What Is Auto Insurance Fraud?
Auto insurance is a must for protection from financially devastating circumstances. At the very least, liability insurance pays for damage you inflict on another motorist so you don't have to pay out of pocket. Depending on your policy, it often pays for car repairs and medical bills if you are in an accident. It may also reimburse you for auto theft. Unfortunately, there are criminals who take advantage of this protection.
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Definition
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Auto insurance fraud means getting money from a car insurance company to which you are not legally entitled. The money may purportedly be for car damage, personal injury or both. The fraud occurs when payment in made for circumstances that are not legitimate. The claim may be made by one person, or it may be the work of a group of scammers.
Types
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There are two main types of auto insurance fraud. The first involves destroying a vehicle or setting up a theft so the owner can collect money for the loss. Will Hutchings, a sergeant with the Las Vegas Police Department Auto Theft Unit explains that cars are often burned after a phony theft. The owner may hire someone to do it or torch the car himself and then claim it was stolen. The second fraud type involves accident set-ups. All of the people involved in the accident may be in on the scam, or fraudsters may involve an innocent person. They cause a collision and inflate their damage and injury claims.
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Location
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Auto insurance fraud occurs throughout the United States, but it is most heavily concentrated in certain areas, especially when the economy is bad. Difficult economic conditions have a big effect on locations that are dependent on tourism. Emily Friedman and Vanessa Weber of "Good Morning America" explain many auto insurance cases are centered in popular tourist destinations like Nevada, Florida, New York and Wisconsin.
Effects
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Consumers end up paying higher rates for auto insurance because of fraud to reimburse insurance company losses. David Corum, vice president of the Insurance Research Council, explains payments for fraudulent bodily injury claims were nearly $7 billion in 2007 and have gone up every year since 2002. This problem also poses physical danger. Innocent motorists who are targeted by scammers can suffer injury or death in an accident set-up.
Solution
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Law enforcement can make a significant dent in the auto insurance fraud problem by cracking down on it. This is a positive ripple effect for consumers. Car Insurance Rates, an auto insurance website, explains car insurance rates in Massachusetts went down nearly 12 percent after the state insurance commissioner spearheaded an effort to stop fraud. Effective tactics include increased penalties and jail time for insurance-related fraud. Thomas Kristoffersen of the Insurance Rate insurance site explains auto insurers like State Farm, Allstate and Geico are also working on the problem.
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References
- Photo Credit car crash image by dawn from Fotolia.com
