For years, the risky nature of our society has made insurance mandatory in numerous markets, including but not limited to automobiles, health, buildings, and more.
As you may already know, insurance refers to a contract signed between a beneficiary and their insurance company, which agrees that the former will be reimbursed if something goes wrong with what they’ve chosen to insure. For instance, car insurance works by reimbursing owners for repair costs in case of an automobile accident.
Since car insurance fraud is directly linked to money, it only makes sense that people throughout the world attempt to cheat the system. This is the basic definition of insurance fraud, which has grown into a multi-million-dollar market, thus causing huge financial losses for insurance companies throughout the world.
This article will focus on painting a clearer picture of the current state of the insurance fraud market by providing an in-depth analysis of common scams, general types of insurance fraud, the legal ramifications of this practice, and more.
What Is Car Insurance Fraud?
This practice can generally be described as any action done with the purpose of collecting insurance money that the individual is not entitled to. With this in mind, relevant examples include filing fake insurance reports on accidents that never occurred or being the victim of a fraudster who willingly caused a crash in order to get access to the victim’s insurance information.
Car insurance fraud has become common in areas throughout the world, as thousands of attempts are registered on a yearly basis. However, it’s important to keep in mind that insurance fraud doesn’t always entail an accident. For instance, withholding data from your insurer to get a lower rate on your policy can also be classed as insurance fraud. Depending on the region you live in, certain practices are punishable by law, whereas others will lead to contract closures. In general, it’s best to stay away from insurance fraud even for less severe cases, despite the potential monetary benefit.
What Are the Common Types of Auto Insurance Fraud?
So far, numerous forms of insurance fraud involving automobiles have been discovered. Here are some examples of the most common ones:
This practice has become considerably common throughout the world. This is likely because it’s often difficult for insurance agents to prove that they are, indeed, facing a scam.
With this in mind, staged crashes usually entail two parties: the fraudster and the victim. The purpose of the fraudster is to cause an accident and make it seem like it’s the other person’s fault. Relevant tactics include using two vehicles in order to trap the victim’s car in a rear-end collision or braking quickly in order to cause a rear-end crash.
Of course, there are numerous other techniques worth pointing out. The enhanced damages tactic has become more common over the last couple of years according to stats on insurance scams. For this technique to work, an unplanned accident is necessary. Following the crash, the victim can go ahead and cause more damage to the car with the purpose of filing a more valuable claim. This tactic can also be leveraged to fix other damaged areas of the car, depending on where the impact took place.
The “wave” technique is also flourishing with increased popularity. For this car insurance scam, the fraudster can wave another traffic participant to pass, thus giving them the right of way. Just as the victim proceeds to pull into traffic, the fraudster can enter into a collision. The aftermath is generally very predictable—an accident was caused by the person who was waved into traffic, who is now at fault. The scammer can then file a claim and get access to a free repair or monetary reimbursement. This car insurance fraud example is most likely one of the most popular in the US and Canada, not to mention other regions of the world.
Insurance policies with comprehensive coverage reimburse owners in case their cars get stolen. At this moment in time, statistics show that the overall number of cars reported stolen worldwide has decreased, yet this insurance scam remains pretty common.
With this in mind, for the stolen car scheme to work, car insurance scammers will generally do their best to ensure that the car disappears (or can’t be found by the police). With this in mind, the car is either shipped overseas (where the local authorities don’t have jurisdiction and where registration documents can be easily forged), or the car is given to a body shop, where the car is disassembled for parts. Similarly, the scammer can choose to simply drive the car onto a lake or set it on fire.
In the case of the first two methods, the car owner will receive two revenue streams: one from selling the car (or its parts), and one as reimbursement from the insurance company after successfully completing the false insurance claims.
Insurers take scams like these very seriously, which is why a police report is necessary before the claim can be processed.
False Vehicle Registration
This scam is less profitable when compared to the previous two types of insurance fraud. The false vehicle registration technique entails registering a specific vehicle at a different address, in a different city or state. The purpose of this scenario is to reduce the cost of your insurance premium when your actual neighborhood is too great of a risk factor. This car insurance scam is known to work. However, if a claim needs to be registered, the insurance company may quickly discover the fraud, and therefore deny the claim in question.
Using False Information When Filing a Car Insurance Application
This scam is also common throughout the world. It makes it easier for car owners to knock some money off their insurance premiums. To put it simply, when signing a car insurance contract, owners need to report data concerning their car and their driving history. In the types of insurance frauds like this one, relevant examples include lying about whether the driver has had any prior accidents or claiming that the car is newer than it actually is. False information like this leads to cheaper insurance policies, yet in the case of an actual claim, it’s very easy for the insurance company to figure out whether it has been deceived.
Exaggerated Medical Expenses
This represents a fairly common auto insurance scam. In the unfortunate case of an accident, a driver looking to get some extra insurance cash may choose to lie about their medical state. For instance, the not-at-fault driver may choose to report neck pain, despite having none. This leads to extra medical exams and more days spent in the hospital, thus giving fraudsters access to bigger reimbursements.
That’s why car insurance companies will examine medical records, and deny injury claims not supported by hard facts.
Faulty Airbag and Windshield Replacement Fraud
This is yet another popular automotive insurance fraud, which has become widespread throughout the world. In this case, the fraud isn’t carried out by the driver, but rather by service centers and auto body repair shops.
As such, following an accident that led to an airbag deploying or windshield cracking, the service center may choose to replace the damaged parts with low-quality replacements. The trick is that the service center will demand reimbursement based on the price of the high-quality part, earning them several hundred dollars for each scam that’s successfully carried out. In the case of a future accident, the airbag won’t deploy or the windshield will more easily crack.
We can all agree that these automobile insurance scams are incredibly dangerous activities that should be punished criminally. For instance, the fake airbag scam is a punishable offense in California; therefore, those responsible for installing fake or low-quality airbags will have to pay $5,000 in fines, and even spend one year in jail. The low-quality windshield scam has also been reported in parking lots, where scammers claim to have insurance-covered high-quality windshields available for immediate installation.
Legal Ramifications of Committing Car Insurance Fraud
Before anything else, it’s important for us to specify that the actual legal ramifications depend on where you live and where the crime has been committed. Punishment also depends on how the crime has been committed, how many people collaborated, and how much was actually at stake. The aspects highlighted below don’t constitute legal advice. Rather, they’re the general principles followed by law enforcement and insurance agencies after discovering a case of auto insurance fraud.
For an activity to qualify as insurance fraud, several conditions must be met. To keep things short, an individual will make a false claim/statement in ill-faith regarding an event involving a vehicle that belongs to them. The main purpose of this false claim should be to get access to reimbursement money offered by the insurer. The false statement in question must be in a material form and cannot be verbal.
If these conditions are met, and it can be proven that an individual has committed one or more insurance frauds, several outcomes are possible. First, if the false statement was only made in order to gain access to a lower monthly premium, the insurance agent will simply cancel the policy or deny any claims. However, if the fraud is carried out to gain an actual reimbursement, the activity is classed as fraud under most penal codes, thus leading to the involvement of law enforcement.
As such, the insurance fraud penalty will vary depending on how the scheme was carried out and how much money the individual attempted to gain. Generally, punishments include fines and even jail time in more severe cases.
In most cases of insurance fraud (such as exaggerating medical expenses or lying on the insurance application), if law enforcement does get involved, the crime will be classed as a misdemeanor. However, in severe cases, prosecutors will likely class the insurance fraud as a felony.
It’s important to keep in mind the fact that insurance-related fraud can affect you in numerous ways. For instance, if you’ve been involved in a car accident and the victim exaggerated their medical expenses and material damages, your insurance provider may choose to impose a higher premium. This is unfair to yourself as a victim, but also to the insurer.
In cases like this, it’s a question of how to report insurance fraud. Luckily, most insurance agents have bureaus dedicated to dealing with fraud, where those who’ve been indirectly affected by it are free to submit reports. When reporting fraud, it’s best to accumulate and submit as much evidence as possible in an effort to facilitate the verification process for the insurance agent, as well as for law enforcement if things escalate.
Three Intriguing Auto Insurance Fraud Cases
Passing Chemistry Class by Torching a Car
Our first case takes us to Houston, Texas, where a high-school chemistry teacher was arrested for bribing two of her students with passing grades in exchange for having them torch her Chevrolet Malibu. Reports indicate that the teacher no longer wanted to make payments on the car and believed that claiming insurance money for property destruction would be a more suitable solution. Unfortunately for her, the insurance agent quickly saw through the lie and involved law enforcement. The crime led to the teacher being fired and spending three months in jail.
Where People Jump into Oncoming Traffic
For years, China has been actively dealing with insurance claims frauds where scammers would purposely jump in front of moving cars in the hopes of tricking drivers into offering them cash in exchange for not involving the police. The scam became highly popular, as numerous drivers preferred giving the fraudsters a few hundred yuan rather than having to deal with the police.
In some cases, reports indicate that fraudsters went so far as to actually hurt themselves, screaming in despair. This trend led to the addition of dashcams in numerous Chinese vehicles, as drivers needed to better protect themselves in case of claims concerning car insurance frauds like this one.
Faking Injuries on a Broken Bus
This story takes us to the US, where an individual known by the name of Moore reported seeing a serious bus accident. He quickly decided to hit the bus with his body in hopes of filing an insurance claim and being reimbursed for his injuries. Unfortunately for him, there was no accident, and the bus was wrecked. Even worse, the incident was caught on camera, so Moore had to pay a $1,000 fine and go through two years of probation for attempted automobile insurance fraud.
At this point in time, the internet is filled with videos depicting individuals throughout the world hurting themselves in hopes of filing insurance claims and getting access to money they are not entitled to. However, before the age of cameras, successful scams were considerably more common, especially in the car insurance industry.
How Much Do Auto Insurance Frauds Cost the Insurance Industry?
In the United States, a report published by the FBI concluded that insurance fraud leads to $40 billion in yearly losses. However, this number covers all insurance industries, except the medical field. Judging the exact cost of any fraud associated with car insurance is very difficult, given the fact that it’s only the known cases that make up this cost. However, attempts worth over £600 million were discovered in the UK during 2018. Realistic figures indicate that insurance fraud might cost the UK insurance industry roughly £1 billion yearly.
From a worldwide perspective, hundreds of billions of dollars are paid out on bogus insurance claims every year.
Based on everything that has been outlined so far, insurance fraud is a multi-billion-dollar market, and car fraud leads to millions of dollars awarded in exchange for bogus claims.
At this time, insurance agencies have implemented several systems and frameworks to reduce fraud. These include but are not limited to collaboration with law enforcement, studying the level of fraud potential, using data analytics to detect fraud attempts, exchanging information, reviewing and rescoring claims via fraud insurance agents, etc. However, fraud remains fairly common—insurance agents are often presented with cases where fraud is likely yet can’t be proven. As such, the risk for fraud remains, and there is no sure-fire way to eliminate it. Fraud can’t be proven based on suspicion alone; therefore, in the absence of actual proof, insurance agents will pay as per the contract.
Luckily, the prevalence of auto insurance scams has greatly reduced thanks to the increased popularity of dashcams. All drivers should consider buying one to help lower the likelihood of being a victim of one of these scams.
Frequently Asked Questions
1. Can you go to jail for car insurance fraud?
The answer to this question is directly dependant on the type of fraud you’re involved in. To put things into perspective, insurance agents generally classify fraud under two main categories: soft fraud and hard fraud. Soft fraud is usually associated with exaggerating insurance claims (such as stating that the accident led to more expensive property damage). On the other hand, with hard fraud, the scammer does his best to create the circumstances that guarantee eligibility in opening an insurance claim (staging an accident, fabricating a loss, etc.).
In the United States, soft automobile insurance frauds are generally a misdemeanor, which means that being caught will likely lead to a fine. In some cases, the insurance agent will simply cease working with the fraudster. On the other hand, hard fraud cases are illegal throughout the US and punishable with jail time. The legal system may in fact forgive hard cases and avoid punishing perpetrators in this way, but being convicted and sent to jail is a very real possibility.
2. Can you go to jail for lying to your insurance?
As mentioned above, the answer to this question depends on the type of lie. For car insurance scams that involve things like exaggerating when asked about damages for a claim, the perpetrator most likely won’t be facing jail time. If caught, the insurance agent will simply stop working with them and deny all claims. The same answer is applicable in cases of fraud dealing with fronting, not declaring modifications, or lying about traffic penalties or past accidents.
On the other hand, lying about a completely fabricated origin story is another situation and can lead to jail time, depending on the circumstances. For instance, running a fraud ring that specializes in causing accidents for insurance purposes is deemed illegal and represents a punishable offense.
3. What’s the punishment for insurance fraud?
The actual punishment depends on the type of insurance fraud that’s being committed. To put things into perspective, possible punishments include administrative and civil measures (ending a contract, denying a claim, restitution, etc.). But there are also penal-based punishments such as prison time, fines, or community service. Based on this, it’s important to state that the actual punishment a person responsible for any car insurance fraud will receive is also dependant on the jurisdiction where the acts were committed.