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Car Insurance Fraud Defined

Here's what you need to know...
  • Car insurance fraud affects you whether you participate in it or not
  • with the economy the way it is, auto insurance fraud is becoming more popular than ever before
  • The penalties for insurance fraud range from 10 years in prison to life in prison, depending on whether someone is injured or is killed in the process of the fraud being committed
  • It is the responsibility of the insurance company to prove that fraud occurred, not the responsibility of the person involved to prove that fraud didn’t occur

Car insurance fraud is a crime that is committed when acts deliberately with the intention of creating a situation where they can make a claim against their, or another driver’s, insurance company.

Fraud can take the guise of many different actions, some of which we will address below.

Unfortunately, car insurance fraud affects you whether you participate in it or not. Because the cost of this act equates to billions of dollars a year, it is you, the average consumer, that has to deal with the additional cost consequences of fraud.

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What are the most common types of fraud in car insurance?

dollarphotoclub_54192154-1600x1600There are actually a few that make the list of being the most common types of car insurance fraud. Each of them involves reporting a vehicle as stolen that hasn’t been stolen.

Unfortunately, with the economy the way it is, auto insurance fraud is becoming more popular than ever before.

– Hard and Soft Fraud

The two major categories to the different varieties of fraud, hard and soft fraud.

Fraud of this type is called a hard fraud. Any insurance fraud that requires advance planning is called a hard fraud and will likely land the perpetrator more serious charges than someone who commits soft fraud.

Soft fraud is more like a crime of opportunity. Actually, soft fraud is much more common than hard fraud, but it is even more difficult for insurance companies to detect. This type of fraud occurs in a couple of situations. First of all, there is the opportunity to collect more money from an accident.

This type of fraud occurs in a couple of situations. The most common way it to try and collect more money from an accident.

– Exaggerating Damages

This occurs when someone has a car accident and exaggerates the extent of their injuries or the damages to their vehicles. This type of fraud is easier to perpetuate when an insurance company uses outside adjusters rather than their own adjusters to evaluate the damage to a vehicle.

It is easier to exaggerate the extent of medical issues because things like whiplash and back problems are difficult to disprove.

Doctors are hesitant to claim that there is nothing wrong with a patient that has been in an auto accident because it will leave them open to lawsuits if something turns up later.

– Faking a Stolen Car

Man stealing car with crobarAnother popular way to commit fraud is to fake a stolen car. Someone simply parks their car somewhere secluded or has someone take their car and hide it, and then they report their car as stolen.

It takes about a month for the car insurance company to pay a claim in this situation.

Once the car is found, it belongs to the insurance company.

The person who reported their car as stolen uses the money to pay off their vehicle, if they still owe money on it, or the money belongs to them.

The insurance company cannot force that person to give back the money and take back possession of the vehicle.

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– Shipping a Car Overseas

Another variation of this type of fraud occurs when someone has a car that is highly desired overseas. In this case, they simply ship the car overseas and sell it.

In the US, they report it stolen and receive money from the insurance company as well as the sale of the car. Some people will purchase a car for the express purpose of committing this type of fraud.

– Lying about the Past

Another type of fraud occurs when the person who wants to be insured lies about past accidents, DUI convictions and so on. Many people don’t realize that lying about their incidents that may not appear on their driving record is still considered fraud.

– Targeted Fraud

AdobeStock_53649099-1600x1600There are other types of insurance fraud that are enacted on other people. One popular type of fraud is that two vehicles working together hem a car in between them.

The car in front slams on their brakes causing the car behind them (the unsuspecting person), to slam on their brakes to avoid hitting them.

The end result is the car behind them striking their car and then filing a suit claiming that the uninvolved person caused the accident.

These are just a few of the many creative ways that car insurance fraud is perpetuated. All of them make your car insurance rates more expensive.

– Fronting

There are many different ways a policyholder can commit car insurance fraud, but not all of them seem like fraud on the surface. It is actually very common for a person to claim that another person is the primary driver of the vehicle as a way to pay lower car insurance rates.

This practice is called fronting and is most often committed by well-meaning parents that claim to be the primary driver of their teenager’s vehicles as a way to lower the high rates associated with teenage drivers.

– Rate Evasion

Another common practice that might seem innocent on the surface is rate evasion. With this technique, a driver will register their car in another area, typically more rural, as a way to avoid paying high insurance rates.

These forms of insurance fraud seem innocent to the people committing them because in their minds no one is getting hurt.

– Owner Give Ups

AdobeStock_39380836-1600x1600Some of the more intentional forms of car insurance fraud are fraud schemes that focus on car theft. There are many types of these fraud schemes. One type is known as owner give ups. With this scheme, the car owner will report their car stolen and then destroy it, typically with fire.

– Export Fraud

Export fraud is much more complicated than owner give ups. With export fraud a person will get a bank loan for a new car and then get a car insurance policy for the car.

The car owner then reports the car stolen while the car is actually shipped overseas illegally and then sold on the black market.

With this insurance scam, the person receives money from the fraudulent insurance settlement and whatever the car was sold for illegally.

– 30-Day Special Scam

With the 30-day special scam, a person that has a car in need of a lot of repairs will file a false car theft claim and wait the thirty days it typically takes for the car insurance provider to pay the claim.

More often than not the car is found abandoned after the claim is paid.

– Phantom Vehicle Scam

With the phantom vehicle scam, a person will secure a fake vehicle registration or title and then use this fake paperwork to buy an insurance policy. After a short amount of time, the person will report the vehicle stolen and then collect the money from the insurance settlement.

The most commonly used vehicles for this type of scam are luxury vehicles since they come with larger insurance policies.

Are policyholders the only people who commit car insurance fraud?

adobestock_34356517-1600x1600No, not at all. There are many cases where mechanics have committed fraud, although in some cases this also included the policyholder.

In these cases, the mechanic will give an estimate of damages to the car insurance company so that they can pay for the damages to your vehicle.

However, in some cases, they might say that your vehicle needs a couple of replacement parts that it doesn’t need or that the parts cost more than they actually do. If you are aware of this occurrence, you can be held equally responsible for the fraud.

Another case of fraud that often doesn’t involve the policyholder at all is car accident fraud.

These car insurance scams occur when other people set you up to be in an accident and then fake injuries and other medical problems in order to receive pay because they claim that they can’t work.

These schemes can be very simple or very complex, depending upon who is involved. If you are caught in this scheme unawares but you suspect something like this is happening, talk to the insurance adjuster about your concerns.

You do not want it to appear as if you are complicit in this situation!

Why can’t car insurance companies stop this type of fraud?

adobestock_1691169-1600x1600The biggest problem with these types of fraud cases is that they are difficult to prove, especially if the person involved has never participated in this type of behavior before.

It is the responsibility of the insurance company to prove that fraud occurred, not the responsibility of the person involved to prove that fraud didn’t occur.

With so much fraud occurring every day, it is virtually impossible for insurance companies to investigate every incident of suspected fraud. That doesn’t mean that they never catch anyone, only that they can’t stop everyone.

What’s more, the insurance company has to prove fraud before the police will step in. The world isn’t like those CSI television shows, the insurance company has to provide sufficient proof of fraud before the police can make an arrest.

Insurance companies do use computers to determine the possibility of a claim being fraud. If a claim meets all of the criteria, which can vary from company to company, then an investigation is launched by the insurance company.

Every state, with the exception of Oregon and Virginia, has laws in place regarding car insurance fraud.

The penalties for insurance fraud range from 10 years in prison to life in prison, depending on whether someone is injured or is killed in the process of the fraud being committed.

What do I do if I suspect someone of committing car insurance fraud?

adobestock_117107484-1600x1600

  • If you suspect someone of committing car insurance fraud and you know who his or her insurer is, then you can contact the insurance directly. You don’t have to give your name if you don’t want to.
  • Another alternative is to call your state’s Department of Insurance and let them know that you suspect someone of committing auto insurance fraud. Then it will be their responsibility to contact the appropriate insurance company to inform them of the suspension.
  • Lastly, 41 states have fraud prevention bureaus. If you live in one of these states then you can contact them and have them handle the case from there.

You shouldn’t take a live-and-let-live attitude about car insurance fraud. This type of fraud affects everyone and you don’t want to perpetuate this fraud. You can do your part by making a simple phone call, sending an email or letter.

To lessen the extent that car insurance fraud affects your rates, you should shop around for car insurance whenever you are in the market for it.

In fact, even if you aren’t in the market for car insurance, you should get some quotes to ensure that you are paying the lowest rates possible.

Using a quote tool is a fast and easy way for you to accomplish this goal. You can answer a few questions and then access your quote instantly.

Get your own car insurance quotes for free right now by entering your ZIP code below!

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