You are probably already a victim of insurance fraud, whether you realize it or not: The average family pays between $400 and $700 a year in higher premiums just to cover the more than $40 billion cost of non-health insurance fraud, according to FBI estimates. About half of that comes from auto insurance alone. The National Insurance Crime Bureau (NICB) believes that increased consumer premiums represent only a fraction of the overall cost to businesses — which ultimately impact consumers in the form of higher costs for a range of goods and services.
Insurance fraud is the second-most costly white collar crime, behind only tax evasion. Insurance industry studies estimate up to a quarter of injury claims from car accidents are fraudulent. But not all forms of insurance fraud take place on the road or repair shops; acts of “soft fraud,” such as dishonest applications, cost consumers billions in passed-along expenses.
The direct and indirect effects of these crimes are enormous, including substantial fines and jail time for countless ordinary Americans who often mistakenly believe they are just taking advantage of the system to save money.
Not all insurance fraud is committed by what most people consider professional criminals. In fact, many people who commit insurance fraud don’t even consider their behavior to be illegal, which can be a costly mistake.
Among the most common types of insurance fraud is lying on applications or renewals. The penalties when these crimes are discovered range from the cancelation of coverage and denial of claims to fines and jail time. As any lawyer will tell you, ignorance of the law is not a defense, so the best way to avoid these criminal acts is to first understand what they are.
In general, any attempt to lower your premium by providing incomplete or inaccurate information on an insurance application is fraud. Such omissions include not listing all of the members of your household that will be driving the insured vehicle — including newly licensed teen drivers or your live-in brother-in-law with a DUI conviction. Other common “harmless” lies are under-reporting the number of miles you drive annually, including whether or not you use your car for commuting to and from work.
While these types of application fraud are crimes that seldom result in criminal prosecution, they can still be far more costly than just an increase in premiums. They can result in a legitimate claims being denied, which means you can be personally on the hook for tens of thousands of dollars. That includes cases where the application fraud had nothing to do with the claim, such as a stolen car or an accident where the driver is listed on the policy.
More Serious Soft Fraud
Flagrant application deceptions can wind up in criminal court, especially when the fraud is discovered after claims have been paid. An all-too-common example of this type of intentional deception is when small business owners use their vehicles for commercial purposes and intentionally list them as exclusively for personal use on applications.
Another common ruse is registering a vehicle at a location other than the insured primary residence for the purpose of getting a lower rate. This deception can land you in hot water on two unpleasant fronts: with the insurance company and the department of motor vehicles.
Protecting Yourself from Fraud
Even if you play by the rules, your good intentions aren’t always enough to keep you from getting caught up in a scam.
The adage that the best defense is a good offense applies to not only sports, but protecting yourself from insurance fraud. The best offense against fraud comes from not only knowing what to be on the lookout for, but from learning to be an active observer.
Developing your skills as an observer along with following best practices for reporting accidents can go a long way toward ensuring that you don’t become a victim of fraud. Law enforcement and insurance industry officials estimate that as many as one in three accidents will involve some form of fraud.
Staged accidents involve actual collisions involving two or more vehicles and sometimes a pedestrian or bicyclist and a vehicle. Con artists and hustlers have been faking accidents since before the dawn of motor vehicles as a means of separating people from their money.
All staged accidents have one thing in common: They are all designed to appear as though most or all of the negligence is yours. These accidents present more than just a threat to your financial well being — they can endanger your physical safety as well.
Pedestrian vs. Motor Vehicle
There are two ways to get hit by a car: accidentally and intentionally. The most common of the intentional kind is the fake Samaritan scam.
Here’s how it works: The con artist positions himself near a car that is currently stopped and which the driver is preparing to move– for example, in a supermarket parking lot. The fraudster looks for a driver getting ready to exit a parking spot. He approaches the car, waiting for the driver to see him and stop, at which point he waves the driver out of the spot. Once the driver starts to pull out, the scammer steps in front of the slow-moving vehicle and rolls across the hood or trunk.
These scammers often work in teams that include what appear to be unrelated witnesses who back up the scammer’s story that they never waved you on.
Your best offense in these cases is to play by the rules and call the police and an ambulance. The last thing most of these hustlers want is for the authorities to get involved. That’s because they’re hoping you simply pay them yourself in order to get them to go away.
A police investigation may turn up a history of being in similar accidents. An ambulance ride to the hospital will usually show that they have no injuries beyond a minor scrape or bruise. In most cases, even the mention of police is enough to get them to jump to their feet and say never mind.
If you’ve ever been in a car accident, even one where everyone agrees the other guy was at fault, including the other guy, you know that insurance companies don’t see it that way. They assign comparative negligence to determine how much each party is responsible.
The only case where one driver is exclusively responsible is when one car rear-ends another. Scammers know these types of collisions will get them the maximum payout for damage to their car and injuries.
These accidents are most commonly staged when the lead vehicle suddenly jams on their brakes in response to your following too closely behind them. Other variation is the “swoop and squat,” where the scammer quickly swerves in front of the innocent driver, you, and brakes hard, causing you to slam into them from behind.
The best defense against falling victim to this type of scam is to exercise common sense when driving:
- No tailgating: Always leave plenty of room between you and the driver ahead of you.
- Be aware: Constantly monitor your surroundings, including vehicles that are in adjacent lanes immediately in front of your car.
- Just drive: Don’t text and don’t talk on the phone while driving. Scammers will often look for distracted drivers to target, as that enhances their claim that you were in the wrong.
Extra Damage and the Mystery Victim
Even honest accidents are not immune from fraud, most commonly in the form of piling on damage.
This scam is a crime of opportunity that happens after you have left the scene of a minor fender bender. It occurs when the other car’s damage mutates and grows from a minor ding to a bent frame; in extreme cases, a dented bumper turns into a total loss. The problem is the added damage happens after you have left the scene and notified your insurance company.
Car accidents even at low speeds can exert a great deal of force, causing cars and the passengers to be moved around violently. These sudden sharp movements can result in injuries that are not always apparent at the time of an accident. Injuries like whiplash sometimes don’t show up until hours and sometimes days after an accident. That’s why not everyone gets into an ambulance after an accident.
Then there are some of these injuries that mysteriously manifest themselves in people who were not even involved in the accident. Mystery victims generally report their neck and back injuries in the days after an accident, and the innocent driver may not even hear about them until months later when an insurance adjuster asks about them.
Your best defense against both these scams starts with your cell phone — your cell phone’s camera to be precise. Taking pictures of the damage to your car and the other car from all angles will go a long way to proving that the small dent in the right-rear quarter panel is a far cry from the destruction of the entire side of the car and a bent chassis. It also will help to show that the force necessary to cause long-term traumatic injuries wasn’t present.
You should also make note of who was in the other car at the time of the accident. Ideally you should get as much information about all of the occupants as possible, including names, addresses, and gender. If they are unable or unwilling to provide you with information, make note of their appearance and descriptions and include that information when you report the accident to the insurance company.
This scam can be more than costly to you and your insurer — it can put your life at risk.
Every year, thousands of people walk away from car accidents injury-free thanks to automotive airbags. These devices not only protect against frontal injuries, but side impacts as well. Airbags are designed for one-time use, which means once they are deployed, they have to be replaced. Even when airbags are deployed as a result of the most minor impacts, they still need to be replaced.
A small percentage of very crooked repair shops have been found to not replace airbags at all; in one widely reported instance, they just filled the cavity with garbage, including crushed beer cans. Other shops, looking to improve their bottom line, have billed insurance companies for OEM (original equipment manufacturer) parts and then installed airbags salvaged from wrecks or less expensive third-party replacement products. The danger presented by these missing or substandard parts is usually not discovered until they fail in another accident.
Your best defense against this type of insurance fraud is to choose your repair shop carefully. Use only licensed and reputable shops and dealers. If you are unsure of how to find an honest shop, ask your insurance company for a recommendation. Insurers will go to great lengths to ensure that the shops they recommend are trustworthy, because their money and reputation is tied to the shop’s performance.
Finally, after repairs are made, watch your car’s dashboard lights when starting your vehicle. If airbags are properly installed, the air bag light should go on briefly when the car is started. If it flashes repeatedly, remains on, or never lights at all, have the air bags checked by another repair facility.
The overwhelming majority of insurance agents are honest hardworking men and women whose livelihood depends on satisfied customers. That means that renewals and referrals are the lifeblood of an agent’s business.
Unfortunately, there is a small minority of independent and captive agents who are less than scrupulous. This small percentage of dishonest agents will use whatever unethical and fraudulent means they can make a few extra dollars.
A common scam is where the agent will quote a very low rate with a leading insurance company. Depending on the greed of the dishonest agent, the quote can be from 15% to 50% less than their nearest competitor.
The scam then works in one of two ways. The most common is to quote a six-month premium as an annual rate. The second is to accept a binder for the fictional premium, and then tell the unsuspecting customer when the policy is delivered that the underwriters made a mistake when they gave him the quote, and the correct premium is higher.
The best defense against agent fraud of all kinds starts with being skeptical of any deal that sounds too good to be true. Insist that all quotes be provided in writing and make sure that they include the term of the policy, six months or annual, and the amount of insurance coverage. An honest agent will have no problem providing these; a dishonest agent will always have good reason why they can’t.
If you suspect you are the victim of insurance fraud of any kind, whether money is coming directly out of your pocket or not, report it. If your suspicion is that another party in an accident is committing fraud, make your insurance provider aware of your concerns. Give them as much information as possible to back up your concerns, even if it’s just your impression that they seem to be lying.
If you believe you have been defrauded or treated unfairly by an agent or insurance company, contact your state’s insurance commissioner’s office. Your complaints can be registered online or on the phone and are your best means of protecting your interests.