Auto Insurance Fraud - How It Can Cost You

We’ve all read in the news about someone torching his car when he couldn’t afford the payments on it and collecting the insurance money.  And it’s not just individuals who participate in insurance fraud.  There are organized fraud rings, which can include dishonest doctors, lawyers, auto mechanics and yes, even insurance employees.

Ever think about how that costs you?  Insurance fraud costs all of us.  According to estimates from the National Insurance Crime Bureau (NICB), auto insurance fraud adds $200-$300 a year to your premium.  But the costs go beyond that.  When fraud increases insurance rates for businesses, those businesses increase the price of their goods and services for the consumer.  We all pay more as a result.

Common scams
The NICB divides fraudulent insurance schemes into “hard fraud” and “soft fraud”.  Hard fraud involves staging or inventing an event that would be covered by insurance.  These include:
•    Staged accidents, such as intentional rear-enders
•    Phony injury claims, where the driver and/or passengers lie about injuries sustained in the accident
•    “Jump-Ins”, where injuries are invented for people who were not even in the vehicle at the time of the accident.
•    Claiming a one-car accident was a hit-and-run
•    Torching a vehicle and collecting the insurance money

Soft fraud is the more subtle, opportunistic type, but fraud nonetheless.  It is also known as “build up” and it includes:
•    Adding previous damage to a current claim
•    Conspiring with a body shop and/or claims adjuster to pad a repair estimate
•    Conspiring with medical providers to obtain unnecessary medical treatment or to pad the bills for treatment received

What’s being done?
Property and casualty insurers are fighting fraud with special investigative units (SIUs), and many state laws and regulations have been passed to help combat fraudulent acts and claims, but policyholders still wind up paying and often are treated suspiciously by insurance companies.  Claims that are flagged as potentially fraudulent take a lot longer to settle.  They need to be investigated while the insured or his medical providers wait to be paid.  If the insurance company then wrongfully denies the claim, what a heavy financial, not to mention emotional burden on the policyholder if he or she is erroneously accused.  In their vigilant concern for fraud, insurance companies do, occasionally wind up victimizing the victims. 

What you can do
If you suspect that you have been the victim of insurance fraud, or have witnessed possible fraud, call the NICB at 1-800-835-6422. You can remain anonymous and may even be eligible for a reward.  Also report potential fraud to your state's fraud bureaus.  Hopefully, the more we expose this form of crime, the less we’ll see of it.