June 2, 2011

The Growing Cost Of Car Insurance Fraud On Insurance Premiums

Car insurance fraud is rife, which ends up costing everyone money. According to industry statistics, it is estimated that more than 25% of car insurance claims contain suspected fraud, although claims fraud is only one aspect of many types of cheating going on in the auto insurance industry. The result of all these types of dishonest activity is that everybody eventually ends up paying higher car insurance premiums, since the insurers must somehow recover their losses.

Car insurance fraud can be separated into two distinct types: hard and soft fraud. Hard fraud occurs when someone purposely creates a loss covered by their insurance policy in order to collect money from their insurer. Examples include staging collisions, theft or fires of one's insured vehicle. The motivation is always monetary and hard fraud is often perpetrated by career criminals.

Soft fraud, which is more common and sometimes referred to as 'opportunistic', occurs, for example, when an otherwise legitimate claim is 'padded' with exaggerated information relating to a loss. Someone may claim car repair costs in excess of what was actually paid, or report injuries and medical costs that are actually nonexistent. Billions are paid out every year on claims of this type, resulting in increased car insurance premiums for everyone paying on a policy. Some fraudulent activities such as staging an automobile accident can also represent a real danger to innocent third parties who are guiltlessly affected by the ruse.

Another type of car insurance fraud that has been making its presence known in the past few years revolves around counterfeit insurance cards and bogus policies. With car insurance sales becoming so prodigious on the Internet, the door has been left open for untold numbers of scammers to sell policies that appear to be the real thing but end up being worthless. Many drivers who thought they had gotten a great deal on their car insurance coverage learn too late that they have no coverage at all and have been paying premiums to a sham company whose only function is to bilk funds from unsuspecting victims.

Since nearly all states require drivers to carry at least a minimum amount of liability coverage in order to operate a vehicle on public roads a new type of fraud has appeared which, again, is causing everyone else's car insurance premiums to escalate. When a driver is pulled over by a police officer on a traffic stop he or she will likely be asked to produce proof of insurance (insurance card). There is an underground industry focused on providing dishonest drivers with fake insurance cards so they are able to appear to be covered when, in fact, they are not.