UPDATED: Mar 13, 2020
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The auto insurance industry in the United States has an ever-growing fraud problem, and recently, with the new economic downturn, the number of fraudulent claims filed to insurance providers is at an all-time high. Auto insurance fraud has quickly climbed to be the second most costly form of crime in the United States, just behind tax fraud. Continue reading below to learn how auto insurance fraud works, what the common insurance fraud schemes are, and how auto insurance fraud affects you.
How Auto Insurance Fraud Works
Auto insurance fraud is often hard to detect, and the extremely creative scammers aren’t making the auto insurance companies’ jobs any easier. There is a wide array of popular scams that auto insurance providers spend millions of dollars on each year to prevent and prosecute.
Of course, there are also many scams that go completely undetected, and with new scam tactics being uncovered all the time, it makes you wonder what other elaborate scams are out there. One such fraudulent activity involves multiple drivers who set up traffic scenarios that forces a third, unknowing driver to slam into the back of one of the other vehicles. The key is to make it look like the victim is actually at fault in the accident so they can get paid by the insurance provider.
Most fraudulent claims aren’t usually this elaborate. In fact, most fraudulent claims are actually quite simple. Every year thousands of claims are reported to insurance companies, and though they may look innocent on the surface, it isn’t unusual for insurance companies to discover upon inspection that one of their customers has intentionally inflicted damage upon their vehicle.
Common Fraud Schemes
The three schemes listed below are only some of the popular schemes out there these days. Let’s take a look at them:
Swoop and Squat Auto Insurance Fraud
One of the more popular auto insurance fraud schemes these days is known as the “swoop and squat.” This is a type of staged accident that is often times used to trick insurance companies into making huge payouts.
Wikipedia’s article on insurance fraud has a good definition of the swoop and squat scheme:
In the “swoop-and-squat,” one or more drivers in “swoop” cars force an unsuspecting driver into position behind a “squat” car. This squat car, which is usually filled with several passengers, then slows abruptly, forcing the driver of the chosen car to collide with the squat car. The passengers in the squat car then file a claim with the other driver’s insurance company. This claim often includes bills for medical treatments that were not necessary or not received.
Owner “Give Ups”
The “owner give up” scheme is kind of comical. In this plan, the fraudster simply leaves his car out there for thieves to take. Most of the time in owner give ups, the person will arrange for a thief to come and take his car. Insurance companies usually catch wind of the fraud when the vehicle is found in a secluded area, often times burned or buried. These cases usually come about when the owner has trouble selling his car, is struggling with mechanical issues, or is behind on payments.
Sometimes, people sell their car, get the cash, and then report the car as being stolen. If you sell your car in the United States, you will be caught and brought to jail as soon as the new owner catches wind of this. If you sell your car overseas, however, you might not ever get caught. The reason export fraud is so common is that the fraudster can profit in two different ways: from the sale of the vehicle, and from the insurance fraud.
How Does Auto Insurance Fraud Affect You?
You don’t have to be a victim of a planned collision to be affected by car insurance fraud. If you have an auto insurance policy then you are already paying for the crimes of others. It costs millions upon millions of dollars to fight fraud, and the ones that don’t get caught will cost you even more. To make up for these immense costs, insurance companies must charge their customers more.
What Can You Do About Car Insurance Fraud?
Sadly, there isn’t much you can do about insurance fraud. The only way to protect yourself is to keep an eye out for suspicious activity, and to report it to your insurance company, should you fall victim to one of their scams.
There is, however, something you can do about the soaring costs of auto insurance. Some auto insurance providers are better at detecting fraud than others, and as a result, can charge you less for coverage.
If you’ve noticed a spike in your auto insurance premium, it may be due to insurance fraud. It’s good practice to check competing rates before you renew your current policy. You may be paying more than you need to. Enter your zip code above to see how much you could save.