My Personal Finance Blog

Facing a car insurance fraud even in the role of a victim means that you will have to pay. Your rates will go up because of an expensive claim, but you can risk your and your loved ones’ lives too. That’s why learning about insurance fraud protection is very important, making you prepared for illegal insurance scam that may harm you.

Insurance fraud is as old as the concept of insurance itself. Back in Ancient Greece ships were sunken on purpose to receive insurance benefits from the government. Later on, insurance scam was widely spread in England and then in the United States. With the development of automobiles and car insurance respectively, fraud users have gained a very big market rich with possibilities. Many organized crime groups as well as individuals are using flaws in the sophisticated insurance system of today to use it in their own interest, making you vulnerable to their activities. However, there are certain measures you can take in order to minimize the chance of becoming an insurance fraud victim.

First of all you have to learn what insurance fraud is all about and what schemes are usually employed. And the range of schemes is very wide. It can be a set-up accident with a car intentionally stopping in front of you to cause a collision, or an entire play with many people involved to testify your fault.

Learning what are the most common types of insurance fraud is actually the best way to be protected against such things. Here are some of the most widely used schemes of fraud to be on the lookout for:

Intentional accidents: The scam car will take its place in front of the victim car in traffic and suddenly hit the brakes when there’s not way to avoid collision. This usually causes rear-end accidents, with the scam driver receiving car damage coverage money and sometimes medical cost coverage as well.

Additional damage: The scam driver leaves the accident site, whether intentional or not, and causes additional damage to the car in order to claim that it was caused during the accident and raise auto insurance coverage in his or her favor.

Fake helpers: In such a scenario fraud hunters will let you into the traffic at first and then head in to make a collision with you, claiming that they didn’t let you in the first place afterwards. Another form of “help” could be directing to doctors, repair shops or lawyers that will charge you much more than in typical situation.

Because things like these can happen to anyone and in any place, it’s very important to pay attention. Be on the lookout for traffic participants who may be following you o analyzing your driving style for some time. Keep the safe distance in front of you to have room for emergency stop. In case the accident takes place, make sure to not everything, tape or shoot all the damages and record all the information regarding the other car and people in it. This information will be very helpful when dealing with your auto insurance company and can be proof of fraud if it takes place.

Let’s start off with a simple explanation of why fraud costs us all money. Insurance companies employ people called actuaries. They spend their time calculating how many traffic accidents there are likely to be and predicting how much all the claims will be worth in a year. That total is divided among all the policy holders as the premium. It’s all guesswork but they are good guessers. Except that, when thousands of people make false claims, the insurers suddenly find themselves short of money to pay out. What is the result we see? Premium rates go up for all.

How bad is the problem? In New York, the number of suspected cases of fraud has risen by one-third from 2007 through 2009. Across the state, the insurers identified 13,433 probable cases of fraud in 2009 alone. To pay for this, the premium rates rose by an average of 6.3% in 2009. The most common frauds are staging an accident to claim medical expenses. This has caused the average value of each claim to rise to more than double the national average. That’s millions of dollars paid out and millions of dollars that have to replaced in the capital reserves. This problem is not, of course, unique to New York. It has become a well-recognized way of raising cash as the recession has deepened. So, if people find their household budgets under pressure, they can report their vehicle stolen or become the victim in a phantom hit-and-run.

Ah, but you are saying all this needs support from attorneys and physicians prepared to push claims knowing or suspecting their clients are faking or exaggerating. Well, let’s keep this real. The FBI and local law enforcement agencies regularly run undercover sting operations to catch the fraudulent. In Philadelphia, for example, a recent operation resulted in long jail terms for an attorney and thirty-four individuals falsely claiming millions based on fake medical evidence. In Santa Clara County, California, the police recently prosecuted more than twenty body shops for supplying false estimates to insurance companies. An undercover officer driving an undamaged Honda Civic explained he had reported the vehicle vandalized to pay for a new paint job. The body shops supplied an estimate under $3,000 – insurance companies do not inspect damage for “small” claims.

The truth is there’s an epidemic of fraud and it’s not only established criminals or those on the fringe of legality like street racers. But, sadly, it’s also becoming a mom-and-pop crime. Why? Because the cost of investigating every claim as possible fraud is too expensive for the insurers. It’s cheaper to pay out all the smaller claims and absorb the losses. This is one of the main reasons why it’s getting harder to find cheap auto insurance. The volume of fraud is driving up the premium rates for everyone. But there’s a secondary problem. Outside California, insurance companies still use zip codes in setting rates. Where the levels of fraud are high in some areas, the rates reflect this. So, those who live in the Bronx and Brooklyn pay more than other parts of New York because there are more fake claims. This does not mean it’s impossible to find cheap car insurance. You just have to work harder, using a site like this, to identify those insurance companies offering good discounts. As another self-help step, you could report all those you know are making false claims. If the police and FBI cannot stem the flood of fraud, it’s up to every law-abiding citizen to step up to the plate. The result will be lower premiums for all.