Car insurance fraud is a serious crime that costs car owners, insurance companies, and the general public millions of dollars every year. While some people may think car insurance fraud is a victimless crime, nothing could be further from the truth.
In fact, insurance fraud can have a ripple effect on everyone who pays for car insurance. Not only does it drive up the cost of premiums for everyone, but it can also lead to innocent people losing their lives.
This blog post discusses everything you need to know about car insurance fraud, from how it’s perpetrated to its effect on the industry.
What Is Car Insurance Fraud?
Car insurance fraud occurs when someone deliberately lies or withholds information to secure a lower premium, or when they make a false claim after an accident has occurred.
There are two main types of car insurance fraud: hard and soft fraud. Hard fraud occurs when someone deliberately stages an accident or makes a false claim in order to collect insurance money.
Soft fraud occurs when someone lies about their driving history or withholds information to get a lower premium. While this type of fraud is not as serious as hard fraud, it can still drive up the cost of premiums for everyone.
How Does Car Insurance Fraud Affect Me?
Car insurance fraud affects everyone who pays for auto insurance, whether you’re the victim of a fraudulent accident or not. That’s because it drives up the cost of premiums for everyone.
According to the National Insurance Crime Bureau, car insurance fraud costs Americans more than $30 billion every year. And the Insurance Information Institute estimates that fraud adds about $400 to the average annual premium.
So, even if you’ve never been the victim of fraud, you’re still paying for it in the form of higher premiums.
What Are the Different Types of Car Insurance Fraud?
Auto insurance fraud happens in several ways. As mentioned earlier, the two main types of this type of fraud are hard and soft fraud. We examine these types of fraud and many others below:
1. Hard Fraud
Hard fraud is when someone deliberately stages an accident or makes a false claim in order to collect insurance money. This type of fraud is also known as “crash for cash.”
One common type of hard fraud is called “swoop and squat.” This is when a fraudster rear-ends a victim, then blames the accident on the victim. The fraudster will then make a false claim for injuries sustained in the accident.
Another type of hard fraud is called “ghosting.” This occurs when a driver with no insurance intentionally causes an accident, gives the police a false name, and disappears. The victim is then left to deal with the repairs and any injuries on their own.
2. Soft Fraud
Soft fraud occurs when someone lies about their driving history or withholds information to get a lower premium. While this type of fraud is not as serious as hard fraud, it can still drive up the cost of premiums for everyone.
One type of soft fraud is called “fronting,” which occurs when a parent insures a car in their name for a child who is the primary driver. The parent does this to get a lower premium, even though it’s not technically legal.
Another type of soft fraud is called “odometer fraud.” This happens when a car dealer sells a car with a false odometer reading. The lower the mileage, the higher the price of the car.
While odometer fraud is not only illegal, it can be dangerous. That’s because a car with more miles is more likely to break down and need repairs.
3. Agent Fraud
Although most car insurance professionals are honest, purchasing your auto insurance through an agent who isn’t trustworthy may cost you. If you’re in the market for a new car insurance policy, do your research on the agent or broker before signing any paperwork.
Some dishonest agents may try to sell you a policy that doesn’t exist, or one with significantly lower coverage than what was promised.
Others may charge you for add-ons that were never discussed, such as towing coverage or roadside assistance. And some may even forge your signature on the policy.
4. Windshield Replacement Rip-offs
Most states in the country require a deductible for windshield repair replacement, which is the amount you have to pay before your insurance company reimburses you. The standard deductible is $100- $300, but some companies offer a $0 deductible, which may seem like a great deal.
However, there are some dishonest auto glass repair companies that will take advantage of this by charging you the full price of the windshield replacement, regardless of your insurance coverage. They may also try to upsell you on additional repairs that are not actually necessary.
To avoid this type of fraud, be sure to get multiple estimates for any auto glass repairs, and never sign anything until you’re sure of the total cost.
You should also check with your insurance company to see if they have any preferred vendors for windshield replacement.
5. Staged Accidents
A staged accident is when two or more people conspire to create an accident to collect insurance money. This type of fraud is also known as “Crash for Cash.”
One common type of staged accident is called “swoop and squat.” This is when a fraudster rear-ends a victim, then blames the accident on the victim. The fraudster will then make a false claim for injuries sustained in the accident.
Another type of staged accident is called “drive down.” This is when a fraudster purposely cuts off a victim, causing the victim to brake suddenly. The fraudster will then make a false claim for injuries sustained in the accident.
Staged accidents are becoming increasingly common as insurance premiums continue to rise. If you are involved in an accident, get the other driver’s insurance information and take photos of the scene. You should also report any suspicious behavior to the police.
What Are the Consequences of Car Insurance Fraud?
While car insurance fraud might not seem like a big deal, it can actually have severe consequences. For one, it’s illegal in all 50 states. And if you’re caught committing fraud, you could face hefty fines, jail time, or both.
Additionally, insurance fraud drives up premiums for everyone. So even if you’re not caught committing fraud, it’s still affecting your bank account.
And finally, car insurance fraud is dangerous. Staged accidents can lead to real accidents, and people could get hurt.
How Do I Report Car Insurance Fraud?
If you suspect that you’ve been the victim of car insurance fraud, or if you’ve witnessed someone committing fraud, you should report it to your state’s insurance department. You can also file a complaint with the National Insurance Crime Bureau.
You can find your state’s insurance department’s contact information on the National Association of Insurance Commissioners website.
When Do Insurance Companies Actually Pursue Fraud?
The truth is that insurance companies don’t always pursue fraud, even when they have evidence that it’s occurred. That’s because investigating and prosecuting fraud is expensive, and the chances of winning a case are often slim.
However, there are some instances when an insurance company will pursue fraud. For example, if the amount of money involved is large, or if the fraud is particularly egregious.
Additionally, some states have insurance fraud bureaus that investigate and prosecute insurance fraud cases. So, if you live in one of those states, it’s more likely that your case will be pursued.
Preventing Car Insurance Fraud
The best way to prevent car insurance fraud is to be aware of the most common types of fraud and to know what to look for.
If you’re involved in an accident, be sure to get the other driver’s insurance information and take photos of the scene. And if you suspect that you’ve been the victim of fraud, be sure to report it to the authorities.
By taking these precautions, you can help to prevent car insurance fraud and keep premiums low for everyone.
The Bottom Line
Car insurance fraud is a serious problem that affects everyone. If you suspect that you’ve been the victim of fraud, be sure to report it to the authorities. And if you’re involved in an accident, be sure to take precautions to protect yourself.
Feel free to speak with an experienced insurance agent to learn more about car insurance fraud and how you can protect yourself.
