Fraud is the second-most costly white-collar crime in America, right behind tax evasion – but auto insurance fraud, what is it? According to the National Insurance Crime Bureau (NICB), insurance industry studies indicate that 10 percent of all property/casualty insurance claims are fraudulent. With respect to auto insurance, this adds up to a $200 to $300 hit to your annual insurance premium.
Other sources indicate that 10 percent of auto insurance fraud costs are the result of organized accident staging rings and 90 percent are due to claims padding, and claimants adding injuries, damage, and fictitious passengers to claims.
Edmunds, reporting on auto insurance fraud, identifies “hard” and “soft” fraud. Hard auto insurance fraud includes:
- Staged accidents – including intentional rear-end collisions
- Phony injury claims
- “Jump-ins” – involving the inventing of injuries to persons who were not in the vehicle at the time of the accident
- Claims that a one-car accident was the result of a hit-and-run
There’s also the fraud known as owner-give up, where a person who may be upside-down on their car loan either abandons their vehicle or pays an arsonist to set fire to it, then reports it stolen to the police. When the insurance company pays the claim, the person, who is the policyholder, pays off his or her car loan without damaging their credit. This scam, reports Edmunds, is becoming increasingly more common.
Soft fraud, also called “build-up,” involves the padding up of otherwise legitimate insurance claims. In soft fraud, claimants may:
- Add damage that occurred previously to an insurance claim
- Conspire with body shop and/or insurance adjuster to inflate repair estimates
- Conspire with doctors to obtain medical treatments that are unnecessary
A 2008 study conducted by the Insurance Research Council (IRC) estimates that claim fraud and buildup added between $4.6 and $6.8 billion in excess payments to auto injury insurance claims closed in 2007.
None of these estimates take into account the labor costs to deal with auto insurance fraud, including the drain on businesses, law enforcement, civil justice system, regulatory agencies and emergency services.
In effect, the answer to auto insurance fraud: what is it is that it is a criminal activity that costs all consumers plenty.