Auto Insurance Fraud

Auto insurance fraud, a billion-dollar enterprise, is deception against an insurance company to gain illegitimate benefits. What you may consider a “white lie” could constitute an illegal car insurance claim.

It’s important to always be honest when filing claims or providing information to your insurer. If you’re planning to get insurance, or you have it and plan to file a claim soon, our article will explain the various types of car insurance fraud help you avoid committing it. Read more about how much insurance coverage you need before buying coverage.

You might be wondering when to hire an auto insurance lawyer if your provider makes you the subject of an auto insurance fraud investigation — you should seek legal advice as soon as possible. You can also put your ZIP code into our attorney search tool to speak with a knowledgeable insurance attorney who can help.

Auto Insurance Fraud: Everything You Need to Know

Many policyholders may not know what constitutes car insurance fraud in the first place. If you don’t know what insurance fraud is, you could unwittingly put yourself at risk of being accused of wrongdoing.

Car insurance fraud occurs when people intentionally present false information or engage in deceptive activities to insurance providers. The people committing the fraud aren’t always criminals.

They can include car insurance applicants, existing policyholders, third-party claimants, medical professionals, vendors, and other service providers.

There are many different types of insurance fraud. There’s internal versus external fraud. There’s also hard versus soft fraud.

Internal vs. External Car Insurance Fraud

Internal fraud is the type perpetrated against insurance providers and/or policyholders by insurance company employees, such as insurance agents, managers, and executives. A common example is when an agent issues fake policies and then pockets the premiums.

External fraud schemes are directed against an insurance company by individuals like policyholders, medical providers, beneficiaries, and vendors.

Examples include creating a false claim by staging or causing auto accidents or auto thefts, falsely reporting stolen or damaged items, creating fictitious accident-related injuries, and obtaining multiple policies for one vehicle and then collecting on all policies when it is damaged or destroyed.

The Difference Between Hard and Soft Fraud for Auto Insurance

There’s also a distinction between “hard” and “soft” types of insurance fraud. Hard fraud is when a policyholder deliberately fakes an accident, injury, damage, theft or other loss to collect money illegally from insurance companies.

Soft fraud is the “little white lie” many people tell their insurance company, like a car owner inflating a fender bender claim to cover her deductible.

Although hard fraud may be more costly in terms of economic losses to the industry, soft fraud is widespread and may even be more common. Make no mistake, soft fraud is a crime.

What someone may think is an inoffensive or slight exaggeration can, in reality, constitute an auto insurance scam that can have significant negative legal implications.

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Most Common Types of Auto Insurance Fraud

The three most common types of car insurance fraud are exaggerated claims, misrepresenting facts, and past posting insurance. We’ll explain more about these car insurance fraud types below.

Exaggerated Auto Insurance Claims

Exaggerating a claim normally means overstating the amount of the loss. The most common perpetrators of this type of “soft” fraud are not professional criminals but rather the occasional “fibbers” or “padders” who overstate their insurance claim. So, it’s important to know how to file a car accident claim.

Overstating the amount of loss includes inflating bodily injuries and vehicle damage from an auto accident. Many people inflate the damage amount to make up for what they had to pay for their out-of-pocket deductible.

These minor exaggerations of a few hundreds of dollars on one claim actually costs consumers billions of dollars annually in collective losses according to the Coalition Against Insurance Fraud.

Misrepresenting Facts to Get Car Insurance Coverage or Payment

When looking for car insurance, applicants are required to provide basic information about themselves, their vehicle and driving history so that the car insurance company can assess the coverage risk, needs, and rates.

Obviously, the provider is relying on people giving accurate and truthful information in order to determine the right policy and calculate the best rates.

Unfortunately, people often omit information, or even lie, about poor driving history, prior accidents and other key factors for determining car insurance rates to try to get a low quote.

That scheme often backfires because insurance companies will always verify driver information by conducting background checks and searching records maintained by police and state motor vehicle departments. Any discrepancies can lead to higher rates, policy cancellation or a denial of coverage.

When making claims, people often misrepresent facts about the accident or incident in order to receive payment. A common example is including old and unrelated vehicle damage as part of the damage in the current accident. Claims adjusters, who are usually trained to spot telltale signs of old damage, will inspect your vehicle and they can deny your entire claim if they determine that you tried to add prior damage.

People also misstate facts relating to their injuries by claiming they suffered major bodily harm when they only experienced a minor injury, or no injury at all.

Related schemes that misrepresent the extent of injuries include falsely claiming partial or total disability; medical providers billing for services that were never rendered or providing unnecessary medical treatment to inflate medical expenses; and pharmacist “upcoding” for medicine by issuing generic pills and charging for name brand.

Past Posting Car Insurance

This scheme occurs when an accident occurs, someone obtains coverage after the accident and then claims the accident predated the coverage. Some people are tempted to “past-post” insurance coverage when they are faced with an expensive loss and no coverage.

For example, they crash their car, are in an automobile accident or are a victim of a car theft, but they don’t have insurance.

In order for a claim to be valid, however, coverage must exist before the loss. As such, it is illegal to obtain coverage the same day of the loss for the purpose of falsely claiming the accident occurred after coverage.

Specific Car Insurance Fraud Examples to Look Out For

The insurance industry and law enforcement see hundreds of thousands of cases of fraudulent car insurance claims and schemes. Here are some of the top car insurance fraud examples to be aware of and stay clear from:

• Drive down: A driver indicates to another driver that it is okay to proceed, and then intentionally hits the passing car.
• False police reports: An vehicle owner fabricates an accident and makes a false police report to support the insurance claim. It’s important to note that filing a false police report is a crime in itself.
• False repairs: An auto body shop owner inflates the extent of damage to cover the deductible.
• Hit-and-run: A driver claims that a pre-damaged vehicle was in a hit-and-run accident.
• Owner give-up: The vehicle owner destroys the vehicle to collect insurance money.
• Policy misrepresentation: A policy applicant gives false information to lower premiums, like using a friend’s or relative’s address, misrepresenting how far and often someone drives, failing to disclose previous accidents, and moving violations.
• Sideswipe: A driver drifts into another lane to intentionally force a collision.
• Swoop-and-squat: This scheme involves two drivers. The vehicle in front of you is passed by another vehicle that “swoops” in front of it, causing the vehicle in front of you to “squat,” i.e., stop abruptly, so that you collide with the rear end of the vehicle. The swoop car disappears but the squat car submits vehicle damage and personal injury claims to your insurer.

Oftentimes, the squat car will have passengers that fabricate bodily injuries as well.

Car Insurance Fraud Punishments

Simply put car insurance fraud is exaggerating, withholding, or providing false information when getting insurance or making a claim. There are very serious consequences for committing car insurance fraud, listed below.

Policy Cancellation

If the insurance company discovers that you lied in your application, there is a good chance your policy will be canceled. Not only will you be without insurance, but you’ll also be labeled a “high risk” driver and it will be harder and more expensive for you to get a new policy.

Higher Rates

Drivers with prior accidents are considered higher risk for insurance companies than drivers with clean driving histories. Even single-vehicle accidents can affect car insurance rates. If your provider finds out that you lied about your accident history when getting insurance, your premiums will go up, and your policy could be canceled.

Claim Denial

Your insurance adjuster has the right to deny a claim if false information was provided relating to that claim. They can also deny a claim for intentional false statements about driving history or other untrue information used to obtain insurance coverage.

Civil Lawsuit for Damages

Some states permit insurance companies to bring a civil lawsuit against a policyholder for fraud. If it is determined that a claim was paid under fraudulent circumstances, the policyholder will be held financially responsible.

In addition to having to repay the claim money, the policyholder may have to pay the insurance company’s legal fees and costs. 

Criminal Charges

Insurance companies can bring criminal insurance fraud charges against applicants, policyholders and third-party claimants.

Withholding facts about a car accident, giving incorrect information when getting car insurance, or otherwise lying to an insurance company can constitute insurance criminal fraud. If convicted, severe cases of insurance fraud can result in jail time and a permanent criminal record.  Learn more about where to find a lawyer if you’re looking for auto insurance fraud lawyers.

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How to Report Car Insurance Frauds

If you feel you have been the victim of car insurance fraud, like the swoop-and-squat, you should report it to your insurance company and law enforcement.

Most state and local governments have fraud units. You should be able to find their contact information through an online search. You can contact the National Insurance Crime Bureau at 800-835-6422, or visit their website, to submit an anonymous tip of suspected auto insurance fraud.

If you’re aware of the crime being committed or having been committed, follow the steps below to contact the appropriate fraud unit. They’ll investigate and prosecute insurance fraud criminals.

Case Studies: Examples of Car Insurance Fraud

Case Study 1: Exaggerated Claims

John, a policyholder, filed an insurance claim after a minor accident. However, he exaggerated the damages and injuries sustained to receive a higher payout. This dishonest act cost the insurance company and policyholders significant financial losses.

Case Study 2: Misrepresenting Facts

Sarah applied for car insurance but withheld her previous accidents and poor driving history to secure a lower premium. Unfortunately, insurance companies discovered the false information during verification, leading to higher rates and potential policy cancellation.

Case Study 3: Past Posting Insurance

Mark was involved in a car accident without insurance coverage. In an attempt to obtain compensation, he applied for coverage after the incident, falsely claiming it occurred beforehand. However, past posting insurance is illegal, and Mark faced severe consequences. 

Auto Insurance Fraud: How to Avoid and Report it

Always be truthful with your auto insurance company to avoid being accused of committing car insurance fraud. Even small exaggerations of the facts or slightly inflating your damages can constitute fraud with serious legal consequences.

If you’re curious how to report car insurance frauds, simply call the National Insurance Crime Bureau at 800-835-6422 to file a report. You can also put your ZIP code into our attorney search tool to speak with a knowledgeable insurance attorney who can help.

Now that you know everything you need to know about car insurance fraud, you might be ready to compare coverage types, such as full coverage auto insurance, from various companies. Comparison shopping with several top insurers for rates and coverages is a great way to find the best rates.

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