Understanding Auto Insurance Fraud

Auto insurance fraud is a type of scam that deceives policyholders or motor insurance companies. It involves providing false information or omitting important details to receive a better insurance rate or a larger claim payout. Auto insurance fraud can be as simple as lying about your address or as serious as deliberately causing an accident. It can also include false claims, such as reporting a vehicle as stolen when it has not been stolen, or inflating injuries after an accident to receive a higher compensation payout. Auto insurance fraud costs insurers and consumers billions of dollars annually and results in higher insurance premiums for everyone.

Soft fraud: exaggerating a claim or omitting details on an application

Soft fraud is the most common type of auto insurance fraud. It involves exaggerating a claim or omitting details on an application to receive a larger payout or a better rate. Soft fraud can occur in cases of legitimate damage, where the claimant exaggerates the extent of the damage to receive a higher payout. For example, a claimant might have a dent in their bumper from backing into their mailbox. They could claim that the dent was from a recent hit-and-run accident, which would be considered a car repair insurance scam. Soft fraud can also involve omitting critical details on an auto insurance application, such as providing a false address or failing to add a new driver to an existing policy.

Soft fraud is a crime of opportunity, where someone who may be entitled to a small payout decides to seize the chance to claim a much higher amount. For example, if someone has been neglecting car repairs, they might take advantage of a minor accident and claim that their car was totalled or suffered extensive engine damage, even if the only claims resulting from the accident were superficial. Soft fraud can also involve exaggerating injuries. For instance, a person might claim whiplash when they barely felt the impact of the accident.

Accidental soft fraud is also common, where people unintentionally overstate or overestimate the damages. To avoid this, it is important to keep a solid record of any accidents by taking photos, notes, and getting quotes from mechanics and physicians.

While soft fraud is generally considered a misdemeanour, it can still result in serious consequences such as jail time, fines, denied claims, and dropped coverage. Therefore, it is important to be honest, factual, and precise when filing a claim.

Hard fraud: serious offences like faking accidents or abandoning vehicles

Auto insurance fraud is when someone lies about an event to receive an insurance payout or a better rate. It can be divided into two main types: soft fraud and hard fraud. This answer will focus on hard fraud, which involves more serious offences and larger payout amounts.

Hard fraud is a serious offence that often involves larger payout amounts. It includes offences such as faking accidents or abandoning vehicles and claiming they were stolen. For example, after an accident, a driver might cause additional damage to their vehicle to increase the cost of the insurance claim. In other cases, individuals might deliberately cause an accident to receive an insurance payout. These types of fraud are sometimes called "premium leakage".

Staged accidents are a common form of hard fraud, where a driver intentionally causes a collision with another vehicle to receive a fraudulent insurance payout. The National Insurance Crime Bureau (NICB) has identified several types of staged crashes, including:

• Swoop and squat: Two vehicles trap a victim and force them into a rear-end collision.
• Drive down: A victim is tricked into turning early by an oncoming driver, who then collides with them.
• Wave down: Two vehicles wave down a victim, indicating it is safe to pull out, but then crashing into them.

Another example of hard fraud is abandoning or destroying a car and reporting it as stolen. In this scenario, the insurance company considers the vehicle a total loss and pays out the actual cash value. This type of fraud often results in more severe punishment and can lead to jail time.

To avoid falling victim to auto insurance fraud, it is important to be vigilant and aware of the different types of scams. Individuals should also be cautious of sharing their vehicle insurance information and should verify the legitimacy of their agent and insurance company.

Fraud against the insurer: staging accidents and targeting innocent victims

Fraud against the insurer is a type of auto insurance scam where the policyholder deceives the insurance company into settling a claim. This type of fraud involves staging accidents and targeting innocent victims.

Criminals often target new, rental, or commercial vehicles because they tend to be well-insured. They also prey on women driving alone and senior citizens, as they are perceived to be less confrontational. Staged accidents occur more frequently in urban areas with a greater volume of vehicles and in wealthier communities.

One common scheme is the "swoop and squat," where two vehicles trap a victim and force them into a rear-end collision. Another is the "panic stop," where a vehicle with passengers gets in front of the victim's car, and one of the passengers waits for the victim to be distracted before signalling the driver to slam on the brakes, causing a rear-end collision.

The "wave-in" is another tactic used by fraudsters, where a driver waves another driver forward while merging or in a parking lot, only to deliberately smash into their car.

To protect themselves from such scams, drivers should be cautious when other drivers behave strangely or look out of place. It is also recommended to get a dashcam to record accidents and document and identify all damage and individuals involved.

Fraud against the insured: selling fake policies with massive discounts

Auto insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for financial gain. Fraud against the insured falls into this category, where fake insurance policies are sold to unsuspecting customers, often with the promise of massive discounts. This type of fraud is committed by fraudulent insurance agents or fake companies, who lure customers with appealing offers and then fail to provide the promised insurance coverage.

• Skip the Agents and Intermediaries: It is advisable to buy directly from licensed and authorized insurance companies, cutting out the middlemen. This reduces the chances of encountering a fraudulent agent and ensures you are dealing directly with the insurance provider.
• Verify Before Purchasing: Cross-check the car insurance policy by calling customer service representatives and verifying the details on the company's official website. Reputable insurance companies often have a callback process to ensure their clients fully understand the policy terms.
• Choose Your Mode of Payment Wisely: When paying for the policy, use a traceable method such as a cheque, credit card, or online payment. This ensures that the payment goes directly to the insurance company and not to a fraudulent agent or intermediary.
• Ask for a Receipt: Always request a receipt for your premium payment. This document serves as proof of your transaction and can be crucial evidence if you need to take legal action in the future.

By being vigilant and following these precautionary measures, you can significantly reduce the risk of falling victim to auto insurance fraud involving the sale of fake policies with massive discounts.

Fraudulent claims: padding claims by adding injuries, damages, and fictitious passengers

Auto insurance fraud is a deliberate deception perpetrated against or by an insurance company or agent for financial gain. Fraud may be committed by applicants, policyholders, third-party claimants, or professionals who provide services to claimants.

Insurance fraud can take the form of false claims, lies by omission on applications, and more. It can be as simple as lying about your address or as serious as faking an accident. Fraudulent claims are one of the most common types of auto insurance fraud. This can involve padding claims by adding injuries, damages, and fictitious passengers.

Claim padding is when people add damages, injuries, and fictitious passengers to insurance claims. It is a type of "soft fraud", which is the most common type of auto insurance fraud and occurs most often in legitimate claims. Soft fraud is typically a less serious offence than hard fraud, which involves larger payout amounts and more serious criminal activity. However, both types of fraud can result in jail time.

Claim padding can be difficult to verify and takes advantage of the fact that it is hard to verify the legitimacy of an accident. This type of fraud can also involve exaggerating damages and injuries for monetary gain. For example, a person might claim that a dent in their bumper from backing into a mailbox was from a recent hit-and-run accident. Or they might exaggerate their injuries to run up their damages. People can also fake an injury by falsely using a prior injury as the basis for a new claim.

Phantom passengers are an example of a scam that involves fictitious passengers. In this scam, people suddenly show up out of nowhere after a crash and jump into the scammer's car. Sometimes the victim driver won't see the phony passengers, but they will file fake injury claims at the same time as the scammer.

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