How Does Car Insurance Fraud Impact Rates?
Automobile coverage fraud has become a major problem in many states across the nation, and can lead to higher premiums for nearly every insured driver. The National Insurance Crime Bureau estimates that roughly 10% of all claims that are paid out by policy providers are fraudulent. When insurers pay these unnecessary -- and oftentimes expensive -- claims the cost can then be passed on to customers in the form of increased premiums. This is because insurers have to offset the cost of claims, both legit and fraudulent, by raising rates.Based on a survey conducted by the Insurance Research Council, an estimated 33 percent of adults in the United States believe that exaggerating on a claim is an acceptable practice. In reality, this is considered fraud, and in many states can lead to severe punishments. For example, in North Dakota this may be considered a Class C Felony and punishable by up to five years in prison and a fine of up to $5,000 in addition to various restitution or court costs. In California these fines can be as high as $50,000 if convicted.
An effective way for motorists to avoid these situations is to understand the various types of fraudulent activities that exist. A common scheme used by motorists involves falsifying or incorrectly listing details in a claim. This could include filing a claim for an accident that never took place, exaggerating the resulting damages, or including additional passengers in the accident who were not actually present. Sometimes a motorist can even become the victim of an organized crash. In these situations a group of drivers trap the victim in a situation that forces them to collide with the unknowing driver, leading to a fraudulent claim.
Repair shops have also been known to partake in fraudulent activities by reporting damages that are exaggerated by listing them as more extensive and expensive after a collision. The participating individuals then usually keep the additional funds after the claim has been paid. This means that many auto insurance companies may be paying more for claims than is necessary, and these expenses are likely to be passed on to other motorists in the form of higher rates. By researching this information, motorists can develop a better understanding of these activities in order to avoid becoming a part of them.
As previously mentioned, participating in coverage fraud, no matter how small or simple, could be met with severe consequences in the form of jail time or fines. Supporting these activities may even lead to higher premium prices for all insured individuals. The Los Angeles County District Attorney’s Office estimates that these financial losses are over $8 billion a year, which is money that could be going to vehicle owners with actual claims. Drivers that suspect fraudulent activity are encouraged to contact their local State Insurance Department and report any known incidences.