When money is at stake, you can bet there’ll be scammers plotting to get it. Auto insurance is no different. According to the Insurance Information Institute (III), healthcare, workers compensation and auto insurance are most at risk for insurance fraud. In fact, according to survey data gathered by software company FICO in 2013, 5 to 10 percent of claim costs for U.S. and Canadian insurers involved fraud. Further, one-third of those insurers said fraud accounted for as much as 20 percent of their claim costs.
Five to 20 percent equates to a massive number when you think about the hundreds of millions of dollars in claim payouts and assets insurance companies deal with each year.
But why do you, the policyholder, care about your insurance company’s assets as related to fraud? Because these fraudsters are costing you higher premiums!
Learn how to protect yourself from auto fraud below, and then shop car insurance online quotes for a new policy with CoverHound.
Who’s at Risk?
Well, that depends on who’s behaving fraudulently. Auto insurance fraud can be committed by you, through an entity you use (auto body shop), or through a third-party that you happen to get wrapped up in (e.g. someone purposely rear-ending you at a stop light).
For the purpose of this piece however, we’re only going to focus on fraud that can be committed against you, and how you can go about protecting yourself from it.
What is Auto Insurance Fraud?
The common denominator in all types of auto insurance fraud is attempting to deceive the insurance company for financial gain. Auto insurance fraud is typically grouped into two categories: soft fraud and hard fraud.
Soft fraud is reserved for legitimate claims in which further deception occurs (e.g. making a personal injury claim for injuries resulting from the claim accident as well as pre-existing injuries that did not result from the accident). Hard fraud deals with deliberate attempts at deception, such as a staged accident (e.g. a car full of people drive recklessly causing you to hit them).
Two Common Types of Fraud and How You Can Protect Yourself
Here are some common types of fraud you should be aware of:
Staged accidents can occur in a variety of forms. You can be baited into rear-ending someone, get waved by another driver to merge but then they speed up to hit you, or even get t-boned as you cross a stop-sign intersection.
What You Can Do
Always pay 100-percent attention. Never tailgate. Accelerate slowly and brake gradually. It’s best to keep at least a two-car distance (or three seconds away) from other vehicles at all times. A lot of staged accidents can be avoided by being an aware driver, other ones, like the T-Bone maneuver, is pretty unavoidable outside of having great reaction skills.
Faulty and Exaggerated Repairs
When you’ve had a legitimate accident and make a claim, you’ll have to take your car somewhere for repairs. While your insurance company may suggest the shop or group of shops you can take it to (some don’t operate this way), you need to be vigilant about whom you’re trusting. Mechanics and auto body shops in general have a reputation for preying on unknowing customers and overcharging them simply because the customer doesn’t know any better. A similar thing can happen in cases of auto fraud. Auto shops could overcharge you for repairs knowing full well your insurance company’s picking up the tab, or they can go a step further and make repairs to your vehicle with sub-standard parts, saving a ton of money while still billing your insurance company for brand-new parts and repairs.
What You Can Do
Unfortunately, unless you’re mechanically inclined, you may not know whether an auto body shop truly fixed your vehicle in a professional manner or not. What you can do however is be picky about where you take your vehicle. Ask friends for mechanic referrals, do research online, and follow your gut instinct when dealing with a shop owner. More often than not, if you’re getting a weird vibe, something’s probably off.
You should also avoid feigning ignorance while at the auto shop. If they suspect you know even a little bit about vehicles, they’ll be less likely to pull a fast one on you. There are plenty of reliable, honest mechanics out there, but unfortunately the bad apples have spoiled the trust for the bunch. If you willingly admit to not knowing a thing about vehicles, you’re opening yourself up to being taken advantage of.
You can never free yourself from the risk of auto insurance fraud, but you can better protect yourself by staying aware. Shop car insurance online with CoverHound, to find the policy that's right for you.