Why don't insurance companies increase their anti-fraud efforts to the maximum?

There are a number of reasons why insurers don't act as you suggest but the most important is the principle of Utmost Good Faith.  Insurance operates on the assumptions that all parties to the insuring contract treat each other in the best faith possible, meaning that they will be open and honest with one another and live up to all the obligations they have assumed under the contract.  Insurers often go out of their way to ensure they do this.  Without the principle of utmost good faith the industry loses it's integrity.  I could give you all sorts of additional arguments about how paying claims quickly and accurately is in the best interest of the insurer (which it is), or the terrible punitive damages insurers who have failed to act in good faith have faced, or even the risk of licenses to write insurance being revoked (which Mr. Conrad has rightly pointed out); however, to us insurance professionals it is all about Utmost Good Faith... we generally believe that what we provide is an important and valuable service and the integrity of what we do takes precidence over gross profit.

For an insurance company to actual rescind a policy, the purchaser would have had to breach the insurance contract, misrepresented the facts, or concealed information that is required for underwriting.  For example, if you tell your new medical provider that you have no pre-existing conditions, but it was found that you were in fact diagnosed with cancer, the insurance company has every right to (and should) rescind your  policy.  It may not seem nice, but it is right.   As the other posters stated, an insurance company cannot (and should not) arbitrarily refuse payment or rescind coverage because they simply don't want to pay.  It is illegal for them to do so, and the penalties can be quite severe.  But it does happen - rarely - but it happens.  You will find that it is most common in health insurance, where misrepresentation and concealment isn't always as clear as not stating a recent diagnosis, but could include not stating symptoms, not stating illnesses that were cured or went into remission decades ago, not considering yourself a "smoker" because you smoke only when you drink (and not daily as most smokers do), and the confusion when answering the questions on the form.

This question has already been answered by my peers pretty well.  I would just add that some companies have different models than others when it comes to underwriting and pursuing questionable claims.  Some companies are comfortable paying claims in order to move forward and keep legal fees at a minimum.  Other companies will fight tooth and nail in order to make sure they don't pay on any fraudulent claims. Most companies fall into a middle category where they have lawyers that look at each claim and make sure that the insured gets paid exactly what they are legally owed.  Unless there are a lot of red flags, it's hard to know if someone is commuting fraud.  For example, even of the business owner suspects that an employee is committing work comp fraud, there needs to be some kind of proof or reason to doubt the claim.  If there is an investigation, the company has to hire a private eye to follow the person around and take pictures and videos.  This is very expensive, but I would agree that in order to keep everyone honest and to keep overall fraudulent claims down (which keeps everyone's premiums lower) these people need to be investigated and prosecuted.  Usually, these people that fraudulently claim back pain get caught doing something active at another job or on or picking up someone or something on their birthdays.  Sadly, the DA needs it to be a 'big' case or have the case be a slam dunk for them to even take it.  Even if there is a conviction, the guys never serve a full term due to the amount of violent criminals crowding our prison system.  In CA from 2010-2011 there were 1,264 work comp cases resulting in 666 convictions for work comp fraud. http://Www.insuance.ca.gov/0300-fraud/0100-fraud-division-overview/0500-fraud-division-programs/workers-comp-fraud/index.cfm You also need to factor in that there is a lot of normal people out there that are committing "soft fraud."  These people aren't deliberately faking claims, but are exaggerating losses in order to get a bigger insurance payout. As you can imagine from my answer and others that there is no simple fix to the insurance fraud problem.

Life insurance claims are different than property and casualty insurance claims. Dead is dead. There is little equivocation. Once the insurance company is provided with a valid death certificate, if the policy is beyond the contestable and suicide exclusion period (normally 2years) the claim is paid.  During the first two policy years the claim could be denied if death is the result of suicide or there were material misrepresentations or omissions made on the application.  After this contestable/suicide period there should be no waiting once death has been verified. For valid claims there is usually interest added to the policy amount computed from the date of death to the date payment is made