12 Types of Car Insurance Fraud Revealed

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Car insurance fraud occurs when one or more parties lie to an auto insurance company to secure a lower rate or profit from a claim payout. Fraud can be minor, like a small lie on your car insurance application, or extreme and dangerous, like staging a car accident. Some forms of car insurance fraud are felonies and can have legal consequences.

According to the Coalition Against Insurance Fraud, 68% of consumers do not know the various forms of auto insurance fraud. Keep reading to learn about insurance fraud and how to protect yourself.

What Is Car Insurance Fraud?

Car insurance fraud is when someone deceives an auto insurance company for financial gain or lower rates. Financial gain commonly takes two forms: lower rates or the cash payout from a fraudulently filed insurance claim. Fraud can be committed by the policyholder or another party, such as another driver staging an accident at your expense or an auto repair shop or doctor inflating the cost of their services.

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What Types of Car Insurance Fraud Are There?

There are two types of car insurance fraud: soft fraud and hard fraud.

Examples of soft fraud: Soft fraud is typically a misrepresentation of facts on a car insurance application, such as submitting your sister’s address because her neighborhood has a lower crime rate and will lower the cost of your comprehensive coverage. Other examples include underreporting the number of drivers in your household and overreporting the value of your losses in a car accident.

Examples of hard fraud: Hard fraud usually involves profiting from a car insurance claim payout as a result of premeditating a car accident with another driver or arranging for your car to be "stolen." Hard fraud can be considered a felony with severe legal consequences.

12 Ways Car Insurance Fraud Can Happen

You can be the perpetrator or unknowing victim of car insurance fraud. Below, we’ve compiled 12 types of car insurance fraud you should recognize.

1. Vehicle Dumps (Then Reporting a Stolen Vehicle)

Drivers commit vehicle dump fraud by disposing of or destroying their car and then filing an insurance claim for auto theft. Some drivers get creative, disposing of their cars in different ways:

  • Setting the car ablaze
  • Sinking the car at the bottom of a lake
  • Selling it to another owner without documentation
  • Sending the car to a “chop shop,” where the car is disassembled for parts and sold

2. Registration Fraud

Consumers commit registration fraud, also called “rate evasion,” when they lie on their car insurance applications to secure a lower premium. Common lies on a car insurance application may include:

  • Lying about your annual mileage: High-mileage drivers pay more because they are more likely to get into an accident due to more time spent on the road.
  • Using a different address: Car insurance companies charge different rates by zip code because rating factors, such as collision and crime rates, can vary by location. Drivers who submit an application with a zip code with a lower theft rate may enjoy lower insurance premiums fraudulently.
  • Under-reporting the number of household drivers: Adding a driver to your insurance policy may increase your premium. Some might omit a driver because their high-risk driving history can drive up rates considerably.
  • Lying about garaging your vehicle: Drivers who garage their car may qualify for a lower rate because a garaged car is less likely to experience theft or a break-in than a car parked on a public street.

Soft fraud is typically a misrepresentation of facts on a car insurance application.

3. Staged Accidents

Staging an accident occurs when you plan a collision to profit from the subsequent accident claim. You can also be the victim of a staged accident. Unscrupulous drivers may lure you into a collision in which you look responsible at first glance. According to The National Insurance Crime Bureau (NICB), staged auto accidents account for billions of dollars in losses in paid accident claims annually.

Example: Driver A is on a four-lane road preparing to turn left into a parking lot. In the oncoming traffic lane, Driver B slows to a stop and signals for you to turn. As you begin turning, Driver B suddenly pulls forward to block your path. Driver C, the accomplice to Driver B, approaches in the oncoming traffic lane and crashes into Driver A. Driver B flees the scene and Driver C files a liability claim against Driver A for turning left before yielding to oncoming traffic.

In this scenario, Driver A is the victim of a fraudulent accident staged by Drivers B and C.

4. Agent Fraud

Not all insurance agents are licensed to sell auto policies and may even sell you a fake policy and pocket the money. Or, the insurance agent may be licensed but embezzles your premium payments. To ensure you’re working with a legitimate agent, request their license number and search it on your state’s Department of Insurance database.

5. Faulty Windshield Replacement

Windshield replacement insurance scams occur when dishonest glass repair vendors approach unsuspecting drivers in public places and offer to repair their supposedly “defective or damaged” windshields immediately. They claim the replacement is fully covered under insurance. However, some drivers may be replacing their perfectly functional windshield with a dud but their insurer gets billed for a premium quality replacement.

Be cautious of any vendors who approach you with a windshield replacement and attempt to incentivize you with freebies, such as a complimentary car wash.

6. Faulty Airbag Replacement

Dishonest repair shops commit fraud when they replace their customers’ airbags with shabby, used ones but bill the insurance company for the retail value of a new one. This form of fraud is dangerous, as a serious accident may turn fatal if your airbag fails to protect you or your passengers.

Car insurance fraud is when someone deceives an auto insurance company for financial gain or lower rates.

7. Towing Scams

Be wary of a tow truck that conveniently arrives just after you experience an accident. The tow truck may be involved in a network of fraudulent providers and will take your car to a dishonest repair facility or refer you to an exploitative medical provider who charges high prices. The repair shop may even hold your car hostage until they receive payment.

8. Vehicle Switch

This type of fraud occurs when the policyholder purchases a lower-value car but falsifies documents that suggest the car is of higher value. The driver then dumps the car and files a claim to get reimbursed for the higher-value amount.

Example: John purchases an older functional car with dings and scratches for $10,000. When purchasing insurance, John provides documentation that suggests the model is actually valued at $20,000. Six months later, he later dumps the vehicle, files a claim and receives a check for $20,000, the value of the newer model.

9. Inflated Losses

The parties involved in an accident can inflate their losses in an attempt to secure a higher settlement. This typically looks like overstating the cost of repairs  or exaggerating pain and suffering or faking an injury.

Example: After experiencing a fender bender, Jane was sued by the other driver for pain and suffering. The photos show there was no damage to either car, yet the other driver walked into court wearing a neck brace and reporting severe neck pain. Fender benders are typically minor car accidents but the other driver in this situation is exaggerating her losses to convince the judge to grant a higher settlement.

Repair shops can also commit insurance fraud by billing your insurance company for unnecessary replacement parts or lying about additional time and labor.

10. Intentional Damage to Your Vehicle

Similar to staging accidents with another driver, you cannot damage your own vehicle and file an insurance claim for those losses. This can include scratching, burning or breaking into your own car. This also applies to worsening the damages if it was legitimately damaged in a covered accident.

Hard fraud usually involves profiting from a car insurance claim payout as a result of premeditating a car accident with another driver or arranging for your car to be "stolen."

11. Including Pre-Existing Damages in a Claim

Insurance providers will only cover you for losses related to a covered accident. If you received a dent in your bumper from an at-fault accident last year and you did not have collision insurance, then you cannot claim that dent in your losses if you get into a covered accident after.

Example: Jane got into a car accident while driving uninsured and suffered moderate damage to her passenger side door. Jane never reported the accident. Later, Jane bought car insurance but did not notify her insurance company of the car accident. Two months into the policy, Jane gets rear-ended but includes her passenger side door in the claim, hoping she’ll get additional reimbursement.

12. Lying About an Excluded Driver

You are committing fraud if you file an insurance claim for an accident and claim that you were driving the vehicle but it was actually an excluded driver behind the wheel. Policyholders lie about this because insurance providers will not approve any claims for accidents if they occurred while an excluded driver was operating the vehicle.

Example: John’s son, James, was listed as an excluded driver because of his age and high-risk driving history. James borrows John’s car but gets into a car accident. Since James is an excluded driver, John reports the accident to his insurance company but lies and says that he was driving the car.

How Can To Tell if You’ve Fallen Victim to Car Insurance Fraud

Here are some signs to watch if your recent car accident was actually a staged event:

  • After an accident, tow trucks or third parties called “runners” suddenly appear and refer you to specific repair facilities or doctors.
  • A physician urges you to file a personal injury claim but you’re uninjured.

You can be the perpetrator or unknowing victim of car insurance fraud.

What To Do if You’ve Experienced Car Insurance Fraud?

If you’re at the accident scene, call the police or highway patrol if you suspect something shady is happening. A police report that reports the actual damages can be useful if the other driver attempts to inflate their losses later on. Also, notify your insurance agent about suspected fraud when you file your insurance claim. You can report suspected fraudulent activity to your state’s fraud bureau or Department of Insurance, as well.

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How To Avoid Car Insurance Fraud

Staying honest on your car insurance application, following safe driving habits and watching for red flags that signal a staged accident can help you avoid car insurance fraud. Here are some other tips below:

  • Do not tailgate.
  • After an accident, thoroughly document damages to both cars and injuries with photos, witness testimonies and dashcam footage.
  • File an insurance claim after an accident and notify your insurance agent if you suspect fraud.
  • Steer clear of “runners” who attempt to direct you to specific medical providers or lawyers immediately after a car accident.
  • Double-check your insurance application form for mistakes.
  • Do not admit fault, sign any documents or agree to any arrangements at the accident scene. Notify the officers, if needed, and your car insurance company for what to do next.
  • Call the police if you suspect you’re a victim of fraud or in the process of getting scammed.
  • Call your insurance company if any party offers to do repairs to your car on the spot.
  • Do not accept services from solicitors in public places, like parking lots.


Is lying on an insurance application considered fraud?

Also called rate evasion, lying on a car insurance application to secure a lower premium is a form of soft fraud.

What are the consequences of car insurance fraud?

Depending on your state and the severity of the offense, car insurance fraud may be a felony and can result in fines and imprisonment.

How is insurance fraud detected?

Many insurance companies have investigation departments that will look at detailed vehicle data, criminal records and even social media posts in individual accidents. For larger cases, more resources are poured into identifying organized fraud networks that involve multiple parties (e.g., medical providers, repair shops, tow truck companies) profiting from false claims.

Key Takeaways

  • Car insurance fraud is lying to an insurance company for financial gain — usually to profit from a claim payout or to secure a lower premium.
  • Types of soft fraud include underreporting the number of drivers in your home or inflating the severity of your damages after a car accident.
  • Hard fraud is considered a felony and can include staging an accident or filing a claim for theft after dumping your car.
  • If you suspect you’re a victim of fraud, notify the policy, your insurance company and consider contacting your state’s Department of Insurance.

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