Understanding Auto Insurance Fraud Fees: What You Need To Know

Auto insurance fraud is a deliberate deception against an insurance company or agent for financial gain. It can be committed by applicants, policyholders, third-party claimants, or professionals who provide services to claimants. Auto insurance fraud can take the form of false claims, lies by omission on applications, and more. It adds an extra $400 to $700 to your premiums every year and costs the industry more than $300 billion. Auto insurance fraud can be classified as hard or soft. Hard fraud involves staging or inventing an event that would be covered by insurance, while soft fraud is more opportunistic and involves policyholders who pad an otherwise legitimate claim.

Staged accidents

• Swoop and Squat: This scheme involves two or three cars. In the two-car version, one car (the "swooper") pulls in front of the victim's car and suddenly stops, causing a rear-end collision. The other car (the "squatter") drives alongside the victim to prevent them from changing lanes to avoid the collision. The "swoop" car usually drives away after the crash, leaving the victim responsible. In the three-car version, a third car pulls in front of the victim, followed by the "swooper," forcing the "squat" car to brake and causing the victim to rear-end it.
• Panic Stop: Similar to the 'swoop and squat' scheme, but the offending vehicle has passengers, and the driver waits for the victim to be distracted before slamming on the brakes to cause a rear-end collision.
• Sideswipe: This occurs at intersections with dual left turn lanes. The perpetrator drifts into the adjacent lane, either accidentally or on purpose, and then crashes into the victim who has drifted into their lane. The perpetrator then claims innocence and submits a claim to their insurer.
• Start and Stop: This is usually staged in gridlocked traffic. The perpetrator, in front of the victim, starts to move forward, making the victim believe traffic is moving. However, they suddenly slam on the brakes, causing a rear-end collision.
• Wave-In: This occurs when the victim wants to change lanes in heavy traffic. Another driver waves them forward, but as the victim changes lanes, the other driver deliberately smashes into them. When the police arrive, the perpetrator denies having waved the victim forward, making the victim look careless.
• Hit and Run: A pre-damaged vehicle is driven to a public location, and the driver falsely reports being involved in a hit-and-run accident, often with the police verifying the damages.

To protect yourself from staged accidents, consider the following:

• Get a dashcam to record what happens before an accident.
• Document and identify all damage, passengers, and contact information of the other driver and their vehicle.
• Call the police and notify your insurance company, especially if you suspect fraud.
• Be cautious of drivers behaving strangely or looking out of place, such as those circling in roundabouts or waving you on when they have the right of way.
• Avoid giving cash or payment to other drivers involved in an accident, as this could be a "crash-for-cash" scam.

Soft fraud

Auto insurance fraud has a significant financial impact on both insurers and consumers, costing billions of dollars in losses each year. It is illegal and affects all drivers by raising insurance premiums. To combat soft fraud, insurers have established special investigation units (SIUs) to help identify and investigate suspicious claims. These units consist of small teams that train claim representatives to deal with routine fraud and teams of trained investigators, including former law enforcement officers, attorneys, accountants, and claim experts.

Hard fraud

• Staged accidents: This is when individuals intentionally cause or stage a collision to make it appear accidental and then file a claim for damages. This can be done in various ways, such as the "swoop and squat," where two vehicles trap a victim and force them into a rear-end collision, or the "panic stop," where a vehicle abruptly brakes in front of another car to cause a rear-end collision.
• Phony injury claims: Criminals lie about the trauma sustained in an accident or invent injuries to people who were not even in the vehicle at the time of the accident.
• "Jump-Ins": This involves making false claims for injuries to people who were not present in the vehicle during the accident.
• Claiming a one-car accident as a hit-and-run: In this scenario, the policyholder might secretly abandon their car and then report it as stolen or damaged in a hit-and-run accident.
• Owner give-up: This is an increasingly common scam where a policyholder abandons their car by dumping it somewhere or even paying an arsonist to destroy it. They then report the car as stolen, and if the insurer pays out, the policyholder can pay off their car loan without damaging their credit rating.

Counterfeit parts

The National Insurance Crime Bureau (NICB) and the National Highway Traffic Safety Administration (NHTSA) have both identified counterfeit airbags as a significant issue, with the NHTSA estimating that counterfeit airbags represent less than 0.1% of what is installed in US vehicles. However, due to the high risk of malfunction and the potential for metal shrapnel to be released, the NHTSA considers this a dangerous issue.

To combat this issue, some states, like California, have passed laws making it illegal to replace an airbag with a faulty one. The penalty for this fraud can include a year in prison and up to $5,000 in fines. Additionally, the NICB has created a database that stores vehicle identification numbers (VINs) and boat hull identification numbers (HINs) to help track flooded vehicles and boats that may have been damaged by storms and are at risk of having counterfeit parts installed.

When purchasing a used car, it is essential to take precautions to prevent counterfeit airbag installation. Obtaining a vehicle report, ensuring the airbag light functions correctly, and having the vehicle inspected by the manufacturer are all recommended steps to take.

Towing scams

• Contact your insurer: If your insurance company sent out the tow service, they will often provide details so you know who to expect. If the details don't match the tow service that arrives, consider calling the police or waiting for the correct service.
• Request a printed receipt: Ask for a printed invoice upfront, which should include itemised charges for the tow service, storage, and any additional fees.
• Choose the destination: Although a fraudulent tow service will insist you take your vehicle to their shop, they should still give you the option to have it towed to a destination of your choice.
• Avoid sharing insurance information: Do not share details about your auto policy with a fraudulent tow service, as this may allow them to take further advantage of you and your policy.
• Be cautious of unsolicited tow trucks: If a tow truck arrives that you did not call, be wary of their intentions. Only accept a tow from a service that you have requested yourself.

Frequently asked questions