Recognizing And Avoiding Auto Insurance Fraud

Recognizing and Avoiding Auto Insurance Fraud

December 12, 2022

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Auto insurance fraud. It’s a big thing in the insurance industry, whether or not you’re aware of it, and it could be causing your insurance premiums to go up – even if you yourself have not committed fraud.

Fraud happens in our everyday lives. In fact, nowadays, it seems more prevalent than ever thanks to the accessibility of the Internet and technology which enables hackers to mimic real users and perform cybercrime. Over 75% of auto policyholders believe auto insurance fraud is prevalent within the province. But auto insurance fraud is a different type of fraud, and it can affect everyone – even if you’ve never committed an act of fraud in your life.

It’s frightening to know that policyholders end up paying for fraud rates through their premiums. In a single year, auto insurance fraud can cost policyholders upwards of $1 billion. When fraudsters act, everyone else ends up paying.

What does auto insurance fraud look like?

How do you recognize auto insurance fraud? Well, there are few different common types of insurance fraud. Note that fraud is an intentional act, and often planned. Firstly, there are two categories of fraud: there’s opportunistic, and then there’s premeditated.

Opportunistic Fraud.

The first category of fraud is opportunistic fraud. This is when a loss is legitimate, but the individual uses the opportunity (i.e., is opportunistic) to submit an inflated claim and achieve an unwarranted insurance payment. Put simply, this could involve:

  • A collision occurs and the driver inflicts additional damage to the car to increase the cost of repairs and therefore receive more payout.
  • The driver alludes that pre-collision damage during a claim’s submission happened during the incident to receive payout for those repairs as well.
  • Making a false claim for property that wasn’t damaged or stolen during a real break-in
  • Falsifying facts regarding collision, theft, fire, and water damages so uninsured losses may be claimed
  • Falsifying the value or condition of a vehicle that is stolen
  • A policyholder (or participating party) inflates the injuries that occurred following an accident to reap additional benefits, such as:
    • Accepting health care treatment for an injury that is either unrelated to the collision itself or not deemed medically necessary
    • Encouraging others to partake in fraudulent activity
    • Lying about injury severity to extend recuperation time and loss of wage benefits
    • A medical clinic exaggerates the extent of the patient’s injury to increase how much is billed for their treatment, assessments, or assistive devices

Premeditated Fraud.

The second category of fraud is premeditated fraud. This kind of fraud occurs when someone falsifies a situation to make a claim for an insured loss event. These kinds of instances of fraud can often be extreme. Examples include:

  • Intentionally plotting out a vehicle collision with unsuspecting drivers and/or staging a collision with another fraudster. At this point, one or more policyholders may claim and collect benefits. This is one of the worst kinds of fraud, as it can result in huge financial consequences and severe human injuries
  • Submitting a claim for a loss that never occurred
  • A medical facility charging an insurance company for injury rehab or treatments that were never provided to the policyholder
  • A medical facility charging an insurance company for services that were never rendered using a medical practitioner’s professional credentials
  • Burning a vehicle
  • Providing misinformation about one’s situation to avoid paying premiums, such as:
    • Not reporting significant changes to the condition or value of a vehicle
    • Not reporting all licensed drivers in the household or falsifying the primary vehicle driver
    • Reporting residency at one specific location when actually living elsewhere
    • Purchasing fake insurance cards/pink slips

What are the most common types of insurance fraud?

We’ve gone over categories of fraud, now what about types?

Well, there’s a few. Let’s get into it:

  1. Staged collisions. These are examples of premeditated fraud, where a driver intentionally causes a collision – possibly with an unsuspecting driver – and makes it seem as though the innocent driver was at-fault. If you ever get into a collision, be mindful of the signs of potential fraud.
  2. Policy misrepresentation. This is where you provide falsified information and intentionally mislead auto insurance companies by offering incorrect information, like the wrong address, wrong make or model of your vehicle, condition of vehicle, and more.
  3. Auto repair shops and towing companies. These shops can falsify or exaggerate losses to drive up costs and receive higher payments. Be sure to contact your broker in the event of an accident to ensure your vehicle is taken to an approved repair facility.
  4. Medical practitioners. Some medical clinics may forge signatures, bill insurers for services that were not provided or necessary, falsify the severity of an injury, etc., to receive payout.
  5. Stolen vehicles with a false VIN. These vehicles are sold to consumers who are unsuspecting. Always be sure to pay for used vehicles from reputable dealers.

The impacts of auto insurance fraud

Auto insurance fraud rates have translated into heightened insurance costs globally. This is because insurers are having to payout more for these fraud claims, and therefore having to increase premiums to ensure their pool of payout money is enough to cover legitimate claims. Unidentified fraud is a huge crisis, and someone has to pay for it. Unfortunately, that might just have to be you.

It’s not just your money that’s being spent. There’s many more impacts, like:

  • Civil courts have to spend more of their time and money with fraud-cases, causing other court cases to be delayed. Successful fraud artists may even be rewarded.
  • The health care system may take longer for legitimate treatments while dealing with fraudulent cases of individuals who don’t actually need medical care. Ambulances and firefighters who attend fraudulent accident scenes are spending their time on fake accidents rather than real ones, and medical attention is delayed for real emergencies.
  • Police are occupied with spending time on investigating fake accidents, taking them away from real emergencies and reducing their time to respond to actual crimes.

As an individual committing insurance fraud, who is later caught, you could find it difficult to get re-insured. You may only qualify for non-standard insurance, or high-risk car insurance. This may cost you 2-3x as much as your standard insurance.

How to avoid fraud following a collision:

Fraud isn’t always easy to detect. Here’s some tips for avoiding it:

  1. Never let anyone steer you towards an unknown and possibly disreputable auto repair shop, doctor, lawyer, etc., following a collision.
  2. Only go to auto repair shops, doctors, or legal professionals you know or that your broker recommends following an accident.
  3. Always be active in your claim process. Compare your personal records against any statements that your insurance company provides to ensure bills are accurate.
  4. Never sign blank insurance claim forms.
  5. Be aware of what your final settlement will include. Communicate with your broker during the auto claims process.

For any additional questions regarding auto insurance fraud and its impacts, contact an Excalibur Defender to discuss today.