Common Types of Car Insurance Fraud and How to Avoid Them

Hard fraud involves the use of overtly illegal behavior to secure money from an insurance company. These types of fraud can lead to jail time and include the following behaviors:

• False report of a stolen vehicle: This involves making a falsified stolen vehicle claim on your comprehensive coverage in order to receive a payout. Policyholders who intentionally abandon, sell or destroy their vehicle to make such a claim can face serious penalties including jail time. 
• Staged accident: Drivers often will devise ways of staging a car accident in order to make an insurance claim. This could include a driver slamming on the brakes so that you will rear-end them in an unavoidable collision. It could also include planting a witness at the scene who may give false information stating that you were at fault. They may file both property and injury claims in an effort to receive a payout.

This type of fraud is often the result of withholding information or exaggerating claims in an effort to save money or increase the amount of a payout. While it is perhaps less overt in its deception, soft fraud nonetheless results in substantial losses for insurers and is far more common than hard fraud.

• Over-valuing: Overstating the value of your car, property or equipment to receive a higher property damage payout.
• Exaggerating claims: Claiming damage that is not attributable to a covered accident. This can include previous injuries or vehicle damage not sustained in an accident in order to get a larger payout.
• Misrepresentation/omission: Leaving pertinent information off of your insurance application in an effort to get cheaper rates. This could include leaving certain drivers off your policy or even claiming that you live in a neighborhood where rates are cheaper.

Some types of fraud may be linked to body shops or others trying to make money off your claim. Replacement fraud, for example, can occur when a repair shop claims to have replaced damaged parts with new ones but has actually made the repairs with second-hand or cheap parts. The garage charges your insurance company extra and simply pockets the rest.

If you were in an accident, it’s a good idea to notify law enforcement so that the accident is properly documented. This is especially true if another driver was involved and if fault is disputed. While some scammers may be able to stage a believable accident, having a corresponding police report may help a claims adjuster more accurately determine fault or spot fraudulent insurance claims.  

Insurance underwriters and claims adjusters are highly skilled at spotting fraudsters. They’ve seen enough shady claims that they’re likely to see through even subtle exaggerations. Be upfront and honest with your insurance provider to avoid having your claim — or your whole policy — dropped. 

A few states actually require photo inspection in an effort to reduce insurance scams and fraud. In these states, drivers must have the vehicle inspected by a third party to ensure an accurate representation of the vehicle’s condition. The company CARCO operates in these states:

• Florida
• Massachusetts
• New Jersey
• New York
• Rhode Island

You may be able to exclude a roommate or family member with a checkered driving history from your policy. However, the insurance company you choose may have stipulations regarding exclusions. Furthermore, it’s not likely that you will be able to exclude a spouse from your policy.

It’s advisable to avoid filing claims if you can. However, sometimes the cost of repairs makes a claim necessary. In general, try paying for damages out-of-pocket if you caused damage to your own vehicle and the costs are not too high. If the damage was to another driver’s vehicle, it’s best to use your insurance coverage to avoid being taken advantage of. 

Some companies just aren’t the right fit. The good thing is that there are a number of options that may be more open to your particular profile and offer better rates. It’s always best to shop around for multiple quotes to see what coverage options are best.