6 Types of car insurance fraud

Each year, insurance fraud costs auto insurers billions of dollars and consumers billions. The pandemic caused an increase in fraud claims in 2020. The Insurance Information Institute (Triple-I) states that the most prevalent fraud schemes since COVID-19 started affecting the U.S. include billing scams, staged accidents and fake accidents at the homes of drivers.

Insurance fraud can be committed by any party, whether it is a consumer who misrepresents a claim, or a retailer reporting incorrect products or labor. Even if you don’t participate in the act, the $29BILLION per year cost to auto insurances affects millions of families across America.

Auto insurance fraud is responsible for 14% in total auto premiums. Florida and Michigan are two states where auto fraud is rampant. According to the Insurance Research Council Florida has the highest level of car insurance fraud in America. 83% Michigan’s insurance fraud complaints related to auto and no-fault insurance benefits. This leads to criminal investigations.

Jim Quiggle is the communications director at the Coalition Against Insurance Fraud. He says that insurance fraud is a major league crime involving a variety of schemes. It could be helpful to see what it looks like for everyday drivers.

There are many types of car insurance fraud

Counterfeit airbags

According to the National Highway Traffic Safety Administration, frontal airbags have been reported to have saved on average 2,782 lives each year between 2016 and 2017. However, a small number of deployed airbags may be replaced by counterfeits during repair, which could be dangerous.

The NHTSA estimates that fake bags make up less than 0.1%, but they are dangerous for drivers due to their high risk of malfunction, explosion, and metal shrapnel releases.

Online shopping via sites such as eBay has led to increased counterfeit airbag distribution. Some repair shops are known to choose cheaper replacements for airbags in order to make more profit, even though they are illegal in many states. The NHTSA has information on at most 21 vehicle manufacturers that have counterfeit airbags, including high-end automakers like Land Rover and BMW.

Quiggle says that “crooked repair shops often replace the bags by cheap knockoffs or just fill the area full of junk and garbage.” “The insurance pays for fake work, and the driver ends with a car that’s not safe.”

There are many things you can do to avoid getting a fake airbag in your car if you’re buying a used one.

  • To see the car’s history and accident information, get a Carfax report or another vendor.
  • If your car is starting to function properly, check for the light in your airbag.
  • Your car manufacturer should inspect it, particularly if the airbags were replaced within the last three years by an independent repair shop.

Structuring accidents

Staged accidents were referred to by the National Insurance Crime Bureau (NICB), as a “big company” that drivers need to be able to recognize and manage. These include incidents in which a driver deliberately or strategically causes an accident with another vehicle to obtain fraudulent insurance payouts. Often, the incident’s facts are exaggerated or misrepresented so that the driver is not at fault.

Claims for staged accidents can range from $2,000 to $10,000 . However, fraud rings might work together to get even more. This could result in hundreds of thousands of dollar total. These schemes resulted in premium increases of approximately 8.9% for policyholders in South Carolina. South Carolina ranked seventh nationally in terms of most staged accidents.

NICB states the most common types of staged crash are:

  • Swoop and squat. Two vehicles trap a victim during a rear-end collision.
  • Drive down: A fraudster arrives and lures the victim into making a left turn before he can stop him.
  • Wave down: A collision between two vehicles and a victim. The victim waves that it is safe to pull out from a side street or parking lot.
  • Enhanced Damages: To increase the claim, the at-fault driver may cause additional damage to their vehicle in an accident.
  • Panic stop: The vehicle behind you deliberately watches for another vehicle and then brakes. This causes the other vehicle to rear-end the vehicle in front.
  • Sideswipe is when a driver places themselves in a position to sideswipe another vehicle that is using the inner left turn lane at a dual left-turn intersection.

If you suspect that you may be involved in a staged accident you should document the extent of the damage and the number passengers involved to avoid false claims. It is important to be cautious about anyone offering advice or services, even post-accident, such as medical advice or towing services.

Agent fraud

Although most insurance agents are honest, you might have to pay more if your agent isn’t up-and-up.

CAIF states that one of the worst scenarios is when an honest insurance agent steals your premiums. You find yourself in a situation where the agent is shady and takes your money. Then, when an accident happens, you discover that you don’t have insurance to cover it.

Drivers should only work with trusted agents to avoid premium theft and verify their coverage with their insurer independently. Here are some ways to find a trusted agent:

  • Ask for references: You can ask for references to get a better idea of an agent’s professional reputation.
  • Verify the license of the agent: You can look up the license of an insurance agent by searching the state’s licensing database or by using the National Association of Insurance Commissioners’ Consumer Information Source.
  • Compare advice: It is possible to get coverage advice from multiple agents, just like car insurance quotes. You may be able to determine if the advice given by an agent is consistent with what you have heard from others.
  • Investigate complaints: A professional insurance agent will likely have information about their past work history. Also, consider whether any complaints have been filed against the agent.

A common practice known as “sliding” is when an unprofessional agent adds coverage to your policy that you don’t need. This type of fraud is especially sneaky and can increase your premiums by a few hundred dollars per year while also padding the agent’s compensation.

Vigilant drivers who do their research ahead of time and pay attention to what they are buying are less likely fall for sliding scams.

Windshield replacement ripoffs

While most states have a deductible to cover windshield replacement, South Carolina, Kentucky, and Florida do not require one. These states are home to many scammers who use this opportunity to convince customers that their windshields need to be replaced, even if there is minimal damage.

This scam is particularly prevalent in Florida. At random, drivers are approached at gas stations and shopping malls and offered gift cards in exchange for signing an Assignment of Benefits (AOB). This allows the vendor to manage the claim and repair process.

These fraudsters often work with unscrupulous lawyers who file suits against insurers on behalf of policyholders without their consent or knowledge. For a simple windshield repair, which should have cost between $200 and $300, this can lead to six-figure settlements. According to the Florida Justice Reform Institute, nearly 27,000 AOB windshield repair lawsuits were filed against Florida car insurers in 2020.

Farmers Insurance says that the windshield replacement program almost always works as a fraud. The risks are greater than most people realize. The first is that the windshield replacement and repair work are often poor quality. This could mean you put your safety at risk while driving your car. Quiggle warns that this scam could also impact your insurance coverage. It could result in higher rates or cancellation of your policy.

Experts advise that you should walk away from any offer. Contact your carrier or insurance agent to report that you need your windshield repaired. They will verify your coverage and send a licensed vendor (such as Safelite) to your house or business to replace or repair your windshield.

Towing scams

A tow truck that appears after an accident or breakdown might seem like luck at first glance. If you didn’t call for a tow it could be a “bandit tow truck. Bandit tow services will most likely ask for your vehicle to be taken to their shop where they will charge you hundreds of dollars to fix and release it.

Any towing company that doesn’t provide information about their services, or how they were informed of your accident should be avoided. These scams can be avoided by taking simple precautions.

  • Your insurer should be contacted: Details are often given if your car insurance company sent the tow service. This will allow you to know who to expect. If you don’t believe the information provided matches the service, call the police or wait to be contacted.
  • Ask for a printed receipt before you allow a tow truck to take your vehicle. You should have an invoice that includes all charges, including storage and additional fees.
  • You can choose the destination: A tow company that is fraudulent will insist that your vehicle be tow to their shop. However, they should offer you the choice to have it tow to another destination.
  • Avoid sharing information about your insurance. Sharing information about your auto policy details with a fraudulent tow company could allow them to take advantage of your policy.

Evasion of car insurance premium

Insurance scams can often involve policyholders. Triple-I reports that some drivers intentionally mislead insurance companies by using false addresses from lower-premium areas when they register their vehicles.

Auto insurance fraud also includes deliberately failing to add another driver to the household. To avoid higher rates, policyholders might intentionally leave out a driver usually a teenager. According to Triple-I, insurance fraud can cost a family anywhere from $400 to $700 annually in extra premiums.

To get a fair premium and avoid breaking any laws, it is important to provide details about your driving history, personal information, and vehicle information. This includes your ZIP code, vehicle registration, and any prior accidents.

How to avoid insurance fraud

The first step is to recognize that there are many types of auto insurance fraud. It is important to be aware of additional ways to protect yourself from these scams.

  • To avoid cheap or counterfeit replacements, make sure you only use original parts for your vehicle’s repair.
  • All incidents should be documented, including any accident damage, police reports, and invoices. This will help you to fight future claims disputes.
  • Consider calling the police if you suspect something is wrong. An individual who doesn’t give much information but asks for personal, insurance, or payment information could be a concern.
  • Your vehicle insurance information should be kept private. Other than your insurer, it is important to keep your information private.

Questions frequently asked

What happens if you lie about an insurance application?

Fraud is defined as lying about an application for insurance. This can lead to fines or even jail time. Your insurer could increase your rates, impose a financial penalty or discontinue coverage.

What sentence can you serve for insurance fraud?

The severity of the fraud will determine the length of your sentence. A misdemeanor crime could result in a $15,000 fine, and up to five years imprisonment. A felony fraud could result in a $150,000 fine, as well as ten years imprisonment.

How can I report suspected insurance fraud against my car?

You can report any suspicions of auto insurance fraud to your insurer or the National Insurance Crime Bureau at 800 835 6422. You should call the police immediately, depending on how urgent you need help, such as in the case with a staged accident.

How do I identify car insurance fraud?

Insurance fraud can come in many forms. It could be misrepresenting personal information on insurance applications or being part of strategically-planned schemes like staged accidents. These tips may help you avoid insurance fraud.