Auto Insurance

How to Avoid Car Insurance Fraud

Car insurance fraud is big business, but drivers can protect themselves. Learn about common fraud schemes to watch out for and red flags for potential fraud.

Car Insurance Fraud

Insurance fraud is big business. Each year, fraudsters steal an estimated $80 billion from American consumers. While some perpetrators are organized criminals, others are otherwise honest people who exaggerate a legitimate claim.

Car insurance is more vulnerable to fraud than some other types of insurance. This type of fraud may occur when a policyholder falls victim to a fraud scheme or when the policyholder themselves files a fraudulent claim. Insurance fraud does not only affect insurers, though. Up to 14% of a driver’s car insurance premium covers the cost of fraudulent practices. 

Learn about common car insurance scams and the potential red flags that can alert drivers to fraud.

Common Auto Insurance Scams

Drivers who fall victim to car insurance scams may have unsafe cars or higher insurance premiums. At the same time, the scammers could face criminal charges and jail time. Some common scams to watch out for include repair scams, at-fault collision scams, staged accident scams, and agent scams.

Repair Scams

Dishonest mechanics or auto repair shops may involve unwitting drivers in their auto insurance fraud schemes. Some examples of scams to watch out for include:

  • Substandard repair scams. Mechanics may charge full price for subpar repair work. This shoddy quality could include installing low-quality parts or cutting corners with quick fixes, resulting in safety issues for drivers.
  • Counterfeit parts scams. Some repair shops defraud drivers by installing counterfeit parts, such as airbags. About 0.1% of U.S. vehicles have fake airbags. Counterfeit parts are a concern because they may malfunction and put drivers at risk.
  • Inflated price scams. Some mechanics may exaggerate the cost of completed repairs or invoiced for phantom repairs to overcharge the insurer. While this may not threaten drivers’ safety like other repair scams, it still affects consumers. Inflated repair costs can cause insurers to increase premium prices. 
  • Windshield repair scams. Illegitimate vendors may offer to replace minimally damaged windshields at no cost. These scammers may file a fraudulent insurance claim or even sue the insurer for damages. 

To avoid car repair scams, drivers can ask friends, family members, or insurance companies to recommend a reputable body shop. 

At-fault Collision Scams

Drivers found at fault in a collision may be responsible for the resulting damages. Opportunistic scammers may take advantage of this situation for their gain.

For example, a driver may run a red light and cause a collision with another motorist. While not at fault for the accident, the other driver may exaggerate their claim to get a larger payout. They may pretend their injuries are worse than they are or include pre-existing damage as part of their accident claim.

Staged Accident Scams

Some scammers intentionally cause collisions with unsuspecting drivers so they can submit fraudulent insurance claims. In these carefully staged collisions, the victim may appear to be the at-fault driver. Some of the main types of staged accidents include:

  • Drive Downs. In this scheme, a scammer motions an innocent driver to merge or turn, then deliberately crashes into them. 
  • Side Swipes. The scammer deliberately sideswipes another driver and claims the victim drifted into their lane or tried to merge when it was unclear. 
  • Panic Stops. To cause a panic stop, a scammer strategically slams on their brakes to force another driver to rear-end them. 
  • Swoop-and-Squats. This scam is similar to the panic stop, but it involves two or more criminal vehicles working together to lure an innocent driver into a rear-end collision.

Victims of staged accident scams may suspect fraud, but it can be challenging to prove what happened. Practicing safe driving habits, such as avoiding tailgating, can help motorists protect themselves from these scams.

Agent Scams

Scammers may pretend to be car insurance agents to get drivers’ money or personal information. These scammers may sell fraudulent insurance policies and pocket the premiums, leaving drivers without coverage. 

To protect yourself, watch out for the following warning signs of an agent scam:

  • They offer policies or rates that seem too good to be true.
  • They push drivers to pay with cash.
  • They create a sense of urgency.
  • They do not have a license number.

Red Flags for Car Insurance Fraud

While various types of auto insurance scams exist, drivers do not necessarily need to be familiar with the particular scam to protect themselves. There are some classic warning signs of potential fraud schemes. To protect yourself, watch out for people who use scare tactics, ask for your personal information, or want to get paid off the record.

They Employ Scare Tactics

Scare tactics may be a red flag for car insurance fraud. That is because criminals may use fear or intimidation to force their victims to make hasty decisions and fall for the scam. Here is what scare tactics might look like in practice:

  • An insurance agent pressures a driver to buy a policy by making alarmist claims about car accidents and injuries.
  • A mechanic claims a car is unsafe to drive unless it receives extensive repairs when there is no evidence to support the claim.
  • Another driver at an accident scene threatens to take legal action or have you arrested.

They Ask for Personal Information

Scammers may insist that you provide sensitive personal information. They may want this information to perpetrate car insurance fraud, such as filing a false claim or exaggerating a genuine claim. Someone who asks for sensitive information may also plan to commit identity theft. Some potential red flags may include:

  • An insurance agent asks for information about your financial accounts.
  • A mechanic asks too many questions about your policy limit details.
  • Another driver wants to take a picture of your driver’s license.

They Request Payment Under the Table or “Off the Record”

Legitimate insurance agents and repair shops generally accept multiple types of payments, such as cash, checks, credit cards, and debit cards. Customers can choose which payment method they prefer to use. 

Scammers may insist on getting paid under the table because these methods are hard to trace and leave scam victims with little recourse. If someone requests payment through one of the following methods, consider it a red flag:

  • Cash
  • Gift cards
  • Wire transfers
  • Money-transfer apps
  • Cryptocurrency

How to Protect Yourself Against Fraud

Drivers can take various steps to deter scammers and protect themselves from fraud. These steps may include researching carefully before selecting an insurance agent or company and being cautious in your driving habits and dealings with potential scammers.

Verify That Your Company or Agent Is Legitimate

Scammers posing as insurance agents or companies may try to sell drivers fraudulent insurance policies. These scammers pocket the premiums and leave their victims without car insurance coverage. To protect yourself from this scam, verify the agent and company are legitimate before buying a policy.

You can look up an insurance agent’s license details in your state’s database. For example, if you live in California, visit the California Department of Insurance website. To verify that an insurance company is legitimate and licensed to sell car insurance in your state, look it up in the National Association of Insurance Commissioners online directory.

Document Everything

After a collision and during repairs, keep detailed records. This documentation can help deter opportunistic scammers. For drivers who are victims of fraud, this paper trail can help provide proof for a fraud investigation.

  • Take photos of the accident scene. Take photos of your car and the other car(s) involved in a collision. Pictures can make it more difficult for would-be scammers to exaggerate vehicle damages.
  • Contact the police to file an accident report. A police report provides an unbiased third-party account of a collision. It may include photos, witness statements, or diagrams of the accident scene. These details may help deter fraudsters during the claims process.
  • Request printed estimates. Before allowing a mechanic to start repairs, ask for a printed estimate detailing the price of labor and parts. You can use the estimate to review your repair bill and identify possible repair fraud.

Be Wary of Sharing Personal and Insurance Information

After an accident, the drivers generally exchange contact information and insurance information. However, to protect yourself from fraud, limit the amount of information you share with individuals outside of your insurance company.

The information drivers are required to share may vary depending on the state, but it generally includes basics such as your name, insurer’s name, and insurer’s phone number. Be careful not to share sensitive information, such as your Social Security number or your policy limits.

Practice Defensive Driving

Defensive driving reduces the risk of car accidents. Practicing defensive driving could help drivers deter scammers who want to cause a collision deliberately. Defensive driving includes practices such as:

  • Scanning your surroundings to anticipate other drivers’ actions
  • Keeping adequate following distance to avoid rear-end collisions
  • Driving the speed limit to allow more time to react

What to Do If You’re a Victim of Car Insurance Fraud

If you suspect you are a victim of car insurance fraud, there are several steps you can take to protect yourself:

  • Collect documentation. Gather any records that could help you prove that car insurance fraud occurred. These records could include proof of your insurance policy, receipts for premiums paid, estimates from mechanics, photos from the accident scene, or a copy of a police report. 
  • Don’t confront the scammer. While it can be tempting to let a scammer know that you are on to them, remember that these individuals may be criminals and could be dangerous. To protect yourself, let the appropriate authorities deal with the scammer.
  • Tell your insurance company. An insurance fraud investigator may be assigned to your case. These investigators are responsible for determining if fraud occurred and preventing payouts to scammers. This step is important because fraudulent claims could raise drivers’ premiums.
  • Contact your financial institution. If a scammer got a hold of sensitive information and you’re concerned about identity theft, let your bank know. It may take steps to protect you, such as placing a fraud alert on your accounts.
  • Report the fraud. Contact your local police department to report car insurance fraud. You can also report the fraud to the National Insurance Crime Bureau. These authorities can investigate and determine if a crime occurred.
  • Talk to a lawyer. Sometimes, it may make sense to take legal action against a scammer. Contact a local lawyer to find out if you have grounds for a lawsuit. 

How to Report a Suspected Car Insurance Scam

Filing a report is important if you suspect someone tried to scam you. Your report could help protect other drivers from falling victim to the same scammers. Some options for reporting potential car insurance scams include:

  • Notifying your insurer. Your report could help the insurer identify fraudulent claims filed by the potential scammer.
  • Contacting your local police. Reporting attempted fraud could help the police monitor trends or link crimes. 
  • Contacting the National Insurance Crime Bureau. Details about the potential scam could help the NICB investigate and stop insurance crimes.

Don’t Be Tempted: The Problem With Claim Misrepresentation

Some drivers may tell their insurance company what seem like little white lies. Misrepresenting a car insurance application or claim may constitute fraud, even if that’s not your intention. 

The two main types of car insurance fraud are:

  • Soft Fraud. Also called opportunistic fraud; otherwise, honest drivers may commit soft fraud. Soft fraud includes situations like exaggerating your real injuries or including pre-existing damage in a new claim. 
  • Hard Fraud. Hard fraud is a deliberate act that could result in criminal charges. It includes situations like staging a car accident or vehicle theft to file a fraudulent insurance claim. 

Whether they take the form of exaggerating a legitimate claim or inventing a claim, misrepresentations are a bad idea. Insurance companies may respond by raising a driver’s premiums, canceling their coverage, or taking legal action. Even minor misrepresentations could run afoul of the law, resulting in consequences for drivers.

Common Misrepresentations That Can Cost You

Honest policyholders may be tempted to stretch the truth when applying for coverage or submitting claims. While the following misrepresentations may seem innocuous, they may have consequences for drivers:

  • Falsifying your address. Car insurance premiums may vary depending on a driver’s location, so it can be tempting to claim you live in a different county or state to save money. If your insurer discovers the lie, it could raise your premiums to reflect your real address or even cancel your policy.
  • Fibbing about the true cause of damage. Drivers who are embarrassed about the circumstances of an accident may invent a different cause of the damage. If the insurer discovers the truth, it may not cover the damages.
  • Not including all drivers of the car on your plan. If high-risk drivers use your car, you may be tempted to leave them off the policy for lower premiums. However, the insurer may not cover the damages if the undisclosed driver gets into an accident.

The Bottom Line: Be Clear and Honest

When applying for car insurance or submitting a claim after an accident, it’s essential to be transparent. A minor misrepresentation that drivers see as a little white lie could be fraud by an insurer. Staying honest helps drivers protect themselves from inadvertently breaking the law.