How to Spot Car Insurance Fraud

It's important for drivers to protect themselves from car insurance scams.

Elliot Rieth | 

Jul 12, 2024 | 4 min read

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If you were involved in an accident and something seems suspicious, your instincts could be right. According to the Coalition Against Insurance Fraud, about 10% of property and casualty insurance claims in the United States are fraudulent.

From staged accidents to inflated repair costs, knowing how to spot different types of car insurance fraud can help you avoid a potential scam and report wrongdoings to appropriate authorities.

What Is Car Insurance Fraud?

Car insurance fraud occurs when someone intentionally attempts to make money by lying about car insurance claims. This practice is not exclusive to policyholders and can be perpetrated by insurance companies, service professionals, and other third-party entities.

Within the umbrella of car insurance fraud, common offenses are often split into two main categories: hard fraud and soft fraud. These categories can determine the punishment a perpetrator may legally face from an insurance company.

Hard fraud typically involves advanced planning, and some examples could include staging accidents or planned car theft. Soft fraud is more common and could occur when policyholders, service providers, or other parties intentionally lie when filing a claim or applying for a policy.

Examples of Insurance Fraud

One of the most common types of hard fraud is a staged accident. According to the National Insurance Crime Bureau (NICB), this method is often used by scammers to try and falsely collect insurance money. If you're questioning whether the incident you were involved in was a setup, it's possible the other party trapped you in a plan to collect insurance money. Some scammers may even try to falsely claim injuries to increase their potential payout.

It's also important to find a mechanic you can trust. Some auto shops may try to exaggerate the cost of your repairs to make more from your insurance, so be on the lookout for any unusually high service charges on your repair invoice. In rare cases, auto shops have even been caught installing faulty airbags to cash in on the full insurance value of a new airbag without providing one.

Other service providers may try similar car insurance scams. Avoid accepting services from unsolicited tow trucks that offer to help, as they may try to trick you into paying unexpected fees or take your vehicle to a dishonest repair shop. Be mindful of "glass repair experts" as well that offer to fix your windshield in a location that isn't a certified shop.

Although unlikely, agent fraud is another car insurance scam that directly impacts your wallet. Deceptive insurance agents may take your monthly premiums without ever setting up coverage, leaving you to pay for the full bill in the event of an accident.

Other agents may hide unnecessary coverage in your policy paperwork to overcharge you. Before you sign, be sure to check your agent's credentials, read reviews, verify their license, and get multiple quotes from reputable agencies to compare.

How to Report Insurance Frauds

Insurance fraud overall is a serious issue in the U.S. According to a 2022 study by the Coalition Against Insurance Fraud (CAIF), insurance fraud across all categories costs the country more than $300 billion per year. Property and casualty insurance, which includes auto insurance, results in a loss of more than $40 billion per year. According to the FBI, the impact of non-health insurance fraud nationwide could cost families between $400 to $700 in increased premiums.

If you suspect you've witnessed or been victimized by a scam, it's important to act fast when reporting insurance fraud. Call or contact the NICB with the details so they can investigate. If you're concerned about any potential backlash, you can also submit a form online that allows you to request to remain anonymous. You may also consider contacting a lawyer who specializes in insurance fraud to start building a case against those who tried to scam you.

If caught, punishment for car insurance scammers will depend on the severity of their actions. Soft fraud cases may face a misdemeanor charge or fine, while more severe cases could face jail time, felony charges, or significant fines.

Elliot Rieth

Elliot Rieth is a writer who was born and raised in Michigan, the center of the American automotive industry. With a background in the industry that spans from sales to digital marketing, Elliot has years of experience working directly with dealers and OEMs to create digital content and educate potential customers. When Elliot isn’t writing about horsepower or EVs, he can be found with his two greyhounds enjoying a new book or record.