Your car is probably one of your most important and expensive possessions; insuring it against damage and theft is a crucial part of protecting yourself financially. But if you're not careful, you can run into trouble before you've put your first 100 miles on the odometer.
The National Insurance Crime Bureau (NICB) reports that insurance fraud is the second most costly form of white-collar crime in America, costing billions of dollars annually. Insurance can seem intimidating and complicated to policyholders, and scammers see car insurance as an easy way to make money off of people's ignorance. Whether by lying outright or exaggerating the truth, a scam artist can con car owners and insurance companies out of thousands of dollars.
Fortunately, numerous organizations work to prevent and report insurance fraud. Educating yourself about how insurance scams work can make it hard for a criminal to target you.
Common Car Insurance Schemes
Car insurance scams can happen at any point in the process of purchasing and using your policy. Here's a primer on the main types of insurance fraud.
As soon as you buy your first car, you're a target for scams. If an insurance agent is crooked, he can steal your money outright by failing to set up the insurance plan he promised you and keeping your payment instead. If you get into an accident, you'll have to pay the costs yourself.
Other agents sneak extra coverage you don't want into your policy. "Sliding," as this practice is called, can add hundreds of dollars per year to your payments, which lets the unethical agent walk away with a fatter commission.
"Scammers typically use fear [and] confusion and will pressure consumers to rush," noted a spokesperson from the National Association of Insurance Commissioners (NAIC) via email. "They won't invite you to shop around for the best deal or help you verify information using official sources. Remember, they may not be scamming for money alone. They may try to collect information like social security numbers and birthdays [that] they can later use to create credit card accounts."
First-time car buyers, like students, may be especially vulnerable to this kind of scam. Unethical agents may also target women, people with disabilities and others who they believe will try to avoid confrontation.
The best way to avoid agent fraud is to vet the agent carefully. Don't let anyone bully or rush you into signing an agreement before you're ready, and confirm your coverage through the insurance carrier.
Fake Injury Claims
Maybe you're in a rush one day, trying to run a few errands and get home. In a moment of distraction, you get into a fender bender in the parking lot. Then, days later, the other driver claims whiplash or other injuries.
Fake injury claims can spike your premium payments. Parents may be a target for this kind of scam, since a criminal may see them as distracted and eager to resolve the situation.
Report any car accident to the police, even if it's minor. It may be a hassle at the moment, but you'll be better protected if you have a police report to provide an official account of the scene.
Fraudulent Car Repairs
Most of us drive, but not everyone knows their way around under the hood of a car. Unethical mechanics take advantage of customers' ignorance by charging top dollar to install substandard parts. Fraudulent car repairs can be costly and dangerous.
The fix? Only take your car to a reputable mechanic. Check the Better Business Bureau website or your insurance company's recommended list to find a trustworthy body shop.
Staged accidents are intricate schemes. The accident itself is carefully choreographed, and fake "witnesses," doctors, and legal advisors may provide phony testimony or advice. Their combined efforts make it difficult for the innocent driver to prove what really happened. Here's how some of the most common staged accident schemes work:
The "squat" car drives in front of the victim. A second car cuts the "squat" car off suddenly, causing a rear-end collision when the victim can't brake in time, and "swoops" away after the crash. A third car may block the victim from changing lanes to avoid the crash. Without being able to demonstrate that the "swoop" car was responsible for the crash, the blame falls on the victim.
The criminal waves the victim to turn or merge, then speeds up enough to cause a crash.
In some intersections, the borders of the inner and outer turn lane are unclear. The fraudster positions himself in the outer lane, then sideswipes the victim's car as he turns. Because of the ambiguous lane division, the perpetrator claims the victim caused the accident.
A team of con artists fills one car and they slam on the brakes in front of the victim. The passengers in the criminal car claim phony or exaggerated injuries. Since it's a rear-end collision, the victim is still considered at fault. The NICB reports that some criminals even purposely hit or cut themselves before running a staged collision scam.
Captain Tom Didone, Director of Traffic for the Montgomery County Police Department in Maryland, said it can be difficult for officers to distinguish a staged accident from a natural one.
"Every time we go to an accident," he said, "there are usually several perspectives that are in conflict. Unless there was a witness, I think it would be difficult for an officer to decide [who's telling the truth]." Collecting as much information as possible at the scene of the accident can help you win your case.
The Bad Samaritan
If you get in an accident, beware of people who approach while you're waiting for the police to arrive and file a report. These "helpers" might be predators.
Scammers pretend to be lawyers, doctors, or third-party insurance agents/consultants. They try to get your personal information so they can file fake insurance claims on your policy. This can lead to raised premiums or even loss of insurance coverage for you.
Over-eagerness to help is a red flag for such scams. Watch out for people who try to convince you to take an ambulance when you're not hurt, attempt to draw you away from the police, or ask a lot of personal questions, especially about insurance.
How to Protect Yourself Against Car Insurance Scams
Fortunately, you can protect yourself against scams by taking some easy precautions. The NICB offers the following advice:
Drive carefully, especially when it comes to keeping distance between yourself and other cars. Tailgating limits your ability to react in time to prevent a crash.
If you get in an accident, even a mild fender bender, call the police and request an official report with the officer's name. This makes it difficult for scammers to damage their car after the accident takes place and file a larger claim.
Take photos and plenty of notes. Get pictures of any damage to the cars and photos that show the angle of the accident if you can. Try to take photos of the other people involved in the accident.
Watch out for "friendly" tow trucks that stop at the accident scene before you've called for help. Some unscrupulous drivers may tow your car at an inflated rate. Call AAA or another reputable service if your car needs to be towed.
Be wary of bystanders who show up quickly and try to convince you to contact a particular lawyer, insurance agent, or doctor.
If you suspect you are being targeted for an insurance scam, tell your insurance company and the officer who arrives at the scene.
Report suspected scams to the NICB.
Certain demographic groups may be targeted for scams more often because criminals think certain people are easier to intimidate. They are also drawn to targets that may net them more money. These higher-risk targets include:
- Luxury car drivers
- Drivers operating work vehicles or big rigs
Being part of one or more of these groups doesn't necessarily mean you'll be victimized, or that you really are an easier target than anyone else. Staying vigilant and taking recommended actions to protect yourself can keep a scam attempt from succeeding.
Spotting and avoiding insurance scams can feel daunting. James Quiggle, director of communications for the Coalition Against Insurance Fraud, talked to MoneyGeek about the best anti-scam strategies.
What are the most common car insurance scams that people should be aware of?
"Certainly repair scams. Dishonest body shops will install knockoff airbags that don't deploy in a crash. People have died in crashes where airbags didn't deploy properly."
How would you know if someone installed a faulty airbag?
"Don't try to open the airbag compartment yourself. It could blow up. When you're buying a car, have a certified airbag mechanic check out the airbag compartment for you. Also, look for the dashboard light. It should go on for a few seconds when you start [the car], and that means the system's working." A light that blinks, stays on for a long time or never comes on at all can signal a problem, he said.
What kinds of unscrupulous behavior should people look for in car insurance agents and other motorists?
"Most agents are honest, but a disturbing number are unethical. A big problem with crooked agents is stealing their clients' premiums without buying the policy. This can leave drivers and passengers dangerously exposed. When you buy coverage, contact your insurance company just to confirm that you have coverage...That can be a check and balance against the theft of your premium."
How can I avoid becoming the victim of a scam?
"Your insurance company should have a list of preferred body shops. These are honest, trustworthy shops that provide quality service at a decent price. Make sure that you have a written estimate. Do this before you authorize repairs."
Quiggle warns against "too good to be true" deals as well. "Some body shops will offer to waive the deductible in order to lure you into doing business with them. Why would a legitimate body shop need to stoop to that tactic? I'd also recommend checking out the repairs. Ask them to show you exactly what was done. Check out the bill. Is it detailed? Does it conform to what the estimate said?"
Ideally, we'd never get into accidents. If we do, what should we do if we suspect it might be a staged
"Take out your cell phone and take pictures of the accident scene. Take pictures of the claimed damage. Is that car full of passengers or is it empty? Call the police, see if you can get them to come to the scene." If the accident is minor, Quiggle said, an officer might not be required to come out, but you may still be able to get an official report. "Go to the station if you can and see if they'll bother with it. This is why you need your photographs of the scene."
Accidents are unnerving, but it's important to stay calm.
"Don't get confrontational. Stay cool and professional." Then, he says, collect license information, the other car's plate number, and names and other contact details for all the passengers. "You're building a strong evidentiary case that this was a minor bumper bender that shouldn't lead to expensive whiplash claims."
Are there any groups that are targeted more often car insurance scams?
"For staged crashes, seniors sometimes are targeted. Crooks perceive seniors as easily confused, forgetful and distracted drivers. Mothers with kids in their car are another target, [as is] anyone talking on a cell phone...the crash artist might assume the driver is distracted and not paying attention to the road. That looks like an easy setup."
What to Do If You Become a Victim of a Scam
Car insurance scams can be incredibly stressful. If your vehicle is totaled, or you discover after an accident that your insurance policy is phony, your mobility and finances can take a hit.
Alert your insurance agent
Quiggle urges people to report suspected fraud.
"Share your concerns with your insurance company and with your state insurance department. They may launch an investigation if you have compelling evidence," he said, such as $80,000 in claimed medical bills from a 2-mph fender bender in a parking lot.
Alerting your insurance company representatives to your suspicions is important. They are the ones who will cover your damages, so the sooner they understand what happened, the sooner they can work to resolve the problem. Ask the representative what your options are for getting reimbursement for a rental car if you need one, or replacing expensive safety equipment like infant car seats.
Collect detailed records to confirm your account of what happened. Set up a filing drawer in your home to store important information about your car. Keep the following records in a safe place:
Your insurance policy
Premium payment records
Copies of estimates and bills from mechanics
Notes and photos from the scene of any accident involving your car
A copy of an accident report from a police officer, if you can get one
Whether you're concerned about an insurance agent, mechanic or accident, your records may determine your ability to prove unethical or criminal behavior.
Report the scam
The NAIC and the NICB, among other organizations, also collect reports of fraud. Check out the Resources list at the end of this article to learn more about reporting a scam.
Depending on the damages you've suffered and your documentation of the scam, you may be able to pursue legal action against the scam artist. Before you rush to file a lawsuit, however, talk to a lawyer about whether your chance of success is worth the time and effort.
"The standard is the preponderance of evidence beyond a reasonable doubt. If you are in a crash and people are injured and you don't have coverage [due to agent fraud], you may have grounds for a civil suit," Quiggle said. "A lawyer can advise you on whether a suit makes sense."
Learn more or report a fraud attempt with these resources:
Look up your state's insurance commissioner to report a fraudulent insurance agent.
The FBI reports data on some of the most common types of fraud and suggests avenues for victims to report crimes.
This organization collects data on insurance fraud and educates the public on how to spot and report scam attempts.
Learn how to pursue a lawsuit, if that is the best option for your case.
Find valuable information and report fraud through this non-profit organization's website.
The American Automobile Association (AAA) automatically directs you to the site for your region. If you are a AAA member, you may wish to contact an agent about suspected scams.
WreckCheck is a mobile app offered by the NAIC. Android and iPhone users can access a step-by-step guide to what to do if they have a car accident.