Insurance refers to a signed contract 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.
Since car insurance fraud directly links to money, it only makes sense that people worldwide attempt to cheat the system.
This is the basic definition of insurance fraud. In fact, it has grown into a multi-million-dollar market, causing substantial financial losses for insurance companies worldwide.
This article will focus on painting a clearer picture of the current state of the insurance fraud market. It will provide 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?
All in all, this practice can generally be described as any action done to collect 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. In addition, other examples involve a fraudster who willingly caused a crash to get access to the victim’s insurance information.
Car insurance fraud is common in areas worldwide, as there are thousands of attempts every year. However, it’s essential to remember 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 classified 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 in less severe cases, despite the potential monetary benefit.
Most Common Auto Insurance Frauds
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 typical globally. It often works because it’s usually tricky for insurance agents to prove that they are 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 to trap the victim’s car in a rear-end collision or braking quickly to cause a rear-end crash.
Of course, there are numerous other techniques worth pointing out. As stats on insurance scams show, the enhanced damages tactic has become more common over the last couple of years.
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 enable fixing other damaged areas of the vehicle, depending on where the impact occurred.
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, now at fault.
The scammer can then file a claim and access a free repair or monetary reimbursement. This insurance fraud example is most likely one of the most popular in the US and Canada, not to mention other world regions.
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 vehicles reported stolen worldwide has decreased, yet this insurance scam remains pretty standard.
With this in mind, for this vehicle insurance fraud 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 vehicle 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 will be from selling the car (or its parts) and one as reimbursement from the insurance company after completing the false insurance claims.
Insurers take scams like these seriously, so a police report is necessary before processing the claim.
False Vehicle Registration
This scam is less profitable than the previous two types of insurance fraud. The false vehicle registration technique entails registering a specific vehicle at different addresses in different cities or states.
This scenario aims to reduce the cost of your insurance premium when your actual neighborhood is too great of a risk factor.
This is one of the car insurance scams which 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 is also one of the top 10 insurance frauds. 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 one of the car insurance frauds examples that have become widespread worldwide. In this case, the driver doesn’t carry out the fraud but rather the 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 successful scam.
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. Moreover, they may even spend one year in jail.
The low-quality windshield scam is also common in parking lots, where scammers claim to have insurance-covered high-quality windshields available for immediate installation.
Legal Ramifications of Committing Car Insurance Fraud
Factors Influencing These Legal Ramifications
Before anything else, we must specify that the actual legal ramifications depend on where you live and where the crime occurred.
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.
Instead, they’re the general principles law enforcement and insurance agencies follow after discovering automobile insurance frauds.
There have to be several conditions for an activity to qualify as insurance fraud. 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 primary 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 purpose of the false statement was only to gain access to a lower monthly premium, the insurance agent will simply cancel the policy or deny any claims.
However, if the purpose of the fraud is to gain an actual reimbursement, the activity is classified as fraud under most penal codes, thus leading to law enforcement involvement.
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 classify these auto insurance scams as a felony.
It’s important to keep in mind that insurance-related fraud can affect you in numerous ways.
For instance, if you’ve taken part 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. In these bureaus, those who have been indirectly affected by it are free to submit reports.
All in all, when reporting fraud, it is best to accumulate and submit as much evidence as possible to facilitate the verification process for the insurance agent and law enforcement if things escalate.
Car Insurance Scams: Three Intriguing Cases
Claims of Total Damage or Theft
Recently, an organized car insurance fraud ring has defrauded 12 insurance carriers for over $820,000. Consequently, 32 defendants have been charged or prosecuted, and four have been sentenced.
Over four years, 45 potential fraudulent claims involving over 55 vehicles were filed. Moreover, the scam focused on purchasing cars at auction that had already had high miles or been damaged.
After they bought, registered, and insured the vehicles, the fraudsters would file false insurance claims of total damage or theft.
On top of that, they may have even staged crashes, rolled back mileage, and did not report considerable pre-existing damage to their insurance companies.
Fortunately, a consumer finally exposed the fraud after calling the attorney’s general office and filing a report.
Where People Jump into Oncoming Traffic
For years, China has been actively dealing with insurance claims frauds. Often, scammers would purposely jump in front of moving cars to trick 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 dealing 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. That was because 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 severe bus accident. He quickly decided to hit the bus with his body in hopes of filing an insurance claim and getting money for his injuries.
Unfortunately for him, there was no accident, and the bus was wrecked. Even worse, a camera caught the incident, so it was clear that it was a case of false car insurance claims.
Therefore, Moore had to pay a $1,000 fine and go through two years of probation for attempted automobile insurance fraud.
At this point, the internet is filled with videos depicting individuals worldwide 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 Car Insurance Scams 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, as only the known cases make up this cost. However, there were attempts worth over £600 million in the UK in 2018.
Realistic figures indicate that insurance fraud might cost the UK insurance industry roughly £1 billion yearly. From a worldwide perspective, bogus insurance claims account for hundreds of billions of dollars every year.
Car Insurance Fraud: Final Words
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.
However, you can’t prove fraud based on suspicion alone; therefore, insurance agents will pay as per the contract in the absence of actual proof.
Luckily, the prevalence of auto insurance scams has dramatically reduced, thanks to the increased popularity of dashcams. All drivers should consider buying one to help lower the likelihood of being victims of one of these scams.
People Also Ask
What happens if you lie on a car insurance claim?
Lying to your insurance company intentionally is fraud. Consequently, doing so might lead to community service, fines, or jail time.
In other words, if you are dishonest with your insurance provider, you may be denied coverage, face penalties such as fines, prison or community service, or quoted higher rates.
All in all, withholding information from your insurers or giving them false ones is definitely a poor idea.
What are the different types of car insurance frauds?
The two primary auto insurance fraud types are soft and hard fraud.
Even though there are numerous forms of insurance fraud involving automobiles, some are more common than others. That is why we have provided some examples of the most frequent ones:
- false vehicle registration
- staged accidents
- stolen vehicles
- faulty airbag and windshield replacement fraud
- using false information when filing a car insurance application
- exaggerated medical expenses
In which claim most frauds occur?
Claims fraud is one of the most frequent fraud types. In detail, that’s when a policyholder makes a claim which didn’t happen or they staged it.
Some of the most common frauds here are staging events. The purpose of the fraudster here is to cause an accident and make it seem like it’s the other person’s fault.
Other frauds include intentionally damaging the car — the fraudster can enter into a collision or additionally damage their vehicle after an actual crash.
Do insurance companies investigate claims?
Insurance companies frequently conduct claim investigations in order to evaluate a claim’s legitimacy.
So, these investigations combat the prevalence of inflated or false claims. Insurance companies avoid paying potentially substantial costs to fraudsters by identifying such claims. These investigations rely on interviews and evidence in order to conclude whether a claim is legitimate or it is a case of car insurance fraud.