What is car insurance fraud? Staged accidents, false claims, and corrupt car insurance firms have led to car insurance fraud spikes. Let’s look at what constitutes car insurance fraud and the penalties it attracts.
There are over 7,000 companies that make up the insurance industry in the US. Combined, these insurance companies collect over $1 trillion in premiums yearly. However, a recent FBI report has revealed some rather alarming statistics. It states that the massive size of the insurance industry also makes it a prime target for committing fraud, especially car insurance fraud!
Excluding scams related to health insurance, the FBI estimates that insurance frauds cost the country over $40 billion annually. The rising insurance fraud cases have led to a significant increase in premiums over the years. Insurance fraud costs the average American family anywhere between $400 to $700 per year in increased premiums! Today, we’ll take a look at the different types of car insurance fraud and their penalties. We’ve also included tips on how to avoid car insurance fraud.
What is Car Insurance Fraud?
Insurance fraud occurs when a buyer or seller of an insurance contract commits a crime. Selling policies from non-existent firms and churning policies to generate more fees are examples of a seller committing insurance fraud. Exaggerating claims and staging accidents are some examples of buyer fraud.
You don’t always need an accident to commit car insurance fraud. Depending on where you live, certain actions are illegal, while others will result in the termination of your insurance policy. For example, you may be committing insurance fraud by hiding vital information from your insurer to get a lower rate.
Read: Factors that can raise your car insurance premiums
What are the Different Types of Car Insurance Fraud?
Car insurance fraud comes in a variety of forms. However, you can broadly categorize it into hard insurance fraud and soft insurance fraud.
Hard fraud occurs when you fabricate an event, such as filing a claim for a stolen car after you’ve sold it. The DMV defines hard fraud as when someone purposely causes an accident that permits them to file a fraudulent vehicle insurance claim.
Assume you’re traveling down the road when another vehicle pulls out in front of you. They deliberately slow down to bring your car closer to the rear of theirs, then slam on their brakes. You slam into the back of their car due to a lack of space and time to avoid a collision.
If this person accuses you of causing them injury and seeks damages, that person has engaged in hard insurance fraud. These incidents occur frequently, and they are notoriously difficult to prosecute. It’s difficult to prove they didn’t have an obstruction or another motive to brake more suddenly, whether they’re brake checking you on the interstate or getting in front of you and braking to cause an accident.
Read: What happens if I crash a car without auto insurance?
Hard fraud vs. soft fraud
Hard fraud can also occur if someone purposely removes items from their car and files a claim by playing the victim of car theft.
Soft fraud entails falsifying or exaggerating aspects of a legitimate claim, such as claiming that an old scrape on your car occurred in a recent accident. Omitting or misrepresenting crucial information on a car insurance application is an example of soft fraud.
You are committing soft fraud when you twist a valid claim for financial gain. You could be committing soft fraud when let’s say, you had a genuine claim but decided to embellish it with false information for a bigger claim.
Suppose you’ve been in an accident, and your car gets towed to a shop for repairs. The body shop then bills your car insurance company a premium rate while installing low-cost or counterfeit replacement parts. The car repair shop can be accused of soft fraud in this scenario.
Read: Credit card rental car insurance: How does it work?
Most Common Types of Car Insurance Fraud
Car insurance companies and law enforcement have discovered several types of car insurance fraud over the years. We have documented some of the most common insurance frauds here.
Some of the most common insurance frauds examples are as follows:Â
Falsely reporting a stolen car
Let’s assume you were a victim of car theft. When you find out your car has been stolen, you’d first call the police, followed by filing a claim with your car insurance provider. Once your claim is processed, your insurance provider will treat your car as a total loss; if you have it, your comprehensive coverage will kick in. This type of car insurance fraud can also be called ‘vehicle dumping.’Â
The insurance provider will reimburse you for the car’s actual cash value (ACV), which you can use to purchase a new one. However, if you intentionally abandon, destroy, or sell your car and then claim someone stole it, you are committing car insurance fraud.
Making exaggerated claims
Suppose you’re involved in a car collision with another vehicle, and you were at fault. In that case, your liability coverage kicks in to cover the other driver’s repair and medical expenses. However, it would be fraud if you exaggerated your claims. Examples include attributing older damage to your recent accident to get more money from your insurance carrier.
Staging an accident for compensation
Staged accidents have become quite prevalent all around the world. An insurance agent might find it difficult to prove that a fraudster staged the accident. Staged accidents typically include two parties: the fraudster and the victim. The fraudster’s goal is to provoke an accident and make it appear as if it was the other person’s fault.
Staging accidents to commit car insurance fraud is a serious crime. So if you believe you’ve been a victim, photograph the damage and notify your insurance provider immediately.
Read: Car accidents: How long do they remain on your record?
Windshield replacement and faulty airbag scam
This is yet another common form of car insurance fraud that has spread around the globe. The fraud is perpetrated by service centers and body repair shops in this situation.
If an airbag deploys or a windshield cracks due to an accident, the repair center may replace the damaged parts with low-quality replacements. In the event of a future collision, the airbag will not deploy, and the windshield will break more easily. The key is that the service center will demand compensation based on the cost of the high-quality part, netting them hundreds of dollars for each successful scam.
In California, installing low-quality airbags is a serious crime. Those committing this type of car insurance fraud can face $5,000 in penalties and up to a year in prison. The low-quality windshield scam has also been recorded in parking lots when con artists promise to have insurance-covered high-quality windshields ready for installation immediately.
Towing scams
Suppose your car broke down or you’re involved in an accident. Don’t let a tow truck take your car unless you’ve phoned them. Fraudsters are known to drive around looking for desperate motorists with broken-down vehicles to assist. If you allow them to take your car, they may force you to pay a large sum of money to have it returned to you.
Call a licensed tow truck firm or request a tow through your insurer if you have roadside assistance coverage.
Misrepresenting or omitting information
When you buy car insurance, you must provide personal information such as your ZIP code, driving record, and insurance history. If you leave out key data, such as a recent accident or DUI, your insurance provider will almost certainly notice when they check your driving record.
Suppose you lie about something that isn’t immediately detectable, such as saying you’ve parked your car elsewhere to receive lower rates. While you may think that this little lie may go unnoticed, the truth is you’ve just committed insurance fraud.
It’s also important to list all the drivers in your family on your insurance policy. If you leave your teenage child off of your insurance policy and they get into an accident in your car, your insurance may not cover it. The insurance company can refuse the claim even if the omission was unintentional.
Read: The basics of car insurance for teenagers
Could you go to jail for car insurance fraud?
Have you heard about the famous novel Crime and Punishment? Insurance frauds is a crime and for every crime there is punishment!
Yes, insurance fraud can lead to jail time, but only if your insurer reports the suspected fraud to authorities.
If your car insurance provider discovers you omitted crucial information on your application while reviewing a claim, they may refuse your claim. However, you are unlikely to face jail time. But your insurance carrier could raise your rates, and you’ll have to retroactively pay the additional amount to your insurer.
Your insurance company may cancel your policy entirely if they suspect a bogus claim. They may also turn you to law enforcement, where you could face misdemeanor or felony fraud charges. This is where the repercussions become much more severe: a fraud conviction can result in thousands of dollars in fines or even a prison sentence.
Read: Is it possible to get car insurance without a driver’s license?
Could you go to jail for lying to your insurance company?
As mentioned above, you are unlikely to face jail time for embellishing a claim. However, if you get caught, your insurance company can refuse to insure you in the future. On the other hand, if they find you running an insurance fraud ring specializing in provoking accidents for the purpose of filing claims, you could be penalized and face jail time
What are the penalties for committing car insurance fraud?
The type and severity of your actions often determine the penalty for car insurance fraud. An insurance company could face administrative and civil penalties for ending a contract or denying a claim. A driver who has committed severe insurance fraud can expect criminal penalties such as prison time, fines, and community service. The severity of penalties for insurance fraud boils down to the jurisdiction where the crime was committed.
Read: How to prep your car for the winter
Top tips to protect yourself from car insurance fraud
Follow these simple tips from the National Insurance Crime Bureau (NICB) to avoid being a victim of car insurance fraud:
- Do not tailgate:Â Car insurance fraudsters often use tailgating as an opportunity to set up a car crash.
- Call the police:Â Suppose you were in an accident and your car sustained minimal damage. Call the police and report the accident. Obtain a police report with the officer’s identity. This makes it more difficult for criminals to purposely damage a car after the fact to obtain a higher claim.
- Document the damage:Â Document any collision damage and the number of passengers in other cars with a camera or a smartphone.
- Record details of the accident: Keep a record of the accident, including the names of those involved in the car crash, their addresses, license plate, and driver’s license numbers. Get details of the witnesses and anything else that seems relevant.
- Avoid insurance adjusters and others:Â Do not engage with those who emerge out of nowhere at an accident site and try to point you in the direction of physicians and attorneys.
- Contact your insurer immediately: Even if you aren’t at fault, report the accident to your insurance company as quickly as possible.
How to report insurance fraud?
If you think there has been insurance fraud, you should call the Insurance Fraud Hotline or report it to the DFS.
What happens if you don’t use the insurance money for repairs?
It could be considered insurance fraud if you use the money for something other than paying for repairs caused by a covered claim. If you have extra money after your insurance claim repairs or if your insurance company overpaid you, it’s best to talk to them about what to do next. If you don’t do anything and use the money from your insurance for other things, your policy could be canceled, and the insurance company could report the incident.
Get car insurance coverage above state limits
Finally, don’t skimp on coverage in the mistaken belief that it would protect you from fraud. Scammers who commit these crimes want to gain as much money as possible from the insurance company, not you. They’re not going to take you to court if you’re underinsured. But don’t let that fool you into thinking it’s a good idea to deny yourself coverage.
If you’re in a real accident, you’ll need enough coverage to protect yourself financially. You will also need insurance to cover any repair costs or medical bills. Make sure you pick a policy that provides adequate coverage for you and your loved ones. Start your search for the best car insurance policy for your needs by tapping the banner below.
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