Why Fraud Costs The Automobile Insurance Industry Millions
Fraud costs the automobile insurance industry millions and millions of dollars every year. This cost is part of automobile insurance rates. Aside from the increased costs of parts and labor, automobile insurance rates include the cost of doing business. And fraud increases the cost of doing business.
Automobile insurance fraud includes anything from exaggerating the amount of damage to causing property damage intentionally. Filing more than one claim for damage that has already been paid is another way people steal from an insurance company. It has been estimated by the Insurance Information Institute that insurance fraud accounts for 10 percent of the industry's incurred losses. It is probably higher.
This is in part because automobile insurance fraud is hard to detect, especially in instances of over inflated damage reports or when the vehicle is initially insured for an inflated value. In these cases the theft means the insurance company paid more money than was actually owed.
Part of automobile insurance fraud involves claims for physical injury. This is even harder to detect. It is virtually impossible to prove someone is not experiencing pain. This type of fraud can occur when the thief intentionally causes an accident to "get hurt" and then files a claim against the policy holder's insurance. And to increase the amount of money collected they will claim injury to someone not even involved in the accident.
Most fraud is committed by individuals. They over inflate their claims, for example. But some fraud is perpetrated by organized crime rings. From obtaining the automobile insurance to claiming more damage to charging more for the repairs to exaggerating injury, everybody involved in the effort to steal the money gets a kick-back. While this type of fraud is committed less often it results in higher losses per claim.
Due to the sheer number of claims filed daily, it is impossible to thoroughly investigate every claim. It is also impossible to thoroughly investigate every policy. The costs of trying to do this would bankrupt the insurance company. Therefore a lot of fraud is undetected. Systems are set up to detect most types of fraud. The automobile insurance industry looks for red flags and follows up on them. This takes time and money as well.
Fraud hurts everybody in the end. But it especially hurts when it causes increased costs or worse intentional bodily harm. There really is no way around it. In order to stay in business an automobile insurance company must make more money than it pays out. When that insurance company is paying fraudulent claims they are losing money. And in the end everybody pays with higher automobile insurance rates and more restrictive policies.