The two main types of car insurance fraud are soft fraud and hard fraud. Soft fraud occurs when details of an otherwise legitimate insurance claim are exaggerated or distorted. Hard fraud happens when intentional damage is done in order to get claim money for it.

There are serious consequences — from fines to jail time — related to committing auto insurance fraud, whether you're aware of it or not. Even if you didn't take an active part in a fraud scam, being on the receiving end of one can increase your rates.

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The two types of car insurance fraud

While there are many ways car insurance fraud can happen, they all fall into two main categories: soft fraud and hard fraud.

Soft fraud

Soft car insurance fraud occurs when a real claim is filed, but damages or injuries are exaggerated to try and get more money out of the claim payout. This is the most commonly occurring kind of auto insurance scam. An example of this is trying to add damage from previous accidents into a current claim you're filing.

A danger of soft fraud is you can do it by accident. Be completely accurate when filing a car insurance claim. Make sure you're only listing damages caused by the accident tied to the claim. If you don't, you could see your claim get denied and your rates increase.

Hard fraud

This is the more serious of the two types of car insurance scam, both in the act itself and the punishments for it. Hard fraud is intentional damage caused in order to pass it off as an insurance loss. Staged collisions and car fires are two examples of hard fraud.

Staged collisions happen frequently enough for different kinds to get their own category names. For example, a "swoop and squat" is when two cars working in unison maneuver another driver into a rear-end collision. A "drive down" is when a scammer tricks another driver into thinking it's safe to make a left or right turn, then the scammer collides with them. According to the 2020 Friss Insurance Fraud Report, staged collisions have been the number one fraud scheme during the pandemic.

Depending on the state the hard fraud occurs in, the amount of money fraudulently filed for and criminal record of the scammer, punishment for hard fraud can include several years in prison.

Examples of car insurance frauds

Fraudulent auto insurance scams include:

  • Multiple claims filed for a single accident
  • Filing a claim with fake car insurance
  • Falsifying information to get cheaper car insurance quotes
  • Not adding a teen driver to a family car insurance policy

Auto insurance scams can affect you even if you're not the direct victim of one. Car insurance fraud is a contributing factor to increases in a state's auto insurance rates. Car insurance companies will raise rates to offset the costs from such scams.

The punishments for car insurance frauds

The penalty for an act of car insurance fraud varies from state to state and typically depends on whether a particular state considers the scam a misdemeanor or a felony. For example, in Pennsylvania the penalty for misdemeanor fraud can be a fine of up to $15,000 and up to five years in jail. Penalties can be more if you're a repeat offender.

If property damage occurs as part of the scam, it is often considered a felony. In California, felony car insurance fraud can result in up to $150,000 in fines and five to 10 years incarceration.

How to report car insurance fraud

You need to act quick if you think you've been the victim of a car insurance scam. Depending on the type of fraud you experienced, you could end up paying higher rates and fines even if you had nothing to do with it.

If you think you're a victim of a staged auto collision, take pictures of the damage and location where the accident occured. If there are any eyewitnesses to the crash, make sure to get their contact information.

You will need to file a police report, and your auto insurance company will require the report as part of its investigation. The adjusters from your insurer and the other driver's insurer will be looking for any suspicious elements. Car insurance companies deny fraudulent claims when they find them. If you're getting scammed, they're getting scammed. Furthermore, the insurers involved will work with the police to stop the scammer.

If you think you have evidence of a fraudulent claim but the payout has already happened, there's still hope. The statute of limitations on acts of insurance fraud is usually between two and seven years. Contact your provider immediately with your concerns, and lay out your case. If your insurer thinks you're onto something, it will initiate an investigation. If it turns out you were the victim of fraud, you may be able to be compensated.

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