What Is Car Insurance Fraud?
Introduction
Let’s start with the question, 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 Frauds?
False claims, omissions on application forms, and false statements examples of car insurance frauds. 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?
Understanding the term soft insurance fraud requires knowing the answer to the question “What is car insurance frauds?” in the first place. Car insurance frauds refer to any act committed with the intent to fraudulently obtain payments from insurers. Soft insurance fraud, a type of car 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 automobile 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 frauds examples
There might occur the following auto 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 information 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 been deployed. 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?
Insurance fraud is a serious crime and is treated as such under the law. If an individual is found guilty of this offense, they may face both civil and criminal penalties. The severity of these penalties varies significantly depending on the nature and extent of the fraud. Criminal consequences can include probation, imprisonment, and hefty fines.
For instance, in the U.S., insurance fraud can lead to imprisonment for up to ten years or more in serious cases, and fines can range into tens of thousands of dollars. In addition to criminal charges, individuals convicted of insurance fraud may also face civil repercussions, including lawsuits and restitution orders. It's important to note that these penalties can vary widely by state and by the type of fraud committed.
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 insurance fraud allegations.
What Happens If I'm a Victim of Car Insurance Fraud?
If you fall victim to car insurance fraud, it can lead to inflated insurance premiums, loss of money, potential legal consequences, and personal stress. In such an event, the first step is to report the fraud to your insurance company and provide them with as much information as possible about the fraud. They can guide you on the next steps and adjust your claim accordingly.
You should also report the fraud to the local law enforcement authorities as it is a crime. In some cases, you may need to work with an attorney to defend against any illegitimate claims against you. It's also recommended to report the fraud to the National Insurance Crime Bureau or your state's insurance department to help stop these crimes and protect others.
Conclusion
Understanding what is auto insurance fraud 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 car insurance frauds 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. Also, if the circumstances warrant, be prepared to issue a letter of intent to sue, which can serve as a formal declaration of your intent to seek legal recourse.
Maintain the privacy of your vehicle insurance information. Any personal data in the wrong hands can be extremely damaging to you.
Alina Kalyna is the Content Specialist at Lawrina. With her experience in content creation, Alina is adept at producing comprehensive and engaging content across various platforms. Her role at Lawrina involves generating high-quality content for the blog, guides, and other materials.
Frequently Asked Questions
How to report car insurance fraud? 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.
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.
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.