Auto Insurance Fraud Penalties and Consequences
Auto insurance fraud is becoming an increasingly serious problem in the United States. This type of fraud costs auto insurance agencies billions of dollars every year, which they must compensate for by charging high premiums, even to those who have not committed fraud. Since auto insurance fraud is such a big issue, the penalties for being charged with fraud are severe.
What is Car Insurance Fraud?
Faking or exaggerating injuries from an accident, staging car theft, or planning a collision are all examples of car insurance fraud. Basically, any act that is meant to procure undeserved financial gain from an auto insurance company is classified as fraud. False insurance claims are a serious problem that costs insurance companies tens of billions of dollars every year. The following points will help you learn more about the issue that is auto insurance fraud.
- Soft insurance fraud. Soft auto insurance fraud is a more minor offense than hard fraud. Soft fraud means being opportunistic, taking advantage of a situation which has already occurred. If, for example, a person was legitimately injured in a collision but pretended that the injuries received were worse and more painful than they actually were, and received additional monies because of it, that would be soft fraud. Soft fraud is the most common form of insurance fraud because it is very easy to commit and difficult to detect. Especially in cases where neck and back injuries are involved, it is often difficult to determine the true extent of the damage. Because of this, policy holders often exaggerate their pain or disabilities to receive extra compensation.
- Hard insurance fraud. Hard insurance fraud is a much more serious offense than soft fraud. Hard fraud is deliberately causing an accident, staging a theft or otherwise intentionally setting up a situation where insurance money is at stake with the intent of receiving that money. This type of fraud is less common than soft insurance fraud, but has still cost insurance providers millions of dollars.
- Frequency of fraud. As previously mentioned, the exaggeration of legitimate injuries received in unplanned accidents is the most common type of auto insurance fraud. This is very easy to do, even without malicious intent, which is why it is so frequent. The next most common form of fraud is staged car theft, followed by the reporting of injuries which never existed at all.
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Common Convictions for Car Insurance Fraud
The penalties for conviction will vary from state to state, but will be classed as either misdemeanors or felonies, depending on how serious the fraud is.
Misdemeanor Car Insurance Fraud
Most car insurance fraud convictions are misdemeanors and for what is generally termed “soft” fraud. These usually mean some form of exaggeration on the claim, or a lie on the insurance application. With applications, lies can vary from where the car is stored (on the street instead of a garage), using someone else’s name to purchase insurance, lying about driving convictions or the seriousness of injuries in a minor crash.
There has been a huge rise in fraudulent personal injury claims in recent years, and it can be hard to obtain a conviction for car insurance fraud. Even if it can be proven, it will still only be a misdemeanor.
A misdemeanor conviction for this type of car insurance fraud can result in a fine, probation or even a jail term in extreme cases, although this will never be for more than 5 years. The fine will vary, depending on the seriousness of the offense, but with a misdemeanor it won’t go above $15,000.
One significant problem is that the law hasn’t caught up with the high levels of sophistication used in auto insurance fraud. All too often, most types of auto insurance fraud are treated as misdemeanors including staged accidents, which have become far more common in recent years. Given the amount of money to be made from staged accidents, many remain undeterred by the relatively low penalties involved. Even if convicted, they are likely to escape with minimal prison terms, simply because of the limits placed by law.
Felony Car Insurance Fraud
To qualify as a felony, the car insurance fraud must involve the destruction of property. In practical terms, this translates to arson, although it would also apply in a staged accident where someone lost their life. Someone might own an expensive car on which they can’t afford to keep up payments. Burning it out it to claim the insurance (or paying someone else to do it) becomes an attractive option in some cases.
However, in felony cases, insurance investigators will examine everything far more carefully, which means more convictions for car insurance fraud.
The penalties for felony convictions regarding car insurance fraud are far more severe than for misdemeanors. Probation is unlikely; instead, anyone convicted will serve time in jail and the term will usually run between 5 and 10 years. Where a fine is imposed, it can run all the way up to $150,000 although the exact amount, and limits on jail terms, can vary from state to state.
Is Faking Grades for Auto Insurance Considered Insurance Fraud?
Car insurance fraud is an all to common occurrence in the United States these days, which is a crime that can be punished using fines and even jail sentences. There are some car insurance companies in the country that offer students, of a specific age, discounts on their car insurance premium if they get good grades in either high school or college. The student driver will need to submit an official copy of their transcript to the car insurance company for discounted grades. If the student decides to change or alter their grades after receiving the transcript, he or she can be found guilty of insurance fraud and be subject to all of its penalties.
Is There a Time Limit for Being Prosecuted for Car Insurance Fraud?
The statue of limitations for prosecuting a car insurance fraud case varies depending on the state in which you committed the crime. Some states employ a two year statute of limitations while others employ a statue of limitations that lasts up to seven years. This means that at any time up to seven years following committing insurance fraud, the suspect can be prosecuted for his or her illegal actions. Anyone found guilty of car insurance fraud is subject to very high fines and even a prison sentence that can range anywhere from a couple of months to a handful of years or more.
A fraud lawsuit brought against you by the insurance provider can land you with a criminal conviction and years in prison depending on the severity of the fraud. In some states you will find yourself paying a fine as well. Here are some more detailed descriptions of the penalties for committing auto insurance fraud.
If you are convicted of committing auto insurance fraud, it will go on your record as criminal activity. Being charged with fraud can make the rest of your life much more difficult, as you will have a harder time finding employment and will be subject to all the social stigma that comes with having a criminal record.
- Time in prison. In all states, you will have to serve time in prison if you are convicted with car insurance fraud. The minimum and maximum sentences depend on the state in which you reside, but you could spend up to several years in prison.
- High fines. Again, depending on your state of residence, you could pay tens of thousands of dollars in fines, not to mention restitution monies, if you are charged with committing auto insurance fraud. The maximum fines depend on your state.
- Raised premiums for all. Since auto insurance fraud costs insurance providers a huge amount of money every year, they compensate by raising insurance premiums. This affects everybody, not just those who have committed fraud. Depending on the state, it has been estimated that the average policy holder pays several hundred dollars more for their policy every year because of fraud committed by other people.
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Soft fraud is easy to commit even unintentionally. When reporting injuries or damages to insurance companies, you can ensure you do not commit fraud by being completely honest and unbiased in your assessments.
Insurance fraud is an increasingly serious problem for both insurance companies and the people they provide policies to. The penalties for hard fraud are severe, but you can make sure you stay out of trouble by being upfront and honest when reporting claims.
Car Insurance Fraud (and Why it Doesn’t Pay)
Lawmakers and citizens alike have levied harsh criticisms against the mandatory nature of auto insurance, using colorful accusations such as “legal corn-holing” or “socialized risk program” to describe a state’s right to impose upon its citizen-drivers a minimum level of insurance coverage. While we won’t take a position as to the legality or moral hazard some associate with or question of such requirements, one thing is for certain: drivers often see or experience the safety net that is car insurance as an opportunity to get something extra in the event that an accident occurs.
More ambitious fraudsters see the mandatory nature of car insurance not as an opportunity to “recoup” some of their investment, but instead to use the device as a mechanism for extracting financial wealth out of a system in which the majority of driving Americans participate. Cause an accident, get paid. This mantra is surprisingly common, especially in states with disproportionately high luxury vehicles that are more likely to carry premium car insurance policies.
Whether a person attempts to exaggerate their own personal losses in order to get a little something extra or another person chooses to orchestrate a major incident in order to benefit from a patsy’s policy, the common thread for both is a concept known as car insurance fraud. Like any other crime (and oh yes, both are very much a form of criminal activity) fraudulent insurance claims are most commonly classified in two degrees; we’ll discuss both here, their respective consequences and, hopefully, illustrate that auto insurance fraud, regardless its form, does not pay.
Soft Insurance Fraud
Insurance fraud falls into two main categories. The first, and by far the most common, is called soft fraud, which is the name for what happens when people file inappropriate claims for a real accident. Filing a claim for any damage not related to the accident at hand is illegal. Exaggerating damages or injuries after an accident, filing multiple claims for the same injury, misreporting wage losses from an injury, or reporting an inflated bill for car repairs after an accident are all examples of soft fraud.
Another common kind of soft fraud is when people falsify information on their insurance in an effort to lower their premiums. So if you live in New York City, it might seem like a good idea to register your car in upstate New York, where it’s less expensive to insure a car. Or, if you have teenage kids, you may want to register their car under your name instead of theirs. Be careful – these might seem like thrifty shortcuts. But they’re actually a form of insurance fraud.
Hard Insurance Fraud
The second category of insurance fraud is called hard fraud. Hard fraud includes planning a car crash or faking a car theft in order to collect insurance money. Sometimes scammers or organized criminals will “trap” unsuspecting drivers into an accident by slamming on the brakes in traffic and causing a rear-end collision, or by appearing to cede right of way to a victim and then hitting the gas. These kinds of insurance fraud are less common than soft fraud, but they’re subject to harsh punishment.
Fraud Doesn’t Pay
All of the types of insurance fraud listed above are illegal, and can have negative consequences from fines to jail sentences. Most forms of fraud are subject to misdemeanor charges, which can lead to fines of up to $15,000, probation, or jail sentences of up to five years. Conviction for felony insurance fraud, which involves the destruction of property, involves jail sentences of 5-10 years and fines of up to $150,000.
Additional consequences of car insurance fraud also include:
- Criminal charges: If you are caught committing insurance fraud you can end up with a criminal record, which can have a negative impact on future job opportunities, your voting rights, and more.
- Jail time: Those convicted of committing insurance fraud could end up facing several years of jail time.
- Fines: Fines for insurance fraud can be as high as tens or even hundreds of thousands of dollars, in addition to any restitution you could have to pay.
- Raised premiums: Insurance fraud results in raised premiums for everyone, since insurers need to make up the money they lose from fraudulent claims. In addition, having large claims on your record can make your individual insurance rates go up, costing you more money in the long-term.
Car Insurance Fraud 101
Car Insurance Fraud 101
As a driver, you have a number of things to focus on: choosing the right car insurance coverage, paying your premiums, and avoiding accidents. But even when you’ve done all the right things, you are still susceptible to car insurance fraud.
Learning what car insurance fraud is, how it affects you, and what you can do about it can help you protect yourself from becoming a victim.
What Is Car Insurance Fraud?
Car insurance fraud is any attempt to cheat an insurance company in order to gain money. It can be attempted by:
- The policyholder.
- Another driver.
- A repair person.
- A medical professional.
Types of Fraud
Fraud can be classified into either:
Hard Insurance Fraud
Hard insurance fraud occurs when someone intentionally causes an incident that allows him to file an auto insurance fraud claim. See the examples below for cases that would be considered “hard fraud.”
- A car owner strips her car of its seats, radio, and other valuables. She then files a claim with the insurance company stating that the items were stolen in an attempt to receive monetary compensation.
- Two drivers stage a car accident. The first perpetrator drives in front of the selected victim, while another drives behind. The perpetrator in front slows slightly, while the other does not allow the victim to slow down, causing him to crash into the car in front. The car in back drives off, while the victim is accused of injuring the driver in front.
Soft Insurance Fraud
Soft auto insurance fraud occurs when legitimate claims are distorted or there are other lies made for financial benefit. The following cases are examples of soft fraud.
- An accident victim claims more car damage after an accident than really occurred.
- An accident victim claims that an accident caused an injury or medical condition that was already present.
- A car repair service contracted by the car insurance company puts in counterfeit or cheap replacement parts.
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The Cost of Insurance Fraud
The cost of your premium and deductible are calculated based on the average amount that your car insurance company reasonably expects to have to pay for people with your same characteristics, such as:
Even if you are not the cause or a victim of car insurance fraud, insurance fraud drives up the amount that insurance companies must pay. That, in turn, drives up your premiums and deductibles.
The cost of fraud extends beyond insurance premium increases. Consider what happens when you are the victim of a staged accident. If you are unable to clear your name from blame and you are in a profession that requires a spotless driving record, you might be out of a job.
Additional effects of car insurance fraud can include:
- Injuries and/or fatalities to the victims.
- Resources used on traffic closures, investigations, and law enforcement.
- Harm to the victim’s credit rating.
Fighting Car Insurance Fraud
Car insurance fraud is a sneaky and complicated business, but steps are being taken to fight it.
The Special Investigations Unit (SIU) of your insurance carrier works to prevent auto insurance fraud. This department:
- Investigates suspicious claims.
- Trains employees to be on the lookout for fraud.
- Collaborates with law enforcement to track down sources of fraud.
The SIU attempts to stay updated on current fraud schemes to be able to recognize them.
If you come across fraud, there are multiple places to report it. Along with calling the SIU of your insurance policy, you can report fraud by calling:
- The National Insurance Crime Bureau (NICB).
- The Department of Motor Vehicles (DMV) in your state.
- Your state’s Insurance Department.
By knowing what fraud is and how to address it, you can help protect yourself.
Don’t be a victim of car insurance fraud
As the car pulled up to the roundabout, the road ahead was clear. “It was a sunny day and visibility was excellent. I couldn’t see any reason for him not to just drive straight onto the roundabout,” said 34-year-old Ben Jones. “But out of nowhere, he slammed on the brakes as I drove up behind him.” Ben was about to become an unwitting victim of car insurance fraud.
Inevitably, Ben crashed into the back of the car in front. “We both got out of the car to assess the damage, which to me looked like nothing more than a dented bumper. The driver of the other car insisted I give him £200 to settle the matter there and then as it was ‘clearly my fault’.
“When I refused, saying I preferred to let our insurance companies sort things out, he gave me his name and address, which he’d already written down on a piece of paper. He didn’t seem shaken at all, either, like you would when you’ve just had an accident. It struck me as odd.”
A month later, Ben got a letter from his insurance company. “They had received a claim for more than £16,000 which included the price of calling out a tow truck, and whiplash injuries to two passengers. But there really wasn’t that amount of damage and I’m sure I didn’t see anyone else in the car.”
Although Ben had no proof, he was suspicious enough to mention it to his car insurance company, who told him he may have become the victim of an increasingly common crime.
Figures from MORE TH>N’s parent company RSA show that there have been well over 22,500 instances of car insurance fraud since 1999.
Yet this so-called ‘cash for crash’ crime wave is something of which 41% of British drivers aren’t even aware, according to a YouGov survey quoted on the BBC.
But while you may never have heard of it, your car insurance company certainly has.
Fraudulent and inflated claims are estimated to cost the industry over £1.5 billion a year, adding 5% to the premiums of honest policy holders.
In fact, levels of insurance crime have increased to such worrying levels that insurers have created their own Insurance Fraud Bureau (IFB) in an attempt to counter the problem.
Deliberate accidents are also a crime that the City of London Police know only too well. The force is currently investigating four suspected car insurance fraud cases, each involving more than 70 car accidents.
Detective Chief Superintendant Steve Wilmott says that criminals “will drive with two or three people in their vehicle and will select a fairly new [target] vehicle with one or two people or maybe a family inside. Then they will deliberately collide with it, either by side-swiping it or by braking hard in front of the vehicle, and claim against insurance for whiplash or other injuries.”
The practice isn’t just fraudulent. “Staged motor accidents are also potentially extremely dangerous,” says ex-Metropolitan Police Detective Superintendent John Beadle, now IFB chairman.
“Not only do they cost honest drivers millions of pounds each year but they also put innocent motorists in danger.”
He believes there are some telltale signs that show when you may have been involved in a fraudulent collision. “Motorists should pay extra attention to people braking suddenly in front of them for no reason, or otherwise driving erratically.” Other warning signs include the car you crashed into following you before the accident, fictitious passengers, and bogus witnesses, mechanics or doctors used to back up the claim.
Car insurance fraud, also known as ‘auto fraud‘, is believed to originate in the US where methods have become increasingly sophisticated, often involving more than one participant. There, organised crime rings are said to be behind a large number of the incidents.
Where the US leads, the UK often follows, but you can keep one step ahead of the criminals by looking out for the following three techniques that are currently being used in the States.
1. The ’swoop and squat’
This is a sophisticated version of a classic rear-end collision that is harder to detect than when a car just slams on their brakes in front of you. The scam involves three cars – yours plus two driven by fraudsters.
First, the ’swoop’ car intentionally pulls ahead of the ’squat’ vehicle and cuts it off, causing the driver of the squat car to slam on his brakes. Following behind the two, you may well be unable to react in time, meaning you’ll drive straight into the back of the squat car.
Of course the swoop vehicle has plenty of time to drive off before you’ve even had a chance to take a look at their number plate.
If you’re not aware of this technique, you’ll probably innocently tell the police that the swoop vehicle caused the accident. But because this car is never to be seen again, it’ll be your car insurance company that has to pay out. Bye bye, no-claims bonus!
2. The panic stop
The fraudster crams a car (normally an old banger) with as many passengers as possible, then drives around looking for a suitable target. When the victim has been found, the fraudsters drive in front of them while one passenger keeps watch out of the back window.
The passenger studies the victim, looking for any signs of distraction, such as fiddling with the stereo, or otherwise taking their eyes off the road for a second. As soon as that happens, the passenger signals to the driver who slams on the brakes, causing an accident.
3. The ‘helpful’ driver
This scheme happens when you’re trying to merge into another lane of traffic. The fraudster will motion you to come in, then speed up so you collide with them, later denying all knowledge of their earlier signalling.
So what can you do to avoid being taken for a ride? One of the best ways is to keep an eye on how you’re driving.
Maintaining a good distance between you and the car in front isn’t just safe driving; it should also minimise your chances of falling victim to a scam. Other good tips include:
- Getting a good look at the driver and any passengers
- Taking photos of any damage – not just to your car – with your mobile phone or digital camera
- Calling the police if someone claims to be injured
- Being wary of anyone who seems too quick to offer their services as a witness – they could be in on the scam.
- Calling the confidential IFB cheatline on 0800 328 2550.