Car Insurance Fraud

If you're a car owner, you need car insurance, and if need car insurance, you have to deal with car insurance fraud — even though you might not ever deal with it directly.

Fraudulent insurance claims could be perpetrated by an individual, but they are sometimes the result of organized crime. The topic of insurance fraud is important to every driver because it carries considerable financial impacts.

Your own car insurance premium is affected by the prevalence of fraudulent claims, which is why it's important to understand what insurance fraud is and how it's investigated.

Common Car Insurance Fraud Activities

A few examples of common types of auto insurance fraud include:

  • Exaggerated vehicular damage.
    • An auto owner might claim a vehicle has incurred severe damage, but the damage is non-existent or happened at a different time.
  • Inflated damage claim
    • This involves excessive billing of car parts or labor fees for repair word.
  • False reports of vehicle theft, flooding, or arson in an attempt to get a payout.
  • Switching of vehicle identification numbers (VIN).
  • Vandalism and/or theft of the vehicle.
  • Paper collision.
    • Two drivers claim damage in an accident in which the police were not called to the scene. The involve vehicles may have been damaged beforehand or purposefully damaged afterward.

Fake car accident claims are also very common, In most cases, two or more people work together to perpetrate the fraud, making it look as if one of the conspirators in a squat car has been involved in a real, freak accident. Police are called to the scene and a report is made.

Some fake care accident set-ups might include:

  • Swooping.
    • A vehicle swerves out and in front of the squat car, resulting in the squat vehicle slamming its brakes and rear-ending the swoop vehicle.
  • Sudden stopping.
    • A squat vehicle slows down and suddenly brakes, causing the victim's (not involved in the fraud) vehicle to rear-end it.
  • Backups.
    • A squat car backs out of a driveway or parking space, so an unsuspecting victim gets broadsided.
  • Right-of-way.
    • The driver in the squat car acts as they're giving the right-of-way to someone (not involved in the scam) at an intersection but suddenly moves, resulting in a collision.
  • Phantom
    • A non-existent vehicle is involved in a crash, never to be found again.
  • Hit-and-run.
    • The suspect hits an unsuspecting victim's vehicle and immediately leaves the scene.

How Auto Insurance Fraud is Investigated

Entities in charge of investigating car insurance fraud include:

  • Federal Bureau of Investigation (FBI)—Investigates organized crime rings that perpetrate large-scale car insurance fraud.
  • State bureaus or offices—Within the state insurance department, dedicated solely to investigating insurance scams.
  • Auto Insurance Companies—Within the state insurance department, dedicated solely to investigating insurance scams.

You can also help stop insurance fraud. Sometimes, people who report car insurance scams or auto insurance fraud are eligible for rewards, so if you think something's fishy, speak up!

How Car Insurance Fraud Affects Insurance Policies and Premiums

Fraudulent insurance claims for auto accidents and car damage cost billions of dollars per year. Fraudulent claims for bodily injury and medical procedures accounted for an estimated $4.8 billion to $6.8 billion in 2007. The cases of arson, flooding and purposeful theft cost an estimated $16 billion in fraudulent claims each year. Unfortunately, these costs are passed on to consumers in the form of higher insurance premiums.

In-depth investigation into every car accident and insurance claim may help to reduce fraudulent claims. Companies and governmental agencies are also employing advanced analytical techniques to track claims and detect organized rings known to commit insurance fraud.