Does Auto Insurance Fraud Impact My Rates?

When people lie about their driving records, the people who operate their vehicles, where they live, their average mileage, etc., their auto insurance policies are written on falsified information that may bring down their insurance rates initially but can result in the denial of insurance claims later on and the possible cancellation on non-renewal of their policies. Unfortunately, there are still people who get away with misrepresenting their situations, in addition to those who exacerbate claim situations and repair costs to gain more money from their insurance companies. The fault doesn't fall on just policyholders but on insurance agents and brokers who misrepresent risks to write more policies and car repair shops looking to make more money on repairs after an accident. Because of this, insurance fraud costs insurance companies and their consumers billions of dollars. Insurance companies consistently raise their rates on all consumers to keep up with the output of claim dollars they pay out to people looking to get more than what is fair from their car insurance company.

Types of Insurance Fraud

• Hard Fraud: when someone deliberately damages or destroys their property to collect money from their car insurance carrier. An example of hard insurance fraud is someone who reports their vehicle as stolen and not recoverable when they have orchestrated the theft themselves.

• Soft Fraud: when a driver misrepresents a past insurance claim or lies about their auto insurance application information to gain a lower insurance premium. This type of fraud can also result from an insurance agent or broker falsifying information about a potential customer to fit them into a more preferred policy than they should actually qualify for.

• Claim Fraud: Policyholders, insurance agents, or brokers may inflate a vehicle's damages so that the policyholder can recover more money to fix or replace their damaged vehicle. In addition, the cost of bodily injury coverage, in particular, has been hard hit by fraud when someone claims to be more severely injured than they were in an accident.

Premium Diversion Fraud: occurs when an insurance agent or broker collects premiums for auto insurance policies they have issued without submitting them to the insurance company.

Fraud-Related Impacts on Car Insurance Premiums

According to estimates from the National Insurance Crime Bureau, the average family spends an extra $200-$300 per year on their car insurance premiums. Your auto policy isn't the only place consumers will feel the impact of insurance fraud. Fraud Bureaus have confirmed that exaggerated claims, falsified details, staged accidents, false theft reports, and agent fraud create higher insurance premiums for all consumers, those who are honest and those who are not, and staged accidents, in particular, can put innocent people in danger of being injured or financially devastated.

Insurance companies spread the cost of risk over all of their policyholders, not just those who submit fraudulent information when applying for a policy or file fraudulent insurance claims. When fraudulent claims contribute to the total amount the carriers have to pay out, they charge higher premiums for everyone to mitigate their losses and ensure that they have enough money on hand to pay future claims.

How Insurance Companies Respond to Fraud

Car insurance companies have created special investigation units made up of specially trained professionals who investigate potentially fraudulent insurance claims and work with law enforcement agencies, state governments, and insurance commissioners to track down and prosecute people guilty of insurance fraud. The National Insurance Crime Bureau (NICB) was created to identify, combat, and prevent insurance crime.

Insurance companies use digital anti-fraud technology, including artificial intelligence, to detect possible insurance fraud in several ways, such as scanning claims for duplicates or alerting the insurer information they have gathered from an individual's social media platforms indicating they are trying to scam an insurer for additional claim dollars. For example, if a person claims to have incurred serious pain and suffering from a car accident but posts a picture of themselves rock-climbing or running a marathon, an investigation will ensue.