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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 fraud.
  • Soft fraud.

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.

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:

  • Age.
  • Type of vehicle.
  • Driving record.

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.

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