McAfee Secure sites help keep you safe from identity theft, credit card fraud, spyware, spam, viruses and online scams

What Car Insurance Fraud Costs You

Car insurance fraud costs you on your auto insurance premiums and prevents you from using any cheaper auto insurance tricks. There is no arguing the point that although fraud case costs are initially paid by insurers, ultimately drivers foot the bill because the insurers have no choice but to pass on those losses in order to stay above water. And those financial costs are quite significant, with the National Insurance Crime Bureau (NICB) pinning them at around $200 to $300 per year per policy [1]. Of course, that is only part of the cost to all of us, because that only represents the charge on personal auto insurance policies. Commercial policies also bear part of the expense as well, meaning that in some case auto owners who own businesses pay twice for the misdeeds of others.

It is perfectly logical that all of the expenses incurred by auto insurance providers by way of fraudulent claims would end up being carried by policy holders. After all, they have a business model to operate under, and without income meeting expenditures no business can stay open for very long. And when we think about the financial cost of insurance fraud to businesses with commercial auto insurance policies, the same logic dictates the realization that these companies will also ultimately have to pass on their costs to consumers. So as drivers, we pay for much more than just increased premium expenses thanks to the illegal and unscrupulous acts of relatively few.

Classifying Auto Insurance Fraud

Car insurance fraud is normally classified into one of two categories: hard or soft. Hard fraud is the type that involves criminals staging or simulating an event that is normally covered by auto insurance. One example is staged accidents. The classic swoop and squat where an intentional rear end collision occurs is one such staged collision. But as time goes by, more and more complex and sophisticated variants arise.

Phony injury claims are another form of hard fraud, where criminals make up injuries they supposedly sustained in a collision in order to collect insurance money. These types often include the work of a fraudulent doctor in on the scam who treats the patient unnecessarily while diagnosing the fake injuries, thereby also bilking the insurance company of the cost of treatment. Staged hit and runs are also common, where claimants say another driver was involved when in actuality only one car crashed.

Another form of hard fraud that has become more popular in recent years is a scam known as the "give up" where the owner of a car secretly disposes of or abandons a vehicle they are upside down on in their auto loan. Usually in these cases they report the car stolen. Sometimes auto owners even pay someone money to set fire to the car. If the scam is successful the insurance company pays out for the loss and the owner gets the car paid off and saves their credit rating in the process. It is amazing what dire financial straits make people capable of doing.

Auto Insurance Soft Fraud

Soft fraud is also known as "build up". This is different from hard fraud in that it involves a legitimate auto claim that was padded by the claimant in one way or another. One example that commonly happens is previous body damage to a car being added to the current claim in an effort to get it fixed for free. Sometimes a body shop agrees to pad an estimate for repair work and the two parties split the extra money. Unnecessary medical treatments from doctors are another example of soft fraud.

As the years have gone by, auto insurance fraud has become more sophisticated and organized. Crime rings specializing in complex fraudulent claims exist all over, but are especially numerous in certain pockets of the country. They can involve body shop owners, doctors, attorneys, and even insurance company employees.

Cost of Fraud to Consumers

In the U.S., fraud is the second most expensive white collar crime after tax evasion. According to industry estimates, almost a quarter of bodily injury claims that arise from car accidents are fraudulent [1]. That is a staggering figure when you consider the billions of dollars that get poured into settling injury claims every year. Industry experts report that the direct cost of fraud to insurance companies numbers well into the billions, with indirect costs far exceeding that amount when the burden on law enforcement officers, hospitals, and various other organizations are all added to the equation. The end result: your quotes on car insurance continue to get highr and higher.

Car insurance fraud costs the honest folks a great deal of money on their premiums. But these increased rates only scratch the surface of the total cost to the consumer. Protect yourself from fraud and don't be a victim of a staged accident or other criminal act.

[1] Retrieved 2010-08-12.


FREE Quotes, Multiple Insurers

Zip Code