The Psychology Of Fraud

by Dr. Michael Skiba

Why Do Fraudsters Commit Fraud Over Other Types of Crime?

This article will infuse criminological theory into the fraud environment in order to assist with counter fraud efforts. Enjoy this 2-part article to be continued in the next newsletter! In this first section, we will dive into criminological theories, learning about the concepts and principles regarding criminal behavior. Next week, we will learn how all of this can be applied in an insurance fraud setting.

Criminology is defined as the scientific study of the nature and causes of criminal behavior. Criminologists seek to explore why criminals choose deviant behavior over law abiding choices. Criminological theory helps to define and explain the root causes of behavior using biological, psychological, and sociological perspectives. Having a knowledge base of these theories will assist the fraud fighter develop an understanding of what motivates the fraud perpetrator, which will assist with highly focused counter fraud efforts.    
Let's first focus on the foundational criminological theories and then apply these in a fraud setting.
There are three major schools of criminology: Biological, Psychological, and Sociological.
Biological theory proposes that deviant behavior is “inborn” and present at birth. For example, studies have shown that there is a statistically significant relationship between levels of testosterone and aggression, indicating that higher levels of this chemical in the body lead to more deviant/violent behavior. Psychological theory discusses how mental deficiencies contribute to criminality. The works of Sigmund Freud are the foundation of many of these principles which focus on deviant behavior as the result of abnormalities and disturbances within an individual's psychological makeup. Finally, sociological theories place emphasis on environmental factors as the main cause of deviant behavior. All of these  three school of criminological thought have been well applied by researchers and criminologists in other criminal areas, such as homicide, robbery and assault, but there has been a lack of application toward insurance fraud offenders.  
There is strong evidence in the application and use of all three criminological schools of thought, however, my research has revealed that the sociological perspective would be the most applicable in a counter fraud setting. Let's delve into two specific sociological theories; keep in mind their applicability in counter fraud approaches.


Rational Choice Theory was developed by Clark and Cornish in 1990 and focused on how offenders are rational thinkers and make rational choices to commit crime. The main tenets of this approach focus on how an individual will weigh the costs and benefits and make end/mean calculations. An offender will evaluate the risks vs. rewards of an action and then behave accordingly. Fraud is known as a low risk, high reward type of crime; it is therefore not surprising that many criminals have turned to fraud from other “traditional” crimes such as drug trafficking. Thus, it follows that counter fraud efforts should focus on reducing opportunity, which will cause these rational thinkers to go elsewhere!


Routine Activities Theory (RAT) was developed by Lawrence Cohen and Marcus Felson in 1979; this theory also found support for environmental factors as an influencer to behavior. RAT  theory proposes that three critical elements must be present for crime to occur: suitable targets, capable guardians, and motivated offenders. When all three components align, crime occurs.  Researchers and academics have applied RAT in many other criminal settings (such as burglary and auto theft) and found extremely strong support.  The potential for crime reduction is extremely high because environmental factors can easily be altered.  

Within the RAT framework, suitable targets would be insurance-fraud victims, or insurers and their policyholders. The motivated offender would be the fraudster, and the capable guardian would be anyone with control, such as a gatekeeper. This theory proposes that when one of the three elements are removed from the relationship, crime will not occur. In applying this to insurance fraud, if insurers as suitable targets alter their counter fraud strategies, then this will reduce opportunity, disrupt the continuum, and reduce fraud occurrences. Insurance companies can disrupt the continuum by making themselves less-suitable targets by designing more-aggressive analytical red-flag systems, increasing the use of critical gatekeepers such as analysts and claims staff, and supporting public outreach.
In part 2 we will take all of these core principles and apply them in a fraud setting….stay tuned….

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About the author

  • Dr.

    Dr. Skiba (also known as “Dr. Fraud”) has worked in the insurance fraud industry for 22 years in various claims, Special Investigations, and leadership roles. He is currently Vice President of Counter Fraud Strategies at INFORM. He has also been a professor for 12 years and is currently Lead Faculty of Fraud Management at Colorado State University Global Campus. He is an international speaker and regular publisher on the topic of insurance fraud. He holds an MBA and a PhD with a concentration on economic crime and insurance fraud. He is also the President of the NY Chapter of the International Association of Special Investigative Units.

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