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Insurance fraud costs the auto insurers and consumers billions of dollars each year. Fraudulent claims spiked in 2020 due to an escalation in schemes during the pandemic. According to the Insurance Information Institute (Triple-I), the most common fraud schemes since COVID-19 began impacting the U.S. have included staged accidents, billing scams and even “fake” accidents occurring at homes of drivers.
What is car insurance fraud?
Car insurance fraud is what occurs when someone lies or makes an omission to get a better insurance rate or receive a larger claim payout. Car insurance fraud examples could include a simple lie, like listing a false ZIP code on your policy information to get a lower rate, or something as serious as deliberately causing an accident to receive an insurance payout.
Insurance fraud impacts millions of people across the U.S., including those who have never directly been involved in a scam. The cost of non-health insurance fraud is estimated to be $40 billion per year, costing the average U.S. family up to $700 annually in increased premiums.
Drivers in Florida and New York — two states that are ripe with auto fraud schemes — may want to be particularly careful. Florida and New York currently have the highest rate of car insurance fraud in the U.S., according to the Insurance Research Council.
According to Jim Quiggle, communications director for the Coalition Against Insurance Fraud (CAIF), insurance fraud is a “major league crime involving a wide variety of schemes.” Even as an everyday driver, it could help to know what it looks like.
Common types of car insurance fraud
Between 2016 and 2017, frontal airbags are reported to have saved an average of 2,790 lives per year, according to the National Highway Traffic Safety Administration (NHTSA). However, during the repair process, at least a small percentage of those deployed airbags will be replaced with counterfeits — which can be life-threatening.
Although the NHTSA estimates that fake airbags represent less than 0.1 percent of what is installed in U.S. vehicles, their high likelihood of malfunction, explosion and metal shrapnel release make them dangerous to drivers.
The convenience of online shopping through sites like eBay has increased counterfeit airbag circulation. Additionally, some repair shops looking for ways to increase profits have been known to intentionally opt for cheaper airbag replacements, despite their installation being illegal in most states. “Crooked repair shops frequently replace the bags with cheap knockoffs, or in some cases just fill the area with junk and garbage,” says Quiggle. “The insurer pays for phony work and the driver ends up with a car that isn’t safe.”
The NHTSA is aware of at least nine makes and models involved in the recent Takta airbag recall, spanning some 67 million potential counterfeit airbags. You can check for recalls through the NHTSA by entering your full vehicle identification number (VIN) from your car to see if your vehicle is affected.
If you are buying a used car, there are several things you can do to help avoid having a counterfeit airbag installed in your vehicle.
- Get a vehicle report from Carfax or a similar vendor to see your car’s accident and service history.
- Check for the airbag light on your dashboard to briefly turn on when your car starts to show that it is functioning correctly.
- Get your vehicle inspected by your car’s manufacturer, especially if your airbags have been replaced in the past three years by a repair shop not associated with a new car dealership.
The National Insurance Crime Bureau (NICB) referred to staged accidents as a “big business” that drivers should know how to spot and handle. They include any incidents where a driver intentionally or strategically causes a collision with another vehicle to receive a fraudulent insurance payout. The incident’s facts are often inflated or misrepresented to result in the unsuspecting driver being at fault.
Staged accident claims may result in claims ranging from $2,000-$10,000, but some fraud rings may work collectively to receive even more, resulting in hundreds of thousands of dollars in total. For policyholders in South Carolina, which ranked seventh in the nation for most staged accidents, these schemes caused premium increases of around 8.9 percent across 10 major providers in the state.
NICB says common types of staged crashes include:
- Swoop and squat: Two vehicles trap a victim in a rear-end collision.
- Drive down: When waiting to make a left turn, the victim is lured into turning early by an oncoming fraudster who waits and then proceeds to collide with the victim.
- Wave down: Two vehicles set up a crash with a victim who’s given a wave that it’s safe to pull out of a parking lot or side street.
- Enhanced damages: In a legitimate accident, the not-at-fault driver causes additional damage to their vehicle to pump up the claim.
- Panic stop: A vehicle intentionally watches for the car behind them to become distracted and then slams on their brakes, causing the tailing vehicle to rear-end them.
- Sideswipe: A driver positions themselves so they can sideswipe another car that is using the inner left-turn lane of a dual left-turn lane intersection.
If you ever suspect you are part of a staged accident, NICB recommends that you document the extent of damage and the number of passengers involved in case false claims are made. Additionally, it is recommended that you be wary of individuals offering advice and services that were not requested, including post-accident medical advice and towing services.
Most insurance professionals are honest, but if you buy your car insurance coverage through an agent who has the potential to commit car insurance fraud, it can cost you.
CAIF says one of the worst-case scenarios involves a dishonest insurance professional who steals your premiums. The unscrupulous agent pockets your money and doesn’t set up the coverage, so when an accident occurs, you find that you have no insurance to pay your claim and must cover the loss on your own.
Another common practice is known as “sliding,” in which an unethical agent slips extra coverage that you didn’t want into your policy. This particularly sneaky form of auto insurance fraud can add a few hundred dollars a year to your premiums while padding the agent’s commission.
Vigilant drivers who investigate their agents ahead of time and keep a close eye on what they’re buying are less likely to fall victim to sliding scams.
To avoid premium theft, drivers should work with trusted agents and always verify their coverage independently with the insurer. Some ways you could go about finding a trusted agent include:
- Request references: To get an idea of the agent’s professional reputation, you may ask for references to ensure that they have a proven track record.
- Verify the agent’s license: You can check an insurance agent’s license either by looking it up on your state’s license database or using the National Association of Insurance Commissioners’ (NAIC) Consumer Information Source.
- Compare advice: Like car insurance quotes, it could help receive coverage advice from more than one agent to see what they recommend. If an agent’s advice seems off-base from what you have heard from several others, you may want to consider whether they are providing you with reliable information.
- Research complaints: An insurance agent with substantial professional experience is likely to have information about their work history available. In doing your research, also consider if any complaints have been filed against them.
Windshield replacement rip-offs
Windshield replacement deductibles may vary by state, insurer, and policy. However, three states — Florida, Kentucky and South Carolina — do not allow insurance companies to charge a deductible for windshield replacement. Unscrupulous glass replacement contractors in these states have used this as an opportunity to trick customers into having their windshields replaced even if minimal damage is present.
This scam is especially prevalent in Florida. Drivers are approached randomly at car washes, gas stations and shopping centers and enticed with gift cards to sign an Assignment of Benefits (AOB), allowing the shady vendor to handle the repair and claim process with the insurer.
Many times, these fraudsters work with unscrupulous attorneys who file suit against the insurers in the name of the policyholder but without their knowledge or consent. This can lead to six-figure settlements for a simple windshield repair that should have only cost $200-$300. Nearly 27,000 AOB windshield repair lawsuits were filed against Florida auto insurers in 2020, according to the Florida Justice Reform Institute.
According to Farmers Insurance, the windshield replacement offer is almost always a scam. And the risks may be more significant than many people realize. First, the quality of the replacement windshield and the repair work usually is subpar, which means you could be putting your safety at risk when driving your vehicle. This scam can also do a number on your insurance coverage, says Quiggle, as it could lead to increased rates or policy cancellation.
Experts say the best thing is to walk away from the offer. If you need your windshield replaced, contact your insurance agent or carrier and report the loss. They will verify coverage and arrange a legitimate vendor, such as Safelite, to come to your home or business to repair or replace your windshield.
At first glance, a tow truck appearing after an accident or breakdown may seem like good luck. But if you did not call for a tow, there is a good chance it is what authorities call a “bandit” tow truck. A bandit tow service will likely request that your vehicle be brought to their shop, where they will demand you pay them hundreds of dollars to repair and release the vehicle.
You should be wary of any towing service that does not offer information about themselves, their services or how they were informed about your accident. There are several easy ways to protect yourself against becoming a victim of these scams.
- Contact your insurer: If your car insurance company sent out the tow service, details are often provided, so you know who to expect. If the details provided do not match the tow service that showed up, consider calling the police or continuing to wait for the correct service.
- Request a printed receipt: It could pay to get a printed invoice upfront before letting a tow truck take your vehicle. The invoice should include itemized charges for the tow service, storage and any additional fees.
- Choose the destination: Although a tow service operating fraudulently will likely insist that your vehicle be towed to their shop, they should give you the option to have the vehicle towed to a destination of your choice.
- Avoid sharing insurance information: Sharing details about your auto policy with a fraudulent tow service may allow them to further take advantage of you and your policy.
Car insurance premium evasion
Policyholders are not always uninvolved when it comes to insurance scams. According to the Triple-I, some drivers deliberately mislead insurers by using a false address from a lower-premium area when registering their vehicles.
Another instance of auto insurance fraud is deliberately failing to add a new driver in the household. For example, some policyholders may intentionally omit a driver, typically a teenager, on the family policy to avoid increased rates. Insurance fraud costs the average U.S. family between $400 to $700 per year in additional premiums, according to the Triple-I.
Details regarding your personal information, vehicle information and driving history are often crucial to obtain an accurate premium and avoid violating any laws. This includes your ZIP code, vehicle registration and prior accidents.
Tips for avoiding car insurance fraud
Knowing that auto insurance fraud exists is the first step. To protect yourself, it is beneficial to know some additional ways to avoid these scams:
- Opt for original manufacturing parts when getting your vehicle repaired to avoid counterfeit or cheap replacements.
- Document all incidents, including accident damage, police reports and invoices. This could help in fighting future claim disputes.
- If something seems suspicious, consider calling the police. For example, an individual who does not provide much information about themselves but expects personal, insurance or payment information from you could be cause for concern.
- Keep your vehicle insurance information private. Outside of dealing directly with your insurer or handling official claims or reports, you might want to consider being wary of any other parties requesting information about your policy.
- Verify the legitimacy of your agent and insurance company. Scammers may pose as an insurance agent, agency or insurance company to sell fraudulent policies. You can use your state’s insurance database to verify if the agent and the insurance company are real and licensed before providing your personal information and payment details.
- Use defensive driving practices. When you drive defensively, you can reduce your risk of being involved in an accident and unintentionally falling victim to car insurance fraud. Keep distance between your car and the driver in front of you, drive the speed limit and scan your surroundings to limit potential accidents.
- Be suspicious of insurance prices that seem too good to be true. If you receive a much lower quote for car insurance than the competition, it could be a potential scam, or coverage filled with exclusions you will not discover until after you accept coverage.
Frequently asked questions
If you lie on an insurance application, you could receive a punishment for car insurance fraud. Depending on your state, you could face fines or possible jail time for lying on your application. At the very least, your insurer may increase your rates and impose a financial penalty of their own or even discontinue your coverage.
The amount of jail time depends on the severity of the fraud. For a misdemeanor fraud, you could get up to a $15,000 fine and a maximum five years in jail. For a felony fraud, you could get up to a $150,000 fine and as much as ten or more years in prison.
Knowing when and how to report car insurance frauds can help you act quickly if you expect you are the victim of this offense. If you suspect auto insurance fraud, you may consider reporting it to your insurer, as well as the National Insurance Crime Bureau at 800-835-6422 or report it online. Depending on how quickly you need assistance, like in the case of a staged accident, you should immediately call the local or state police.
Insurance fraud can take on many forms, from misrepresenting personal details on insurance applications to strategically planned schemes, such as staged accidents. Our tips on how to avoid car insurance fraud above may be a useful starting point.
The difference between hard and soft insurance fraud is the intent. Hard insurance fraud includes planning or scheming to defraud someone, such as causing an accident on purpose to receive an insurance payout. Soft insurance fraud is unplanned or may even be accidental. This can include inflating injury severity or exaggerating a claim to increase the payout.