January 8, 2010

Cross-state Insurance Fraud Affects Auto Insurance In Pennsylvania

While the process of obtaining auto insurance has become far more streamlined in recent years, reducing the amount of time that consumers need to invest in this activity to a minimum, the cost of insurance premiums seems to climb ever higher. Though this can be partially blamed on the current economic downturn, many insurance companies will cite an increase in both cars and accidents on roadways to justify higher costs. However, other factors, such as the growing practice of auto insurance fraud and rate evasion, can drive up costs for even the most conscientious of drivers.

Rate evasion is the practice of fraudulently registering a vehicle in another state, with the owner claiming that they either live in the area or store their car there. This allows them to avoid much higher insurance costs in than their home state, where they may face either steep premiums for previous accidents, or may simply be subject to more stringent regulations under their state’s Transportation Board regulations. One area in which this practice is becoming increasingly common is the state of Pennsylvania, which, due to its proximity to both New Jersey and New York, has seen an influx of rate evaders from these two high-population zones.

Two determining factors in any premium cost will be what vehicle the state is registered in and where the vehicle will be driven. If the vehicle is registered, for example, in the small town of Wellsboro, PA, the insurance company will correctly assume the area has a limited number of high speed or dangerous collisions, and thus the premium charged on that auto insurance policy will be low. If the vehicle is actually being driven in urban New Jersey, however, where the rate of accidents is far higher, the possibility of both an accident or injury, and therefore a claim, increases dramatically.

This can lead to insurance companies in Pennsylvania paying out large claims to owners that do not actually drive their cars in the state, let alone reside there. The attorney general for the state of Pennsylvania, Tom Corbett, has stated that over 13 million dollars is paid out every year by honest citizens of the state to compensate for accidents that actually belong to out-of-state drivers registering their cars unlawfully. If allowed to continue unchecked, the premiums of drivers properly registering their cars could increase almost exponentially as other drivers take advantage of online insurance providers and confusing cross-state legislation. Law enforcement authorities in both Pennsylvania and its neighboring states have hastened to assure consumers, however, that they will begin to more aggressively prosecute rate evaders by turning more scrutiny on registration documents, hoping to stem the problem at its source.