Common Types of Car Insurance Fraud
Auto insurance fraud is dangerous. It can inflate your premium, and if found guilty of it, there are criminal penalties.
Auto insurance fraud comes down to two categories: soft fraud and hard fraud. An example of soft fraud is when a claim is exaggerated. Hard fraud is when intentional property damage is done. Car insurance scams can range from magnifying injuries for larger claim payouts to setting a car on fire to collect the insurance money. The penalties can be anywhere from a fine to jail time.
Auto insurance fraud can have huge repercussions on your auto insurance premiums, whether you're aware of it or not. Being on the receiving end of such fraud can increase your annual rates, even if you didn't actively take part in it. This article will cover:
- What kinds of auto insurance fraud are there?
- Examples of car insurance fraud
- What are the penalties for auto insurance fraud?
- What to do if you're hit with a car insurance scam
The different types of auto insurance fraud
While auto insurance fraud can happen in many different ways, they all break down into two different types: soft fraud and hard fraud.
Soft car insurance fraud
Soft car insurance fraud is when a claim is made, but the damages or injuries in the claim are exaggerated in order to get more money in the payout. This is the most common form of auto insurance fraud that occurs. Submitting a claim for pre-existing damages, such as a banged-up fender from a time before you got your current insurance, is another example of soft fraud.
A problem with soft fraud is that you can do it unintentionally. It's important to be completely honest and accurate when filing a car insurance claim. If your auto insurance company finds you guilty of soft fraud, you could see your rates skyrocket.
Hard car insurance fraud
Hard auto insurance fraud is the much more serious of the two, both in the act and the consequences. Hard fraud is any intentionally-caused auto insurance loss, such as a staged collision or car fire.
There are enough different types of staged collisions that they have their own classifications. A "swoop and squat" is when two cars working together maneuver another driver into a rear-end collision. A "drive down" is when a driver lulls the victim into thinking they can safely make a left or right turn, then collides with them. These are just two of many collision scams that fraudsters pull in order to file a false claim.
Examples of car insurance fraud
According to the Michigan Department of Insurance and Financial Services, 21% of bodily injury claims and 18% of personal injury protection (PIP) car insurance claims appeared to be fraudulent. Other examples of fraudulent auto insurance activity include:
- Filing multiple claims for a single auto accident.
- Using false car insurance information.
- Falsifying information in order to get cheaper auto insurance quotes.
- Buying car insurance after an accident has happened.
- False grades to qualify for a good student discount.
- Not adding a teen driver in the family to a car insurance policy.
These types of auto insurance fraud do not only affect the scammer. Actions like these contribute to the increase in auto insurance rates in a state. Auto insurers offset the cost of such fraud by increasing the price of policies. It's ironic that some drivers try to get auto insurance in other states with cheaper rates, not realizing that such fraudulent activity actually contributes to higher premiums.
Car insurance fraud punishments
The consequences for auto insurance fraud vary from state to state. Whether the fraud is a misdemeanor or felony is also a factor in the severity of the punishment.
If the auto insurance fraud is a misdemeanor, there may be high penalties. In Pennsylvania, for example, it could result in a fine of up to $15,000. Jail time may also be a result. If you file a fraudulent claim and are found guilty of a misdemeanor, you could face up to five years of jail time. This could be more if you're a repeat offender.
A fraudulent claim is often considered a felony if property damage is involved, such as arson. In California, felony auto insurance fraud can result in up to $150,000 in fines and anywhere from five to 10 years behind bars.
What to do if you're the victim of a car insurance scam
If you think you're the victim of auto insurance fraud, you'll want to act quickly and thoroughly. Depending on the fraud involved, you end up paying higher rates or fines, even if you did nothing wrong.
If you are in an auto collision and suspect it was staged, take pictures and get contact information from eyewitnesses. Make sure to file a police report as well and get a copy of the report. The adjusters from both your and the driver's auto insurance company will also be on the lookout for shady dealings. Auto insurance companies deny fraudulent claims when found, so that's another line of defense.
Your auto insurance company will no doubt want to see the report and should listen to your concerns. If you're getting scammed, they're getting scammed. Auto insurance providers usually have an anti-fraud investigation unit that focuses on uncovering scams. They work in cooperation with law enforcement to find such scammers and stop them.
If you are involved in a car insurance claim that you suspect is fraudulent after it has paid out, all is not lost. The statute of limitations on insurance fraud usually varies from two to seven years across the country. Go to your auto insurer with your concerns and be prepared to state your case. If they think it has merit, they will take it from there. If it turns out you were the victim of fraud, you may be able to be compensated.
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