Soft fraud is more than a minor irritation. It is a cultural challenge. And culture only shifts when we talk about it openly and consistently.
Please add to this article by sharing your experiences and best practices.
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- Have you seen soft fraud creeping into home claims?
- How is your organisation tackling it?
- Do you think we are doing enough to educate the public, or is the focus still too heavily on detection after the fact?
NB: The more we share, the harder it becomes for soft fraud to thrive in the shadows.
