Car Insurance Fraud: Common Schemes, Red Flags, and Legal Consequences
Car insurance fraud, which involves deceiving an insurance company for your personal financial gain, is a growing concern for every insurance company today. When people file fraudulent claims for nonexistent damage or exaggerate the value of their claims, that’s fraud — and it hurts everyone. Increased fraud means insurance premiums go up for all drivers and insurance may become harder to qualify for in the future.
This guide to auto insurance fraud covers common fraud schemes, warning signs to watch out for, the typical penalties for car insurance fraud, and tips for protecting yourself.
What Is Car Insurance Fraud?
Car insurance fraud is when you intentionally lie to or otherwise deceive your insurance company to get lower insurance rates, a higher insurance payout, or any other benefit you aren’t entitled to.
Fraudulent claims typically come in two types: hard fraud, which involves deliberate deception, and soft fraud, which entails exaggerated claims or misrepresented information about a car, driver, or accident.
Examples of car insurance fraud include lying about pre-existing damage, getting nonexistent services performed from body shops and taking fees for services performed, or even organized accidents in order to get an insurance payout. Not surprisingly, all of these are illegal.
The cost of insurance fraud today exceeds $308 billion while auto insurance fraud costs insurers at least $29 billion per year.
Common Car Insurance Fraud Schemes
The most common car insurance fraud schemes include the following:
- Staging collisions: It might seem incomprehensible, but some drivers will go as far as staging an organized accident to get some insurance money.
- Dumping vehicles: Another common fraud scheme involves dumping or hiding a vehicle and then claiming it was stolen.
- Inflating repair costs: Some drivers vastly inflate the cost of auto repairs so they can pocket some extra cash.
- Fronting: This form of auto insurance fraud happens when a more experienced driver, typically a parent or older sibling, claims to be the main driver of a car. This may lead to lower insurance premiums, but it’s fraudulent because the main driver is misrepresented.
- Ghost broking: Finally, ghost broking means selling fake insurance policies to unsuspecting buyers.
Red Flags That May Indicate Insurance Fraud
Several red flags can be a sign of car insurance fraud, such as:
- Significant history of claims: If a driver makes repeated insurance claims over a short period of time, insurance companies will often take a closer look.
- Inconsistencies: Drivers who offer inconsistent information when it comes to a claim can also be determined suspicious.
- Desire for an immediate settlement: Insurance companies are also wary of drivers who push hard for a quick payout.
Legal Consequences of Committing Insurance Fraud
Car insurance fraud punishment can include serious legal consequences. Depending on the extent of the fraud, you can be charged with a misdemeanor or a felony. Potential penalties for car insurance fraud include:
- Fines: You can face steep fines for auto insurance fraud, including having to pay double the amount of the fraud as well as repaying stolen funds.
- License suspension: You can also lose your license for a specified period of time. The penalty for driving without insurance or without a license can also be severe.
- Jail time: You may receive jail or prison time as well as probation for this crime.
Even more “minor” soft fraud can stay on your record and have serious long-term consequences.
How Car Insurance Fraud Affects Honest Drivers
Unfortunately, car insurance fraud affects honest drivers as well as perpetrators of the crime. Insurance fraud now costs the average family in the United States between $400 and $700 a year in increased insurance premiums.
In addition to higher insurance costs, car insurance fraud also leads to longer processing times for honest claims, not to mention the risk of staged accidents.
Tips To Avoid Becoming a Victim of Fraud
The good news is you can take steps to avoid becoming a victim of car insurance fraud, including:
- Make safe driving your top priority. Give other drivers space and time, set your phone down, always be alert, and be careful if you see erratic driving.
- Stay calm if you are in an accident. If you are in an accident, take the time to document everything that happened and get the other driver’s information. You should also ask for a copy of the police report.
- Do your research. Before you sign on the bottom line with an insurance company or auto body shop, do your research to ensure the company is reputable and has a good industry track record.
And if you see something suspicious, say something. For instance, if a stranger is asking you for your information in the wake of a car accident, verify their identity before sharing anything.
Should you file a car insurance claim? Yes, if you were in an accident or your car was damaged, you should definitely file a claim. Make sure you know how long you have to file an insurance claim and what documentation to the accident you need to provide.
If your car insurance claim is denied and it was legitimate, you have options for follow-up.
How To Report Suspected Insurance Fraud
To report car insurance fraud:
- Contact the Insurance Fraud Bureau’s CheatLine, which is quick and confidential.
- Call your local police to report the incident.
- Use insurer-specific fraud hotlines to report suspected insurance fraud when you know the company.
Trust your instincts. If something seems fishy, it is worth following up on.
Protect Yourself—Explore Reliable Insurance Options
You can protect yourself against ghost broking by exploring reliable options for car insurance.
Insurance options vary by zip code and driver profile, and they also change regularly, so it pays to explore your options and find the best car insurance companies offering affordable insurance for your driving needs. Visit EverQuote today to get a free custom comparison of auto insurance options.