How to Avoid Being a Victim of Insurance Fraud

Posted in Auto Insurance

March 12th, 2010

High car insurance rates are driven by a number of factors, with one of the biggest being fraud. Auto insurance fraud happens all the time, and in a variety of under-handed ways. The good news is that there are ways to protect yourself from being one of its victims.

Fraud is a Big Business

According to the Coalition Against Insurance Fraud, in 2007 fraud accounted for 11 percent of all bodily injury claims alone, and added between $5 billion and $7 billion to the insurance industrys payouts.

Those fraudulent costs are then passed on to all consumers in the form of higher auto insurance premiums. Underwriting problems are also a big problem, costing the insurance industry $15.9 billion in 2009. Fraud, in the form of under-reporting of true miles driven or where the car is actually driven (as opposed to where it is registered) is a significant portion of that.

Fraud Type: Staged Accidents

One popular auto insurance fraud tactic that everyone should be on the lookout for is the staged accident.

According to Insurancefraud.org, this is a shockingly common auto insurance scam that is perpetrated in a variety of ways. One common tactic, dubbed the swoop and squat, is for a car to suddenly break in front of another, causing the second car to rear end it. The first car can often be carrying several people, all of whom will claim neck and back injuries.

In order to avoid being the victim of a staged accident, always be on the lookout for potential scams, and of course, never tailgate.

Fraud Type: Stolen Cars That Weren’t Stolen

Another popular auto insurance scam is less malicious, but still very costly to all auto insurance consumers.

This is the act of claiming that a car was stolen, but in truth the owner disposed of it by dumping it in a lake, or paying someone to set it on fire and destroy it. Sadly, this tactic is on the rise in a bad economy because many people have lost their jobs and can no longer afford to make their car payments. Nonetheless, unless the fraud is uncovered car insurers pay for these “stolen” cars, and then those costs are passed on to everyone else as high auto insurance rates.

In order to avoid being a victim of auto insurance fraud, pay close attention to driving conditions at all times, and always drive slowly enough to break in time. If you do find yourself in a suspicious accident, be sure to let your car insurance provider know immediately.