What Is Car Insurance Fraud?

Car insurance fraud occurs when someone provides false information about an event to get a payout (or an increase in payout) or a better rate from an insurance company. Fraudulent insurance claims can result in severe penalties, including jail time. Fraudulent car insurance claims can be as simple as lying about your address or as serious as faking an accident.

What Are the Different Types of Car Insurance Fraud?

False claims, omissions on application forms, and false statements are examples of car insurance fraud. There are two main types of auto insurance fraud: soft fraud and hard fraud. It may not seem like a crime, but even leaving out relevant details to lower your premium is considered fraud.

What is soft fraud?

The term soft insurance fraud refers to exaggerating facts in a claim to increase the value of compensation you receive from your own or someone else’s insurance policy. For example, if you claim that a dent in your bumper was caused by a recent hit-and-run when you actually backed into a fencepost, then you would be committing a motor vehicle repair insurance scam. Another soft fraud occurs if you omit critical information on your car insurance application.

What is hard fraud?

More serious car insurance frauds involve falsifying entire claims to obtain large undeserved insurance settlements, such as faking an accident or abandoning a car and claiming it was stolen. While both types of fraud can result in jail time, hard fraud typically carries steeper penalties.

Car insurance fraud examples

There might occur the following car insurance frauds:

• Filing multiple claims for one accident. Expenses for medical treatment and vehicle repairs should be covered by one claim if you’re involved in an accident. If multiple injury or damage claims occurred during the same car accident, it would be considered fraud to file multiple claims alleging the damages were suffered in separate accidents.
• Abandoning or destroying a car and reporting it as stolen. A stolen car is considered a total loss by the insurance company and is reimbursed at its  market value. Reporting a car stolen after you disposed of it, hid it, or sold it is a serious offense.
• False registration. Insurance premiums vary depending on where you live. It is common for people who participate in this scam to live in expensive parts of the country or in neighborhoods with high theft rates to register their cars in states with lower insurance premiums. Your auto insurance rate is partially based on where your car is usually parked overnight. Providing false inform​​ation about your vehicle’s address is illegal. It is no defense that you used to live there or that you are related to the residents of the address you claimed was yours.
• Faulty airbag replacement. Repair shops may use salvaged airbags to replace an airbag after an accident as part of this scam, according to the National Insurance Crime Bureau. To increase the insurance claim payout, they may affix a deployed airbag to a non-deployed steering wheel, making it look as if the airbag had deployed. According to Consumer Reports,  some states, including California, have enacted airbag replacement laws. If an airbag is replaced with a deployed one, you could face a year in prison and fines of up to $5,000.
• Faulty windshield replacement. You may be surprised by windshield fraud. Someone claiming to be a windshield repair specialist may approach you in a parking lot and claim your windshield has been damaged. This scam may also raise your car insurance rates and possibly put you in danger. They claim to have just the right type of windshield and that the service will be completely covered by your insurance company. If these “repair specialists” use your insurance information to file false claims for windshield replacement under your name, they may jeopardize your auto insurance coverage and implicate you in conspiracy to defraud your insurer.

What Is the Penalty for Insurance Fraud?

You may be wondering what is car insurance frauds punishment? An insurance fraud conviction can result in a felony conviction carrying a prison sentence, fines, probation, and restitution. 

How to Avoid Insurance Fraud

Avoid insurance fraud by being completely honest and transparent when applying for auto insurance or filing a claim. Include your car’s correct address and admit to any driving offenses that the insurer may request. As long as you do not knowingly withhold information or include false information, you are not at risk of of insurance fraud allegations.

Also read:What Happens When an Insurance Claim Is Made Against You?

If you are involved in a car accident or any other kind of mishap, there is a high probability an insurance claim will be filed agains...

What Happens If I’m A Victim Of Car Insurance Fraud?

You should contact your insurance company immediately if you suspect you have been victimized by insurance fraud. If you have witnessed insurance fraud, you should contact your state’s authorities. 

Frequently Asked Questions

What can I do to prevent car insurance fraud?

How to report car insurance frauds? You can report insurance fraud by calling 1-800-TEL-NICB. Do not hesitate to inform your insurance company if you become aware of fraud. Reporting fraud can prevent insurance premiums from increasing and keep you and others protected.

How do car insurance companies detect insurance fraud and impose insurance fraud punishments?

Insurance companies strive to identify and detect fraud. When you file an insurance claim, you are required to provide a lot of information about the incident, including police reports, photos, medical records, and any repair bills. You can learn more about what is insurance frauds punishment depending on your state.

Is insurance fraud a big deal?

According to The Coalition Against Insurance Fraud (CAIF), insurance fraud costs U.S. consumers at least $80 billion every year, and workers’ compensation fraud alone costs insurers and employers another $30 billion.

Conclusion: How to Avoid Car Insurance Frauds Penalties

Understanding auto insurance fraud exists is the first step in protecting yourself. You should learn how to report car insurance fraud, and some other ways to avoid these scams and false insurance claim punishment:

• To avoid counterfeit or cheap replacements, only use original equipment manufacturer (OEM) parts when getting your vehicle repaired.
• Make sure all details are documented, including automobile accident damage, police reports, insurance payments, and invoices. This will help you avoid future claims disputes.
• Consider contacting the police if something appears suspicious. For example, an unauthorized person who requests your personal, insurance, or payment information could be attempting to use the information to commit fraud.
• Maintain the privacy of your vehicle insurance information.  Any personal data in the wrong hands can be extremely damaging to you.