Which statement defines "soft fraud" in insurance?

• A. Deliberate falsification of claims
• B. Minor exaggeration of insurance claims
• C. Disguise of criminal activity
• D. Withholding information from the insurer

Answer: (B)

The definition of "soft fraud" in insurance is characterized by the minor exaggeration of claims. This typically involves individuals who may report a legitimate claim but choose to inflate it with additional, often minor details that are not entirely true. For example, a policyholder might exaggerate the value of stolen property or the extent of damage to enhance the payout they receive.

Soft fraud is generally considered less severe than hard fraud, which involves outright false claims or staging incidents. While soft fraud can still have significant implications for insurance costs and policyholder behavior, it often stems from a belief that the insurer can afford to cover the inflated claims rather than an outright intent to defraud. This understanding is crucial in distinguishing between various types of fraud occurrences in the insurance industry, illustrating the nuances involved in claims reporting and the ethical boundaries that should be maintained.