What Are the Most Common Types of Car Insurance Fraud

The most common types of car insurance fraud range from fake car insurance companies to coverage being depicted falsely. It's important to be aware of the types of fraud to avoid falling victim.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 29, 2021

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Here's what you need to know...

  • There are many different types of auto insurance fraud
  • Fraud can be committed by an individual against an insurance company or vice versa
  • All types of fraud can either cost you a lot of money or land you in a lot of trouble

Fraud affects all insurance industry lines, as many unscrupulous people are out to make a buck the easy way.

What are different types of insurance frauds? What type of fraud occurs most frequently in insurance? What is the biggest type of fraud perpetrated by insurers? These are some of thequestions we tackle below. It’s good to know about insurance fraud so you don’t become a victim or, even worse, a perpetrator.

Read on to find out the most popular types of car insurance fraud to put you on the defensive.

Then enter your ZIP into the FREE tool above to get multiple car insurance quotes!

Now You See it, Now You Don’t

 

One of the most common car insurance frauds that you can fall victim to is the fake auto insurance company.

Everything looks good. The company has a professional-looking logo, a phone number, an address for headquarter offices and maybe even a website that all add to the authentic feel of an actual company.

The rates are so good you’re about to book that vacation to Hawaii you’ve always wanted to go on but couldn’t afford.

Then, you need to submit a claim, and no one answers that phone number. The website is under constant construction.

Unfortunately, you realize you’ve just given all of your money to a bunch of scam artists. More than likely, you will never see it again.

You might think that you would be able to spot a fraudulent car insurance company. After all, it’s not a real business, right?

Wrong. The scam artists who operate fraudulent car insurance companies are pros at making their scams run smoother than a real insurance company.

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A Wolf in Sheep’s Clothing

Another type of insurance fraud that you could be a victim of is when a policy is represented as true insurance coverage when it really is not.

Sometimes, this deceit is not even illegal, just a slick way to con people who don’t read the fine print.

Thinking you have car insurance coverage, you drive around with a policy that may be good for nothing other than protection for your dog when he drives your car.

While this isn’t always illegal, it certainly isn’t helpful in the event of an accident.

Such companies should be reported to the authorities to make sure they are not committing actual fraud.

Consumers Get in on the Act

 

Car insurance fraud goes both ways, as consumers are just as guilty of committing fraud when it comes to car insurance.

From underwriting fraud to staging full-on accidents, there are types of auto insurance fraud you could commit if you have no scruples.

The Coalition Against Insurance Fraud estimates that fraud costs insurance companies billions of dollars every year.

Unfortunately, many people see insurance fraud as a victimless crime because the only one paying is the car insurance company.

However, those companies are good at passing risk and higher costs off to customers, so the people who actually pay for car insurance fraud is you and me.

When a fraudulent claim is paid out or challenged in court, it costs the car insurance company money which makes car insurance premiums go up.

According to the Insurance Information Institute, fraud committed by a consumer is broken into two categories, soft or hard fraud.

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Soft Fraud

Soft fraud is a manipulation or omission of data to somehow extract dollars from a car insurance company and is more common than you might think.

Sometimes referred to as opportunity fraud, many consumers who commit soft fraud with their car insurance company may view such fraud as harmless white lies.

In the initial stage of applying for coverage, many drivers commit soft fraud by lying about their personal information in order to get a better deal on their insurance premiums.

While the insurance companies no longer believe the answers concerning accidents and tickets and thus check those facts themselves, they can’t check the details on all of the topics.

Instances of committing soft fraud to get better rates include:

  • Reporting driving fewer miles per day or year than you actually drive
  • Claiming a vehicle is used for personal purposes when it is actually used commercially as part of a business
  • Claiming a different driver as the primary driver
  • Lying about the area where your vehicle is parked or stored
  • Fabricating spouses or high college degrees to get discounts

Soft fraud can also be committed through padding a claim, which generally creates more protests in the conscience than lying to an insurance company from the get-go like in the above examples.

These examples certainly seem more fraud-like because they really are out-and-out lies rather than exaggerations or minimizations of the truth.

Soft fraud can also include adding prior damages to an accident claim, filing more than one claim for the same damage or filing a claim for repairs that were never performed.

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Hard Fraud

 

Hard fraud is premeditated and makes victims of other drivers and auto insurance companies alike.

Hard fraud usually includes actually causing damage rather than just lying or omitting facts.

Instances of hard fraud include:

  • Purposely setting your car on fire or causing other damage that would be covered by the comprehensive coverage of your auto policy
  • Claiming your car was stolen when it is really hidden in the woods
  • Staging an accident to create bogus damage or medical claims for the other driver’s insurance to pay

These are the most dangerous forms of fraud, as they have the potential for creating injury and loss for drivers who are clueless victims in the set-up.

Commonly called rear end shunts, one of the classic maneuvers is when a car pulls in front of you and slams on the breaks, causing you to rear-end the car and make it look like you were driving too closely.

The result of hard fraud is that an insurance company is made to pay for damages and injuries that were not an accident but were purposely set up.

If you are the victim of such maneuvers, your premiums will go up and you could even be sued to cover the fraudulent damages.

Combating Fraud

 

Every insurance company must be registered and licensed with the state in order to sell insurance, so always look them up.

The National Association of Insurance Commissioners has a link to every state’s Division of Insurance so that you can look up an insurance company or agent before handing over any money.

Most states also have an Insurance Fraud Bureau to allow consumers to find information about fraud and report suspected fraudulent behavior.

On such sites, you can read up on whatever shunt maneuvers that are being currently employed against innocent drivers so that criminals don’t have to get real jobs.

Your best defense against all of the most popular types of car insurance fraud is information and a defensive driving attitude unless you like your hard-earned dollars going to fund criminals and even organized crime.

Say no to high insurance rates by combating fraud and searching for the best car insurance rates by entering your ZIP code in the FREE box at the bottom of the page right now!


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