Car insurance fraud facts and statistics 2022
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A multitude of financial headlines are garnering attention these days, from inflation to rising mortgage rates and gas prices. Almost everyone is impacted in some way by major economic events. While insurance fraud may not capture the headlines the way these other hot topics do, it is something that ends up impacting almost every wallet. Insurance fraud happens on a regular basis, from health care to auto insurance, and the effects are far-reaching.
Insurance scams and fraud run the gamut from filing false claims to working with dishonest agents. If you are wondering what insurance fraud is, it is defined as intentional deception against an insurance company or agent solely for financial gain. And as technology changes, the ideas and opportunities for fraud only seem to expand. While we may not hear about it each day, insurance fraud literally costs billions a year and is considered one of the biggest crimes in the U.S. However, the more consumers are educated on how to recognize and protect themselves from fraud, the less these scams will cost and will ultimately be better for everyone.
Car insurance fraud facts and statistics for 2022
- The total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year. That means insurance fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums. (FBI)
- Auto insurance application fraud is on the rise, which is not unusual when consumers begin to feel greater economic pressures. Auto insurance applications analyzed between 2017 to 2020 contained 31% more fraud “triggers” versus applications from the previous four years. Examples of application triggers include underestimating mileage, omitting violations or accidents, not listing all drivers or claiming false garaging.(Verisk)
- 72% of alleged fraud victims say their auto insurance premiums increased as a result of reporting fraudulent activity. Premium increases are most likely to affect millennials, 78% of whom saw higher costs after being victims of fraud. (Coalition Against Insurance Fraud, CAIF)
- More insurance fraud statistics show the prevalence of lying on applications. One study showed more than one-fifth of drivers surveyed lied to their insurer. The most common fraud was claiming damage to their vehicle but then pocketing the money intended for repairs, or providing false information about their address or number of drivers to get cheaper premiums. (CAIF)
- States have varying degrees of fraud prevention laws. Only five states currently have auto insurance photo inspection laws: Florida, Massachusetts, New York, New Jersey and Rhode Island. Enforcing photo inspection laws decreased false claims payouts by over $128 million in New York from 2014 to 2018, supporting the need for greater fraud prevention laws. (Insurance Information Institute, Triple-I)
- Auto insurance costs have risen sharply since 2009 and have outpaced inflation. Although there are numerous contributing factors, fraud continues to put pressure on insurance rates. (Journal of Insurance Regulation)
General auto insurance fraud types
Auto insurance fraud occurs in a variety of ways. From omitting information on an application to staging a full-fledged auto accident, people continue to find creative ways to scam insurance companies or consumers.
Car dump. Someone who commits insurance fraud with car dumping means they purposefully abandon their vehicle. They proceed to file a stolen vehicle claim with the insurance company as an attempt to collect money through a settlement or sale of the vehicle.
- Also referred to in the insurance industry as “owner give-up.”
- Car dumping tends to increase during economic downturns, as people look for quick financial fixes. (NBC)
- Vehicles are abandoned in a number of ways, such as setting it on fire, pushing into a lake or claiming it was sold.
- False registration. This type of fraud occurs when someone registers their vehicle in a different state versus the one where they actually live. This usually occurs when someone lives in a state where registration is much higher versus the state they are claiming to live.
Staged accidents. There are a number of ways criminals engage in fraudulent activity with staged accidents, including hard braking so you slam into their car or they wave you through and then crash into you. You unknowingly become a victim of fraud when you are involved in an accident and the other drivers make fraudulent claims with your insurance company.
- Staged accidents tend to occur in more urban areas, although they can happen anywhere. (NICB)
- Criminals tend to target wealthier communities, where there is an assumption of better insurance
- Often target newer vehicles, rental cars and commercial vehicles, also because of a greater likelihood of full insurance coverage.
Agent Fraud. This type of fraud happens when an agent scams their customers through certain means, such as stealing premiums. In this scenario, an agent pockets the money without ever setting up your policy, leaving you without coverage and without you knowing until you try to file a claim.
- If you are a victim of agent fraud and you are involved in an accident, you would be responsible for the costs out of your own pocket.
- Always work with a trusted agent and verify their license through your state’s license database or using the National Association of Insurance Commissioners’ (NAIC) Consumer Information Source.
- Research any complaints filed against an agent before finalizing payments.
Car repair fraud types
Insurance fraud occurs not only during the application process but could happen at the repair shop too. Be aware of these common car repair scams.
Exaggerated repair costs. This is a common scam committed by dishonest repair shops. Exaggerating repair costs occurs in many instances, such as repairing with used parts but billing the insurance company for new parts, or simply billing the insurance company for work that was never performed.
- Dishonest repair shops and exaggerated repair costs are one of the leading causes of auto insurance fraud. (NAIB)
- Exaggerating repair costs may also be a way for the repair shop to “bury the deductible” for the driver. The exaggerated repair costs cover the cost of the deductible but overcharge the insurance company.
- You can use a repair shop that uses a written damage report instead of a written estimate of a price of repair, to cut down on the likelihood of fraud.
Faulty airbag replacement. This fraud occurs when an air bag is deployed due to an accident and is repaired and replaced by a body shop with a faulty, counterfeit air bag.
- The National Highway Transportation Safety Administration (NHTSA) estimates over 2,790 lives were saved in 2017 due to real, functioning air bags. (NHTSA)
- The NHTSA reports at least 21 vehicle makes with counterfeit airbags available, ranging from economy to luxury auto makers. (NHTSA)
- Counterfeit air bags represent 0.1% of all air bags installed, but consumers should still be aware of the issue. (NHTSA)
Auto glass fraud. This type of car repair fraud occurs when an auto glass repair company files a claim with the auto insurance company for unnecessary repairs.
- One study found 10% of all the auto glass claims in the U.S. were in Arizona between 2015 and 2019.(CAIF)
- There were more auto glass claims filed in Arizona than California or Texas, which has more than five times the population. (CAIF)
- Fraud is suspected due to the 26% increase in auto glass claims over the last five years in Arizona alone. (CAIF)
Towing scams. Towing scams occur when your vehicle breaks down and along comes a tow truck ready to “assist” you and tow your vehicle. Many drivers assume it is the tow truck company they contacted not realizing it is actually a scammer who took advantage of your vehicle breakdown. Your vehicle gets towed away and you end up paying too much to get your vehicle back.
- Crooked body shops are often the perpetrators of towing scams.(NUPropertyCasual360)
- The scam charges inflated rates for towing and the vehicle is often towed to a crooked body shop for shoddy repairs.
- Towing fraud occurs in big cities such as Los Angeles, Houston and Chicago, but could happen anywhere in the country.
There are several resources available if you feel you have been a victim of insurance fraud or you have witnessed an act of fraud take place.
- Insurance fraud reporting resources by state. The Coalition Against Insurance Fraud site includes a comprehensive list of contact information for the fraud bureau office in each state. It even includes the link to fraud offices where you can file information online.
- Online fraud filing. The National Association of Insurance Commissioners offers consumers a resource for filing a fraud complaint online. It allows consumers to report information regarding possible fraudulent activities to local state agencies.
- Fraud reporting with the National Insurance Crime Bureau (NICB). The NICB provides an online and anonymous option, or you can call the consumer hotline to report fraudulent activity. There are both English and Spanish resources.
- Fraud.org includes a catalog of tips and resources for avoiding car insurance scams (and other categories) as a consumer. You can choose to file a complaint through the organization too, which then feeds the information to a network of over 100 police departments across the U.S. and Canada. Additionally, the information is shared with the Federal Trade Commission.
- The Better Business Bureau. The BBB is well-known as a resource for consumers who are researching businesses and their business practices. You can also file a complaint through the BBB and warn others if you feel you have been a victim of fraud through a business.