Car Insurance Fraud: Everything you need to know

By Randy Luton | Last Updated: 08/25/2022

Key Insights:

  • The rise of car insurance fraud has become a huge problem for drivers as well as companies.
  • Car insurance fraud can be of multiple types based on different factors.
  • The consequences of getting caught for car insurance include monetary fines and jail time.
  • There are different ways a driver can try to avoid becoming a victim of insurance fraud.

Car insurance frauds are increasing rapidly because of the rising inflation and people finding it difficult to afford insurance, healthcare, and even food. Especially after the pandemic; some drivers are trying to earn extra money via small frauds.

Today it has become important for the driver and company to stay safe from all types of automobile insurance frauds. To help you in this; RateForce has created this detailed guide to gain some clarity. Keep reading till the end to understand everything about fraud in our car insurance industry.

What is Car Insurance Fraud?

Car insurance fraud occurs when a driver tries to provide false information to the insurer to get money for the claim which he or she is not entitled to receive. Automobile insurance fraud is strictly illegal in all the states of our country and its consequences are bad for the drivers if they get caught.

Categories of Car Insurance Fraud

There are different types of auto insurance fraud and these can be divided into two categories: Hard and Soft. To protect ourselves from these frauds we need a clear understanding of what exactly are these two categories.

Hard Fraud

Hard car insurance fraud is when you plan or invent a loss deliberately knowing the consequences and effects of your actions. In short; you know that what you are doing is wrong but you still decide to do that.

Let’s consider that you are going through a tough financial time and you decide to get some money from your insurer. As a result; you set fire to your car which is already insured to get some money. In this case; you know that setting fire intentionally will damage the car. Then while filing a claim you will have to create a whole story to make it look genuine.

Soft Fraud

Soft car insurance fraud is also known as opportunist fraud. This occurs when you decide to lie or exaggerate things a bit to get a slightly higher premium or to make conditions favorable. In this, the claim will be legitimate but the driver will try to twist the facts a bit.

For example; your vehicle gets collided with another vehicle and you decide to exaggerate the accident a bit to get a higher premium.

9 Types of Car Insurance Frauds

Now let’s have a quick look at the different types and examples of automobile insurance fraud.

  • Counterfeit Airbags
    It is very easy for mechanics to fool a driver and insurance company in case of airbags replacement. The mechanic will add faulty airbags instead of a fresh one after an accident as no one will know about the airbags until the next accident.
    On the other hand; they can also claim the need to change the airbags even when it was not required. They will not even replace the existing ones and will add them to your claim bill.
  • Staged Accidents
    Drivers around the country can stage accidents in different ways like slamming a brake while there is traffic behind. Staged accidents are a way to show that the driver was not at the fault and still can get a good claim amount.
  • Agent Fraud
    Both company and driver can be a victim of agent fraud. There are times when drivers pay their premium to the agents and then those agents run away with their money. In this case, the company and driver will be at loss. But most probably the driver gets the policy from the company by proving that he/she has made a payment.
  • Windshield Replacement Fraud
    Windshield replacement has become a popular fraud nowadays. You may find people at petrol pumps, garages, public parking spaces, etc. who will tell you that your windshield is damaged and needs replacement, even if it is perfectly fine.
    These people will then replace your branded windshield with a local bad-quality windshield. Then your insurance company will get a bill for a branded expensive windshield. This will increase your premium amount to a huge extent at the time of the next policy renewal.
  • Towing Scams
    Just like windshield replacement fraud; people are roaming on highways and deserted roads with tow trucks to fool drivers. They look for desperate drivers and offer help to them. In exchange for this small help, you will be stuck with them as per their conditions.
    As a result; you will end up paying a lot more money than you should.
  • Filing A Claim With Fake Car Insurance
    In this digital world, it is easier to generate fake documents and this is creating a huge problem for insurance companies. Drivers try to file claims by using fake car insurance documents and take huge claims in exchange.
  • Multiple Claims Filed For A Single Accident
    Another way some drivers try to extort money from insurance agencies is by filing too many claims for one accident. They try to use one damage in a different form to claim money again and again.
  • Fake Injury Claims
    This can happen with the driver and the company. If a driver gets into an accident with another driver and that driver wants to leverage that situation to make some money then he or she will fake an injury to get a claim. On the other hand; drivers also try to extort their own car insurance company with a fake injury to get claim money.
  • Fraudulent Car Repairs
    Drivers who have friends as mechanics or garage owners try to do this more often than others. Drivers will create a fake bill for car repair and try to get claims for that from the company.

Consequences of Car Insurance Fraud

If you ever get caught for auto insurance fraud then punishments can be bad. In most cases; there are no fixed consequences written anywhere and these are completely dependent on different factors.

The most important factor is; the seriousness of your fraud to the insurance company. If exaggeration about damage is a small fraud to your company then they might just add a few hundred bucks to your premium as a car insurance frauds punishment.

But filing a false claim for an entirely false situation or accident is a huge deal for every company. This can lead to policy denial and getting banned by the company along with monetary fines and jail time.

How To Report Car Insurance Fraud?

The first and foremost step is to inform about the fraud to your agent or the complaint department of the insurance company. This will keep you out of the question.

Secondly; inform the National Insurance Crime Bureau (NICB) about the fraud and people involved in it. NICB is an organization that will help by investigating insurance fraud by partnering with insurers and law enforcement. You can contact the NICB at 1-800-TEL-NICB (1-800-835-6422) or report the fraud activity online on their website using this form.

How To Avoid Auto Insurance Fraud?

We all know that being a victim of fraud is not pleasant. There are certain ways we can try to protect ourselves from fraud:

  1. Be Honest With Applications and Claims
    Even if it looks more attractive, lying on your claim application is wrong. It does not matter if your parents, your friends, your agent, or your partner ask you to do it. Check the claim thoroughly and make sure there are no exaggerations and lies on the application.
  2. Get A Photo Inspection
    A photo inspection can reduce the chances of insurance costs to a huge extent. You will be asked to show the most recent photos of your vehicle. In most of the states now car insurance companies have made it compulsory for a photo inspection by a third party company.
  3. Drive Carefully
    The universal way of saving any driver from automobile insurance fraud is to follow all the traffic rules and drive carefully. This will help you to avoid road accidents which ultimately lead to no filing of the claim.
  4. Alert Your Insurance Company
    If you feel your agent is trying to fool you or a mechanic is trying to fool you then inform your insurance company instantly. Your insurer will take preventive steps and this will save you from filing a huge false claim.
  5. Report The Scam
    It is your responsibility to report a scam as soon as you see one. By reporting a scam you will be out of the picture and safe from any involvement with the scam. The insurance company will not be held responsible for collaborating with a mechanic or any other third party for a claim.

How To Get Better Insurance Rates After Car Insurance Fraud?

We know that it is difficult to get affordable car insurance rates after a fraud. We have listed out three simple, tried, and tested ways to get cheaper rates:

  • File Claims Wisely
    Keep a check on your claims. File claims only when you can not afford the repair cost. If the repair cost of your car is a few hundred bucks or any amount under your budget then you can try to avoid filing a claim.
    Check the type of claims added to your policy. There are times when agents add false claims and take a commission on them.
  • Shop Around
    The second way to save money on car insurance is to get rates from different companies and compare them. You might have to spend some time on the research to get the data but the results are worth it.
    By comparing different quotes you will get a clear idea of what other companies are providing at a similar cost.
  • Exclusion
    Try to exclude a driver with checkered history from your policy. It can be your roommate or a family member, but such drivers can have a negative impact on your policy.

FAQs About Car Insurance Frauds

  • Is car insurance fraud a crime in all 50 states?

    Yes, car insurance is considered a crime in all the fifty states of our country. Even some states have hired fraud bureaus to check fraud incidents.

  • What type of fraud occurs most frequently in car insurance?

    The most common car insurance fraud is Premium Diversion. This occurs when insurance agents fail to send the premium amount to the company and spend it.

  • Is lying to an insurance company a crime?

    Yes, and you can even go to jail for it. People try to twist the facts of the accident or at the time of filing a claim and this can lead to serious punishment.

  • Can you go to jail for insurance fraud?

    Yes, there are chances that you might get jail time for insurance fraud. If the fraud amount is too high or the fraud is too serious.

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SOURCES

  • Read an article on Forbes about the impact of the COVID-19 pandemic on car insurance frauds on 26th March 2022.
  • Checked III to understand the basics about auto insurance frauds from a legal perspective on 26th March 2022.
  • Visited NICB website for car insurance fraud reporting form on 26th March 2022.
  • Checked Help Stop Fraud Organization website to know the auto insurance frauds punishment on 26th March 2022.

Editorial Guidelines: The above is meant as general information to help you understand the different aspects of auto insurance. This information does not refer to any specific auto insurance policy. Coverages and other features vary between insurers, vary by state, and are not available in all states. References to costs of coverages/repair, average or typical premiums, amounts of losses, deductibles, etc., are indicative and may not apply to your situation. We encourage you to speak to our insurance representative and to read your policy contract to fully understand your coverages.

Randy Luton is the Founder and CEO of RateForce. He is passionate about InsurTech services and has in-depth knowledge about the auto insurance sector of the USA.