Auto Insurance Fraud

Leonardo Castro
November 3, 2020

When setting up your car insurance policy you are signing a contract with the car insurance company. That insurance agreement settles how much the insurer will cover in case of an accident and the price of the premium you must pay each month to get the coverage. However, there are people who commit auto insurance fraud and hurt innocent customers by raising everyone’s rates. Insurance companies carry the cost of claims and investigations caused by criminal activity, which in turn increases insurance premiums across the board. According to the National Insurance Crime Bureau it is estimated that around 10% of claims are false insurance claims, which spills over to higher premiums for other drivers too.

What Is Auto Insurance Fraud?

Fraud is wrongful or criminal deception intended to result in financial or personal gain. Auto insurance fraud is when the driver or insurance agent deceives the insurance company by submitting false information to get money or pay less for their premium. In America, auto insurance is the second costliest white-collar crime. Auto insurance fraud can range from lying to crime rings that steal millions of dollars.

Types of Car Insurance Fraud

There are many forms of car insurance fraud and they are usually separated into two main categories, hard and soft insurance fraud.

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Hard insurance fraud is when an accidents is staged. For example having your car damaged on purpose and then claiming that it was damaged to get money is hard insurance fraud.

Soft fraud is when there is lying or exaggeration in a claim. In addition, soft fraud can also include not reporting everything or omitting information on a car insurance application. For example, when you report an old claim as a recent accident to receive more money.

Most Common Types of Insurance Frauds

Often, when a car is stolen the car insurance company will consider it a complete loss. You’ll be covered by your insurance company if you have comprehensive coverage. The insurance company will pay you the actual cash value (ACV) of the stolen car so you can purchase a new one. Fraudulent activity includes intentionally harming or “disappearing” your vehicle and filing a claim. This is a serious form of insurance fraud because you are deceiving your insurance company as a way to buy a new vehicle.

When you are in an at-fault car accident, your liability coverage covers the other driver’s damages and medical bills. Fraudulent activity includes exaggerating your own losses in a claim to get more money from your collision coverage. Also untrustworthy repair shops can also be guilty of exaggerating claims by adding unnecessary repairs for a bigger claim payout.

A “windshield replacement scam” is a fraud scheme in which a technician tells you your vehicle needs repairs and that your insurance will cover the repairs. This is fraudulent activity if they charge your insurance company much higher rates for the claims. This is why you must pay attention to the details.

When you purchase auto insurance, you will have to provide personal information such as zip code, driving record and credit score. Failing to provide accurate and honest details, like a recent DUI or accident, is another form of insurance fraud. In most cases the insurer will find out the truth, and you may be penalized with higher premiums for lying.

How Do Insurance Companies Detect Insurance Fraud?

Some auto insurance companies have in place a strong system of identifying and preventing fraud. For this reason, they ask for lots of information when you file a claim after an accident. In order to file a claim, the driver is often expected to include information such as a police report, photos and bills related to the accident. Often, insurance companies hire a dedicated team to fight insurance fraud. This team is usually a claims representative that decides how much your payout will be based on the documents you provide.

Some Insurance companies use software technology to identify fraud or suspicious behavior. The software warns the insurance company if it detects any suspicious activity which is then investigated by the insurance company. Insurance companies have also started to partner with anti-fraud groups and law enforcement to prevent insurance fraud through detection.

What Happens if You Are Guilty of Fraud?

In most cases, if an auto insurance company finds any sort of hard fraud being committed then it will turn over the case to law enforcement. If the insurance company suspects soft fraud, they will reject your application/claim and/or your premiums will be raised. In some cases, your policy will be canceled altogether. You will not have an easy time finding another insurer if you are dropped for any reason, especially fraud. Auto insurance fraud can result in heavy fines and prison time.

How to Avoid Becoming the Victim of Auto Insurance Fraud

Getting caught committing auto insurance fraud can obviously have negative consequences but you should also worry about being the victim too. Here are some ways to avoid becoming the victim of insurance fraud:

Many criminals will commit fraud by creating an accident. One common way that these criminals take advantage is by staging a collision to claim some money.

If you are involved in an accident then it is best to call the police and report the accident even if the accident is minor. This way, the criminals can’t exaggerate the claim by intentionally damaging their vehicles to get a bigger claim.

Even if you call the police and report it, try to get as much information as possible such as the details of the accident, like license plates, driver’s license numbers and witness information. Take as many pictures as you can to document the damage done by the accident.

Be cautious if your doctor insists you file a personal injury claim when you are not hurt. Report the accident to your insurance company as soon as possible even if you are not at fault.

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