You know that insurance fraud can be a serious issue, but did you know that even certain omissions on your application can be considered car insurance fraud?
Car insurance fraud can take many forms, from omissions on an application to filing false or exaggerated claims
Insurance fraud can be perpetrated by policyholders, other drivers, even unscrupulous mechanics
The consequences for car insurance fraud vary, from denied claims and dropped policies to fines and even jail time
When you buy a car insurance policy, you’re essentially signing a contract with the car insurance company. They agree to cover the costs after a car accident — either of damage you caused to others or to your own car — and you agree to pay your premium on time and in full to keep your policy active and make sure you’re protected.
But if you, another driver, a vendor or even an unscrupulous insurance agent deceives the insurance company (by omitting information or submitting false information) in order to pay less or receive a payout, that’s insurance fraud.
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According to the National Insurance Crime Bureau, an estimated 10% (or more) of property and casualty insurance claims may be fraud, and those fraudulent claims lead to higher premiums across the industry.
And insurance fraud is a serious issue with potentially serious consequences — certain omissions or falsehoods from a policyholder could lead to loss of coverage, and more serious types of insurance fraud can even result in jail time. Here’s what you need to know about the business of car insurance fraud.
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Car insurance fraud comes in many different stripes. Within the industry, insurance fraud is usually divided into two main categories: hard insurance fraud and soft insurance fraud.
Hard fraud would be making up an incident altogether, like selling your car and then claiming it was stolen. Soft fraud usually refers to falsifying or exaggerating elements of a real claim, like saying an old scratch on your car happened during a recent accident. Soft fraud can also refer to omissions or misrepresentations on a car insurance application.
Here are some common examples of car insurance fraud:
When your car is stolen, your insurance company will consider it a total loss and it will be covered by your comprehensive coverage. The insurance company will pay out the actual cash value (ACV) of your car and you can use the payout to buy a new one. But if a policyholder intentionally abandons, destroys or sells their vehicle and then claims it’s stolen, that’s a serious form of insurance fraud.
If you’re in a car accident with another vehicle and are determined to be the at-fault driver, your liability coverage steps in to cover the other driver’s repair bills and medical bills.
But if that driver were to exaggerate their claims, maybe by attributing older damage to their accident with you in order to receive more money from your insurance company, that would be a form of fraud.
Untrustworthy repair shops can also be guilty of exaggerating claims. If you take your car to a shop after an accident and they bill your insurance company for extra, unnecessary repairs, or charge you more than the repairs were worth, that’s also a form of fraud.
Similar to a vehicle repair shop that exaggerates your damages in order to upcharge your insurance company, you may come across a fraud scheme where someone approaches you — often at a gas station or parking lot, or knocks on your door and says your vehicle needs a new windshield.
They may tell you that your windshield is damaged even if it doesn’t appear to be, and then offer to replace your windshield and bill your insurance company. If you agree, they may replace your windshield with a shoddier one and bill your insurance multiple times. That could lead to higher premiums for you.
When you purchase car insurance, you list personal information including your ZIP code, driving history and credit score. If you omit certain details, like leaving off a recent accident or DUI, your insurance company will probably figure it out when they look up your driving record.
If you say your car is garaged somewhere else in order to get cheaper rates, this is a form of insurance fraud, and your insurance company may figure it out when you make a claim.
It’s also important to list every driver in your household on your policy. If you leave your teenage child off of your policy and they proceed to get in an accident in your car, it may not be covered by your insurance. Even if the omission was accidental, the claim could be denied.
Insurance companies have strong systems in place to identify and detect fraud. When you file a claim with your car insurance company, they’ll request a lot of information about the incident, including a police report, photos, diagrams, and any repair bills or medical bills.
When you file a claim, you’ll also be assigned a claims adjuster, also called a claims representative, who will investigate your claim and help decide how much your payout will be.
The adjuster’s investigation may even include in-person visits to the body shop where your car is being fixed. This all helps the insurance company ensure your claim is legit.
Larger insurance companies also use technology to help them identify fraud or suspicious patterns. If your claim is flagged by fraud detecting software, it may be sent over to your insurer’s special investigations unit, a department that investigates the legitimacy of insurance claims. This can involve an even more in-depth investigation of your claim.
If your auto insurance company determines your claim was fraudulent, the consequences will vary depending on the severity of the fraud.
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The short answer is, yes, insurance fraud can result in jail time, but only in cases where your insurer decides to turn the suspected fraud over to law enforcement.
In some cases, like if your car insurance company discovers you omitted information on your application while reviewing a claim, the claim may be denied, or your premiums may be raised and you’ll have to pay the increased amount retroactively.
If your insurance company suspects a fraudulent claim, they may cancel your policy altogether. And in serious cases, they will turn you over to law enforcement and you may face misdemeanor or felony fraud charges.
This is where the consequences become even more serious — someone convicted of fraud may have to pay thousands of dollars in fines or even be sentenced to jail.
Avoid any suspicion of insurance fraud by being as honest as possible in your insurance application and when filing claims. If you suspect you may be the victim of an insurance scam or fraud, contact your car insurance company or your state’s Department of Insurance.
Anna Swartz is a Managing Editor at Policygenius, where she has been since 2018. An expert in home, auto and renters insurance, she loves making tough concepts easy to understand and helping readers feel confident about their insurance options. Before joining Policygenius, she was a senior staff writer at Mic. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.
Anna has a B.A. in English from Wesleyan University in Middletown, Connecticut.
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