Anyone in any business can expect their services to be taken advantage of, and the insurance business is no exception.
Whether it’s auto insurance, home insurance, renters insurance, or health insurance policy, there are always cases of insurance frauds. Every year, over $40 billion is lost or stolen due to a fraudulent or exaggerated insurance claim.
Sometimes, it may not even be the insurance policyholder doing the scamming. An auto repair or healthcare provider can find ways to cheat the system in order to receive additional funds or insurance payouts for themselves.
In fact, fraudulent insurance claims have spiked in frequency during the last year. Some insurance policyholders were overcharged on their monthly insurance bills, while some insurance policyholders staged accidents in order to be able to file an insurance claim and receive an insurance payout.
This is only the tip of the insurance fraud iceberg. But you don’t need to worry about navigating insurance scams because this compendium post on insurance fraud tells you everything you need to know about the types of insurance fraud, who perpetrate insurance frauds, who suffers from insurance scams, and the penalties for fraudulent insurances.
What is Car Insurance Fraud?
Before diving into the specifics, let’s broadly discuss insurance fraud as a whole. Insurance fraud is the illegal act of giving an insurance provider false information regarding an insurance claim, policyholder, or coverage.
Car Insurance Fraud includes:
- Falsifying an auto insurance claim
- Lying on the initial automobile insurance application
- Padding a car insurance claim to increase the auto insurance payout
- Staging fraudulent car accidents that cause intentional damage
Who Commits Insurance Fraud?
Insurance fraud isn’t just when the insurance company receives false information from a customer. In some cases, the insurance services an insurance company refers the insurance policyholder to, like a technician or mechanic, may inflate their own costs. They may even charge an unsuspecting person for services that were never performed or included.
A business can even fall into insurance frauds involving worker’s compensation which is another commonly reported case of insurance fraud with an annual loss of $6 billion.
For the most part, the most commonly reported insurance fraud is perpetrated by the insurance policyholders themselves. Those who commit insurance fraud may not be acting along and may be motivated by retaliation. Because of that, public opinion on insurance fraud is a mixed bag depending on the circumstance.
Despite this, there are several organizations dedicated to exposing fraudulent insurance schemes. There is a common agreement that insurance fraud is illegal and costs billions on an annual basis.
What Are The Different Types of Car Insurance Fraud?
Auto insurance fraud is a major problem for car insurance providers. Anywhere from $5 to $7 million is collectively lost annually due to bogus automobile insurance claims.
Car insurance is the coverage that fraud is most common since nearly everyone is required to carry it for their cars, and it’s easy to inflate automobile repair costs beyond what they should be. However, this is one of many methods of car insurance fraud.
Other car insurance frauds include:
- Vehicle dumping
- Automobile registration fraud
- Exaggerated vehicle repairs
- Staged fraudulent car collisions
- Faulty/counterfeit vehicle airbags
- Faulty/counterfeit automobile windshield
- Salvage car fraud
- Car Insurance Agent scam
- Car towing scam
- Car insurance rates/premium evasion
What is Vehicle Dumping Fraud?
Vehicle dumping or automobile owner give-up is a scam in which the owner of the car gets rid of it. They can do this by abandoning their motor vehicle somewhere, destroying the automobile, selling the car, or even dumping the vehicle in a lake or ocean.
Once the car is gone, they file a theft insurance claim which would pay out the actual cash value of the car at the time of its falsified theft. Another method of car insurance payout is to refund the original sale price if the car is still under warranty.
What is Automobile Registration Fraud?
There are several personal factors that affect how much you will be paying for auto insurance. Age, car make and model, and even sex per se. Where you live is also a major factor. If you live in an area with a high crime or theft rate, then you will usually have to pay a higher car insurance rate than those living in an area that sees little to none.
Because of this, some motor vehicle drivers will get license plates from other states or counties so they can pay lower auto insurance premiums.
What is Exaggerated Vehicle Repair Cost Fraud?
This is an auto insurance fraud technique used by automobile repair shops that an auto insurance company may refer you to after filing an accident insurance claim.
While your vehicle insurance provider may not be aware of it, the auto shop can use old parts and charge them as new or overcharge you for a certain car repair. Not only would you then be ripped off, but so would your auto insurance provider, since your automobile insurance company is covering the car repairs after you pay your car insurance deductible. The only goal the car shop has is to profit off your visit.
What is Staged Car Collision Fraud?
Not only is a staged automobile collision insurance fraud detrimental to car insurance companies and auto insurance policyholders, but it’s also dangerous and can seriously injure another vehicle driver or worse. But for the sole reason of receiving a car insurance payout, some automobile drivers will choreograph and purposely cause a car collision or accident.
They do this in such a way that the other car driver is seen as at fault. Facts and accounts of the vehicle accident are often skewered and exaggerated. Staged car collision insurance claims are estimated to steal up to $10,000. At the same time, the auto insurance premiums of the victims also increase. It’s not just a car insurance scam; it’s also malicious.
Staged car crash techniques that these auto insurance scammers use are:
- Squat and swoop - Two car drivers purposely trap an unsuspecting vehicle driver between them in rear-end collisions.
- Drive down - At an intersection, especially with a left turn, a car driver gives the ok for another vehicle driver to take their turn only to go themselves and have a car fraudulent collision with them.
- Wave down - Car drivers set up a vehicle collision with an unsuspecting car driver who’s been waved off or given the okay to pull out of an alley or lot.
- Enhanced or added damage - After an actual automobile accident, the car driver not at fault creates more vehicle damage in order to increase their auto insurance claim amount and receive a bigger automobile insurance payout.
- Panic stop - A car driver waits for the car behind them to pick up speed or become distracted before abruptly slamming on their brakes, causing a rear-end collision with a vehicle driver unable to stop.
- Sideswipe - A car driver intentionally sideswipes another car by positioning themselves in the left turn lane of an intersection.
What is Counterfeit Vehicle Airbag Fraud?
A counterfeit vehicle airbag can relate back to auto insurance fraud perpetrated by an auto repair shop following an automobile insurance claim.
However, specific cases where auto shops have not replaced vehicle airbags properly after an auto accident have been reported. Some car shops have been found to use vehicle airbags that were previously deployed or salvaged and make them look repaired. They’ve also been reported to make the vehicle airbag look like it deployed when in reality, it didn’t work in order to increase their share of the car insurance payout.
Counterfeit car airbag fraud is punishable by one year in prison and up to $5,000 in fines. Counterfeit car airbag fraud can also be done with used cars.
You can avoid buying a car with a counterfeit airbag by:
- Looking at the vehicle report on a website like Carfax.
- Check the dashboard airbag light.
- Have a vehicle inspection.
What is Counterfeit Car Windshield Fraud?
This is another specific con-job that has been reported by car drivers. There are people who pose as car windshield repair specialists and will tell you that your car windshield needs to be replaced for whatever reason. They claim that this replacement will be covered by your auto insurance provider, and they have the correct windshield for your car.
None of this is true, and you may end up driving around with a dingy car windshield that doesn’t suit your car. At the same time, your insurance rates will go up, and the scammers can use your auto insurance information to file bogus automobile insurance claims.
What is Salvage Car Fraud?
When a vehicle is issued a salvage title, that means that it has been intensively damaged and is no longer street legal. The cost of repairs exceeded the car’s current value, and the original car owner elected not to get it fixed with the corresponding title.
A vehicle with a salvage title should be used for spare parts and nothing more. However, that doesn’t stop some cars with salvage titles from ending up on used car lots and auction houses. Some car sellers may switch out the license plate with one that doesn’t have a salvage title in what is known as “title washing.” Driving around a car with a salvage title isn’t safe nor legal.
What is Car Insurance Agent Fraud?
Sometimes, an auto insurance professional may not be as professional as they said they are.
There have been several reports of these car insurance agents simply taking the money after an auto insurance policy sale and running. All the car insurance premiums are stolen, and the car driver ultimately ends up with no auto insurance. Sometimes, the car driver doesn’t find out about this car insurance fraud until they get into an automobile accident and need to file a car insurance claim.
Fortunately, there are some precautions you can take to protect yourself from fraudulent automobile insurance agents and their car insurance scams:
- Request the car insurance agent provides references to see if they have a track record or reputation within the automobile insurance industry.
- Verify the automobile insurance agent’s license using an online database; the National Association of Insurance Commissioners has a functioning one.
- Compare their car insurance coverage advice with other automobile insurance agents to see how they measure up.
- Check if the car insurance agents have any complaints within their automobile insurance work history.
- Check to see if the car insurance agent is “sliding” any car insurance coverages you didn’t agree to pay for.
What is Car Towing Fraud?
A common car insurance scam that car towing companies employ is “bandit trucks.”
After an auto accident, someone calls a car tow service without your knowledge. That would be all well and good, except for the fact that the towing company will then hold your car for ransom until you pay hundreds of dollars for the repairs and release, which is a scam in itself.
These towing companies typically don’t give out too much of their information and are vague on how they knew about your auto accident.
Here are some ways you can beware of fraudulent towing companies:
- Let your car insurance provider know - Your car insurance company is the best option for contacting a reliable tow service to come to your aid. Your car insurance company will provide you with all their contact information.
- Get a physical receipt - You should always receive or request physical records or invoices of the tow service. Any additional costs will also be listed.
- Pick the towing destination - A good towing company will always offer to tow to a destination of your choice rather than just their auto shop. If your car doesn’t need repairs, you can opt to have it towed back to your home. Fraudulent towing companies usually will not offer this.
- Do not disclose your car insurance information - Do not give out any information regarding your auto insurance policy and coverage, as the towing company can use this to its advantage.
What is Car Insurance Premium Evasion?
This is car insurance fraud done entirely on the car insurance policyholder’s part. In order to avoid paying their car insurance rates, some people will forge an address in an area where car insurance premiums are lower, as previously mentioned.
Another way car insurance premiums can be evaded is by not adding any new drivers to the car insurance policy once someone gets their drivers license.
Car insurance premium evasion can also be done by falsifying any information you are required to provide to the auto insurer.
Another notable example that many car insurance scammers lie about is their driving or auto accident history in order to be assessed as a low risk to insure their cars.
How do You Avoid Car Insurance Fraud?
After learning all those ways your car insurance can be used for fraud, you are probably wondering how to spot it.
Here are some tips to help you avoid falling into a car insurance scam:
- Always use original parts - Whenever you bring your car in for repairs, always select the original factory parts to avoid counterfeit parts scams.
- Document all driving incidents - This includes accidents, police encounters, and any repair or service invoices. Be your own driving record.
- Contact police if anything is suspicious - It never hurts to notify police about someone not providing all their information but taking all yours. Anytime an uncalled tow truck shows up is also grounds.
- Be secretive with your car insurance information - Of course, never give out your information to just anyone.
What Is The Difference Between Soft And Hard Fraud?
For a moment, let’s zoom out from the specific examples of insurance fraud and think about insurance scams in broad terms again.
Situations concerning insurance fraud are defined as either soft insurance frauds or hard insurance frauds. The main difference between soft insurance frauds and hard insurance frauds is the severity of the fraud.
An example of soft fraud, or soft auto insurance fraud, would be lying on the car insurance application for lower car insurance premiums. Meanwhile, hard fraud can result in jail time as it is more serious. Examples of hard fraud, or hard car insurance fraud, include staging auto accidents and thefts in order to receive a large car insurance payout.
Is There Insurance Fraud With Health Insurance?
Auto insurance is just one area of insurance susceptible to fraud and scams. Health insurance is another type that sees fraud.
And like auto insurance, sometimes the health insurance fraud can be perpetrated by the insurance providers themselves or the services they provide insurance coverage for. Health insurance fraud also causes insurance companies and health insurance policyholders to lose over $10 billion every year.
Health insurance fraud can occur in the following ways:
- Healthcare systems (doctors, hospitals, or homes) bills for services not rendered.
- Upcoded services and medical payments to increase the bill amount
- Duplicate insurance claims are filed.
- Billing for services in fragments rather than all at once is a process known as unbundling.
- Unnecessary or excessive services are carried out and must be paid for.
- Insurance kickback, the illegal payment as compensation for an improper service that was rendered.
- Abuse and selling of prescriptions and medical narcotics.
- Identity theft wherein health insurance information is stolen, and bogus insurance claims are filed.
What Organizations Are Dedicated to Fighting Insurance Fraud?
The good news is that there are several authorities and organizations on the lookout for insurance fraud cases across the country.
The National Insurance Crime Bureau (NICB) has a database full of each driver’s vehicle identification number, which is always available for law enforcement. They can be reached at 800-835-6422.
The Insurance Research Council (IRC) conducts yearly studies and surveys regarding insurance scams.
At the same time, the FBI is also monitoring insurance scams with their Financial Crimes Report.
The prevention of health insurance fraud is the goal of the National Health Care Anti-Fraud Association.
The Affordable Care Act of 2010 also included some anti-insurance fraud measures, such as the total exclusion of those who lie on their applications.
What Are The Penalties for Car Insurance Fraud?
As previously mentioned, car insurance fraud is penalized based on how severe (of, soft, or hard) the auto insurance fraud is.
Some frauds can result in fines, while others frauds can result in jail time. Fines for soft insurance fraud can go up to $15,000, while those for hard insurance fraud go all the way up to $150,000 with the addition of ten years in jail time. Some misdemeanors may have jail time penalties as well.
Remember, if you believe you were a victim of insurance fraud, call your local police or the NICB.