Car insurance fraud is when someone lies to the insurance company for financial gain. Even if you never find yourself in the middle of one of its sleazy scams, car insurance fraud affects you. Industry experts say these insurance scams slow legitimate insurance claims, increases premiums and, in some cases, put innocent victims in danger.
Law enforcement officials say fraud factors into as many as 1 out of every 3 car insurance claims in New York City. The problem may be even worse in Los Angeles, the city that generates the most questionable claims potentially linked to organized crime, according to the National Insurance Crime Bureau.
Another group, the Coalition Against Insurance Fraud, that specializes in tracking insurance frauds has reported that the top five states for fraudulent car claims are Michigan, New York, Florida, Massachusetts and California.
The cost of insurance scams to motorists is tough to pin down because fraud often goes unreported, but it’s a “major-league crime involving a wide variety of schemes,” according to Jim Quiggle, a spokesman for the Coalition Against Insurance Fraud in Washington, D.C.
In New York City alone, officials estimate that fake car claims add $241 million to premiums. Nationally, experts believe overall insurance fraud costs tens of billions of dollars every year.
Learn how to protect yourself from the worst car insurance frauds.
Types of car insurance fraud
Counterfeit air bags
Each year, about 1.5 million air bags inflate during crashes, saving thousands of lives. During the repair process, at least a small percentage of those deployed air bags will be replaced with counterfeits — which can be life-threatening.
“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.”
If your car needs repairs after the air bags have deployed, work with a trusted, reputable mechanic, says Quiggle. He advises drivers to go with shops that have been approved by their insurance company because those will have been heavily vetted.
If you’re buying a used car, get a vehicle report, which will tell if the car has been damaged in a crash or has been salvaged. Then, pay close attention to the air bag light, which should appear briefly and then turn off. If the light never appears, if it flashes steadily or if it stays on, have the car inspected immediately.
Staged accidents are rising at an alarming rate, according to the National Insurance Crime Bureau. Insurers across the U.S. reported a 102 percent increase in suspected cases of this type of fraud from 2008 to 2011, the bureau says.
The National Insurance Crime Bureau 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 his or her own 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.
- Side swipe: 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.
Florida lawyer Russel Lazega advises anyone who has been in a wreck to gather as much evidence as possible right away.
“Often car crash cases don’t make it to court until years later, when witnesses are gone and cars have been fixed,” he says. “Demand a police report, take lots of pictures and get the contact information for any witnesses.”
Most agents are honest, but if you buy your car insurance coverage through an agent who isn’t on the up-and-up, it can cost you.
The Coalition Against Insurance Fraud says one of the worst-case scenarios involves a shady agent 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.
To avoid premium theft, drivers should work with trusted agents and always verify their coverage independently with the carrier.
Also common is a practice known as “sliding,” in which an unethical agent slips extra coverage that you didn’t want into your policy. This particularly sneaky form of car 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 won’t fall victim to sliding scams.
Windshield replacement rip-offs
A stranger approaches you at a parking lot and says he’s with a vehicle glass company. He tells you that you need a new windshield, which he can provide free of charge if you provide your insurance information. Sounds good, right?
Well, it’s probably too good to be true. According to Farmers Insurance, the windshield replacement offer is almost always a scam. And the risks may be greater than many people realize.
First, the quality of the replacement windshield and the repair work usually aren’t good, which means you could be putting your safety at risk. This scam also can do a number on your insurance coverage, says Quiggle.
“Once they have your insurance information, a scammer will often submit false claims under your policy,” he says. “You’ll have to go through the headache of clearing up those false claims, but in the meantime, they can raise your premium and — if there are enough false claims — you can even lose your coverage.”
Experts say the best thing is to walk away from the offer. If you do need your windshield replaced, call your insurance agent in advance to see what is and isn’t covered.
At first glance, a friendly tow truck happening by after an accident or breakdown can seem like a godsend. But if you didn’t call for a tow, there’s a good chance it’s what authorities call a “bandit” tow truck, which means you’ll get your tow and an eye-popping bill.
There are a couple of easy ways to protect yourself. If you have AAA or belong to another roadside assistance program, that’s where you should turn when you need a tow because you’ll benefit from lower pre-negotiated rates.
Your car insurance policy may also offer roadside assistance. If you use it when an accident renders your vehicle undriveable,ask about the policy’s limits on towing and storage before you leave the scene.
If you must use an independent tow truck, call for one rather than go with a truck that is passing by. It’s also critical that you read the fine print before signing any towing contract. Experts say you should get a printed price or invoice of all towing and storage charges and any miscellaneous fees. The contract also should specify to where your vehicle is being towed.
Car insurance premium evasion
Policyholders are not completely innocent when it comes to insurance scams.
The Insurance Information Institute, a New York-based trade group, says some customers deliberately mislead insurers by using a false address from a lower-premium area when registering their vehicles.
A related car insurance fraud is deliberately failing to add a new driver in the household, typically a teenager, to the family policy.
The institute says these sorts of lies and omissions cost the car insurance industry as much as $16 billion a year.
In theory, premium evaders could go to jail for fraud, but it’s more likely they’ll lose their car insurance coverage, says Thomas J. Simeone, a Washington, D.C., lawyer who specializes in liability issues.
“Any intentional misstatement on an insurance application can definitely lead to a policy being canceled immediately and a claim being denied,” says Simeone. “Moreover, the insurance company may seek to recover any previous claims paid before uncovering the false statement.”
How to avoid car insurance fraud
Knowing that car insurance fraud exists is the first step. To protect yourself, you’ll want to know how to avoid these scams. Nationwide provides these tips on how to avoid car insurance frauds.
- Avoid tailgating so that criminals can’t take advantage of the situation to cause an accident.
- Report all accidents to the police and get a police report, no matter how small the damage is, so criminals can’t damage the car to get in bigger claim.Document any details of the accident. Take pictures of any damages, the passengers and the accident scene after an accident. Write down names, addresses, license plate numbers, driver’s license numbers, witnesses and anything you remember about the accident.
- Find your own doctors and lawyers. Don’t use people who come up to you at the scene of an accident. If a doctor suggests filing a personal injury claim even if you’re not hurt, be cautious.
- Tell your insurance provider about the accident as soon as possible.
Remember, when in doubt, always contact your insurer.
Frequently asked questions
What happens if you lie on an insurance application?
Lying on an insurance application is a form of fraud and is punishable by fines and potentially jail time. Not only that, but your insurer may increase your rates and impose a financial penalty of their own.
How much jail time can you get for insurance fraud?
How much jail time you get depends on the severity of the fraud. For a misdemeanor fraud, you could get up to a $15,000 fine and up to 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.
How do I report suspected car insurance fraud?
Immediately call your car insurer or the National Insurance Crime Bureau (800-835-6422).
How can I recognize car insurance fraud?
Use the guidelines outlined above to help you identify potential car insurance fraud. When in doubt, contact your car insurance company or the National Insurance Crime Bureau (800-835-6422).