What is Auto Insurance Fraud?
When you purchase an auto insurance policy, you enter into a contract with the insurance-providing company. Under this contract, in exchange for the regular premium payments, the insurance provider agrees to cover the costs of any damage caused to your car or by your car to others in an accident. The auto insurance policy also covers car theft.
Auto insurance fraud occurs when you or someone else, including a vendor or an insurance agent, provides false information or omits important information to deceive the insurance provider. The aim of this person is to receive a payout or pay a smaller premium.
There are many ways in which unscrupulous people can commit this fraud. Here are a few of them:
As is the case with insurance frauds in general, there can be many different ways in which the people involved in an auto insurance process can exploit the situation for ill-gotten benefits.
The most well-known types of auto insurance frauds are as follows:
This fraud involved people staging car crashes with vehicles that looked to be well-insured. The scheme would involve doctors and lawyers at the top, middlemen who would find the victims and drive the car(s) deliberately crashing into another car, and participants in need of quick cash who would volunteer to be involved in the accident. Fraudsters could earn as much as $20,000 from each staged accident.
In 2012, the largest-ever fraud exploiting this law was uncovered. Ambulance chasers were convincing real car accident victims to seek needless procedures at hospitals in exchange for a cut of the insurance payout. Doctors and the other people involved in the fraud got most of the money, while insurance companies lost millions.
Reporting fraud, whether committed by customers or insurance agents, is important because it keeps insurance premiums down and saves public money from being lost to crime.
Here are some of the steps you can take in the process of reporting cases of fraud:
Insurance fraud investigation is carried out to ensure that the claims submitted following an incident are not false or inflated. Given the high prevalence of insurance fraud, it is very common for insurance companies to carry out this process so that they don’t have to pay any more than they absolutely have to.
Private agents can also carry out car insurance fraud investigations. This is most likely to happen in two cases.
First, when you are accused of insurance fraud, and want to furnish enough evidence to disprove this and get the payout you deserve.
Second, when you are the victim of possible insurance fraud. For example, you are involved in a car accident where the other driver is at fault but is trying to implicate you.
The key step in the process followed by an auto insurance fraud investigator is the collection of information. The techniques used for this include:
If you are the subject of an investigation, which can happen even if your claim is perfectly genuine, it helps if you have all the required documentation, including police reports, car repair bills, and hospital bills. It also helps to have photos of vehicular and personal damage.
In some cases, you might require the help of an auto insurance fraud attorney. These cases include those involving serious vehicle damage/personal injury, excessive delay in claim processing, or negotiation to arrive at the final claim value.
Given below are some important statistics related to insurance fraud cases in the US.
1. Personal-lines auto insurers in the US lose more than $29 billion a year in premium leakage.
Omitted or misstated information leads to inaccurate premium rates which brings losses for insurers. This, in turn, affects the premiums policyholders have to pay, in general.
As per auto insurance fraud statistics, the main types of misinformation that lead to premium leakage include unrecognized drivers, underestimated mileage, prior violations, and false garaging.
2. In 2016, fraud accounted for between 15% and 17% of total claims payments for auto insurance bodily injury.
It is difficult to estimate the resources lost to fraud, as the actually identified cases are considered a small portion of the total number of auto insurance scams being run. There have been periodic studies, however, that have tried to attribute a number to these losses.
For example, according to another study by the Insurance Research Council, between $5.6 billion and $7.7 billion was fraudulently added to paid claims for auto insurance bodily injury payments in 2012. This was a sizable increase from between $4.3 billion and $5.8 billion in 2002, according to another insurance fraud report from the same agency.
3.The national average annual car insurance premium in the US in 2019 was 23% higher than it was in 2011.
The average premium in 2019 was $1,470, higher than ever before. In fact, some US cities have average rates of more than $6,000 per year. One of the main reasons for the continuous increase in premiums is the rising cost of vehicle insurance fraud.
Since insurance companies raise overall premiums to account for the unexpected spike in payouts caused by fraudulent claims, it is in the general interest that people report cases of fraud.
4.No-fault scams are believed to have cost New Yorkers almost $2 billion between 2009 and 2018.
No-fault car insurance, introduced in the 1970s and currently available in 12 states and Puerto Rico, requires every driver to file a claim for bodily injury and medical expenses after a car accident, irrespective of who is at fault.
Originally meant to reduce the number of lawsuits in small claims courts, this policy has been misused by scammers over the years. This type of auto insurance fraud in New York and other states following the no-fault insurance policy is one of the main reasons for the high auto insurance premiums in these locations.
5. Over 10 million Americans admit to having lied in their auto insurance applications.
Insurance fraud is the costliest white-collar crime in the US after tax evasion. However, despite its significant costs, people’s attitude toward it is quite different compared to other crimes. Auto insurance fraud statistics show that of the 35 million Americans who admit to providing misinformation on insurance applications, the largest (29%) have done so for auto insurance.
The perception of insurance fraud as a victimless crime is what drives so many people to be involved in it. According to another data point from the Coalition Against Insurance Fraud, 1 in 5 Americans find it acceptable to plot against insurance companies, assumed to have bottomless pockets, under certain conditions.
The first step in avoiding insurance fraud is to conduct a thorough background check on your insurance provider. This includes the insurance company, the agent, and any other intermediaries involved. Go through the documentation properly to avoid any unforeseen issues later.
Avoid tailgating and be aware of any vehicles following your car too closely if you want to avoid getting involved in car accidents staged by car insurance scammers.
If you are involved in a car accident, here are a few things that can minimize the risk of finding yourself being defrauded:
The intent of this article is to make you more familiar with the different ways in which insurance fraud schemes can target you. It should also help you be more careful when filling up an insurance form, filing a claim, or dealing with any other steps in the auto insurance process.
Vigilance, after all, is the best way to tackle the major problem of auto insurance fraud. Also needed is the awareness that this problem impacts every citizen, making it a crime as serious as any other.
Yes, insurance fraud is illegal and is recognized as a serious crime. In the US, both state and federal laws prohibit insurance fraud, with enhanced sentences for fraud cases where the scheme results in injury or death. For car insurance frauds, punishment can range from simple cancellation of the policy to even a jail term.
Insurance fraud is broadly categorized into hard and soft frauds. Soft fraud is a crime of opportunity involving false information or exaggerated claims. Hard fraud involves the deliberate invention of an insurable loss, such as a fire, theft, or accident, to obtain a payout from an insurance provider.
Car insurance fraud includes lying to or withholding pertinent information from your insurance company, which can result in a number of serious consequences. These include:
The most common frauds in the US involve cases of auto insurance fraud, health insurance fraud, and staged home fires or storms.
Policy Advice is a website devoted to helping everyday people make, save, and grow money. While our team is comprised of personal finance pros with various areas of expertise, nothing can replace professional financial, tax, or legal advice.
Policy Advice is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.Policy Advice is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com
Stay In Touch
© Copyright 2022 PolicyAdvice.net. All rights reserved.