Auto Insurance Fraud

Car insurance fraud costs auto insurance companies more than $40 billion a year. That translates to hundreds of dollars being passed on to every household in the U.S. Auto insurance fraud can include lying or misrepresenting information when applying for an auto insurance policy or lying when making a claim. Even cheap auto insurance companies have robust fraud investigation capabilities. Committing car insurance fraud can result in policy cancellation, fines, and even criminal penalties.

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Lauren Blair has been practicing law for more than 25 years. Lauren has been a licensed member in good standing of the Illinois bar since 1994, the year she graduated from Illinois Institute of Technology’s Chicago-Kent College of Law. Prior to law school, Lauren obtained a Bachelor of Arts in government from Cornell University. For the first 20 years of her practice, she worked in mid-size l...

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UPDATED: Jul 16, 2021

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Summary

  • Car insurance fraud occurs when people intentionally present false information or engage in deceptive activities to insurance providers.
  • The three most common types of insurance fraud are exaggerated claims, misrepresenting facts and “past posting,” which is when someone obtains insurance coverage after the accident and then claims the accident predated the coverage.
  • The consequences for committing car insurance fraud are serious and can include policy cancellation, claim denial, civil damages and criminal penalties.

Car insurance fraud is a billion-dollar enterprise. Every day, fraud schemes are directed against auto insurance companies. These acts of fraud are not committed just by career criminals.

Regular people can find themselves in serious trouble by exaggerating the amount of the loss or misrepresenting the facts to receive payment. What you may think is an innocuous “little white lie” or “bending the truth” could constitute an illegal false claim on car insurance.

If you are in the process of getting insurance, or if you already have car insurance and are about to make a claim, this article contains information that will help you avoid making false car insurance claims.

On the other hand, if you’re in the unfortunate situation where your provider is accusing you of engaging in car insurance fraud, you should seek legal advice.

You can put your ZIP code into our attorney search tool to speak with a knowledgeable insurance attorney who can help.

What is car insurance fraud?

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 Versus External 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.

What’s the difference between hard versus soft fraud?

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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What are the most common types of car insurance fraud?

The three most common insurance frauds are exaggerated claims, misrepresenting facts, and “past posting.”

Exaggerated 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.

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 Obtain Coverage or Receive 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

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.

What are examples of car insurance fraud?

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.

What are the consequences of car insurance fraud?

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, including:

  • Policy Cancellation
  • Premium Increase
  • Claim Denial
  • Civil Lawsuit for Damages
  • Criminal Charges

There are potentially some steep consequences for committing insurance fraud.

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.

Premium Increase

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. 

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What are the ways to report car insurance fraud?

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. The National Insurance Crime Bureau provides an 800-number, as well as an online forum, for anonymous tips of suspected 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 will investigate and prosecute insurance fraud criminals.

Get Help

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.

You can put your ZIP code into our attorney search tool to speak with a knowledgeable insurance attorney who can help.

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Enter your ZIP code below to compare cheap insurance rates.

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