6 Types of Car Insurance Fraud

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Every year, insurance fraud causes a huge financial burden for both auto insurance companies and consumers, costing them billions of dollars in losses. The FBI estimates that insurance fraud costs the average household $400 to $700 in premiums each year. According to a 2022 study by the Insurance Fraud Coalition, insurance fraud costs Americans more than $308 billion annually, with auto insurance fraud being a major contributing factor. According to the Insurance Fraud Coalition, nearly 7 in 10 consumers are unaware of insurance fraud tactics, leaving them vulnerable to becoming victims.

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What is car insurance fraud?

Auto insurance fraud is when someone lies or omits information in order to pay less for their insurance or get more for their insurance. Examples of auto insurance fraud can range from simple lies like giving a false zip code on your policy to get a lower premium, to more serious lies like intentionally causing an accident to get a payout. This type of fraud is sometimes called “premium evasion.”

Insurance fraud affects millions of people across the United States, including those who have never been directly involved in a scam. According to a Verisk study, premium leaks cost insurance companies as much as $29 billion annually. This cost to insurance companies is often passed on to drivers, who end up paying higher premiums. Nearly one-third of all drivers believe they have been a victim of insurance fraud, including nearly half of millennials. Unfortunately, insurance fraud is just one type of auto fraud. According to a 2021 study using FTC data, Nevada is the state with the highest number of auto-related fraud incidents, with just over 346 incidents per million drivers. These incidents include false claims about vehicle prices and warranties, exaggerated repair costs, and dissatisfaction with auto repairs.

According to Jim Quigle, communications director for the Coalition Against Insurance Fraud (CAIF), insurance fraud is a “major league crime with a variety of methods.” Even if you’re a daily driver, it’s helpful to know what insurance fraud looks like.

6 Common Types of Auto Insurance Scams

Insurance fraud can victimize unsuspecting drivers who don’t realize they’re dealing with a dishonest agent or repair shop. But drivers can also be held responsible for lying to and defrauding their insurance company. Below are the six most common types of auto-related insurance fraud:

1. Fake Airbags

According to a study by the National Highway Traffic Safety Administration (NHTSA), airbags have saved more than 50,000 lives since their introduction, making them a vital tool for ensuring the safety of drivers and passengers. However, after an accident, there are sometimes cases where deployed airbags are replaced with fake ones during the repair process, which can put people’s lives at risk.

While NHTSA says counterfeit airbags are rare — it estimates they account for less than 0.1 percent of airbags in U.S. vehicles — counterfeit airbags are more likely to malfunction, explode or emit flying metal fragments, posing a danger to the driver and vehicle occupants.

The ease of online shopping through platforms like eBay has helped fuel the proliferation of counterfeit airbags. Additionally, some profit-driven repair shops knowingly opt for cheap, illegal airbag replacements. These practices put vehicle safety at risk, as substandard airbags may not deploy properly in the event of an accident. “Unscrupulous repair shops often replace the bags with cheaper knock-offs, or in some cases, fill the area with junk or trash,” Quiggle says. “Insurance companies pay for the counterfeit work, and drivers end up with an unsafe car.”

The National Highway Traffic Safety Administration (NHTSA) has identified several makes and models of cars affected by the Takata airbag recall, totaling about 67 million potentially counterfeit airbags. To check for recalls, enter your car’s VIN on the NHTSA website.

When purchasing a used vehicle, take the following precautions to avoid the installation of counterfeit airbags:

Obtain a vehicle report or other accident history report from Carfax
Check the airbag light on the dashboard to make sure it is working properly.
Have your vehicle inspected by the manufacturer, especially if the airbags have been replaced at an independent repair shop within the last three years.

Some states, such as California, have laws that make it illegal to replace airbags with defective ones, and the penalties for this fraudulent activity could mean up to a year in prison and a fine of up to $5,000.

2. False Accidents

The National Insurance Crime Bureau (NICB) calls fake accidents a “major incident” that drivers should know how to identify and handle. A fake accident includes any accident in which a driver intentionally or strategically causes a collision with another vehicle in order to fraudulently receive insurance benefits. The facts of the accident are often exaggerated or misrepresented to make it seem like the unsuspecting driver was at fault.

Fake accident claims can result in claims ranging from $2,000 to $10,000, but some fraud rings conspire to receive much larger amounts, totaling hundreds of thousands of dollars. For policyholders in South Carolina, which ranks seventh in the nation for fake accident cases, these schemes increased premiums by about 8.9 percent at the state’s 10 largest insurance companies. The FBI estimates that fake accidents cost insurers as much as $20 billion a year. According to the Insurance Fraud Coalition, fake accidents are estimated to account for about 10 percent of losses related to property damage or injury.

According to the NICB, common types of spurious collisions include:

Swoop and crouch: The two vehicles pinned the victim in place, resulting in a rear-end collision.
Drive Down: While waiting to make a left turn, the victim is tricked into turning early by an oncoming driver, who waits to let them move forward before colliding with the victim.
Wave: The officers waved to the victim to let him know it was safe to pull out of a parking lot or side street where visibility was obstructed, causing two vehicles to collide with the victim.
Enhanced Damage: After a legitimate accident, a non-negligent driver will cause additional damage to your vehicle, increasing the amount of your claim.
Panic Stop: One car will brake suddenly, strategically luring the distracted car behind it into crashing into it.
Sideswipe: A driver attempts to sideswipe another vehicle in the inside left turn lane of a two-lane left turn intersection.

If you suspect you may have been involved in an accident, the NICB recommends recording the extent of damages and the number of passengers involved in the accident in case a false claim is made. It also urges you to be wary of anyone offering unsolicited advice or services, such as medical or legal advice after an accident or towing services.

3. Agent Fraud

While most insurance professionals are honest, you could end up losing money if you purchase car insurance through an agent who may commit car insurance fraud.

According to the CAIF, one of the worst-case scenarios is when a dishonest insurance professional steals your premiums. The unscrupulous agent pockets your money and doesn’t set up coverage. So when an accident occurs, you find yourself without insurance to pay your claims and having to cover the loss yourself. This is sometimes called premium embezzlement, and the FBI says it’s one of the most common forms of insurance fraud.

Another common tactic is called “sliding,” where unethical agents slip extra coverage into your policy that you don’t want. This particularly sneaky car insurance scam can add hundreds of dollars to your premiums each year while inflating the agent’s commission. Cautious drivers who research agents in advance and pay close attention to what they buy are less likely to fall victim to a sliding fee scam.

To prevent insurance premium theft, drivers should work with a trusted agent and always review coverage with the insurance company separately. Here are some ways to find a trusted agent:

Ask for a reference: To evaluate an agent’s professional standing, consider requesting references to verify their track record.
Check the agent license: To verify an insurance agent’s license, check your state’s licensing database or use the National Association of Insurance Commissioners’ (NAIC) Insurance Agent/Broker Finder tool.
Comparison advice: As with comparing quotes for car insurance, it can be beneficial to seek advice from multiple agents and evaluate their recommendations. If an agent’s guidance differs significantly from that of other agents, it’s worth questioning the reliability of the information provided.
Research complaints: A reputable insurance agent will usually have information about their employment history available to you. When doing your research, you should also find out if any complaints have been filed against the agent and how serious those complaints are.

4. Windshield replacement scams

Windshield replacement deductibles vary by state, insurance company, and policy. However, three states – Florida, Kentucky, and South Carolina – don’t allow insurance companies to charge a deductible for windshield replacement. Unscrupulous glass replacement companies in these states use this opportunity to trick customers into replacing their windshields even when the damage is minor.

This scam is especially prevalent in Florida, where drivers are randomly approached at car washes, gas stations and shopping centers and lured with gift cards to sign fake assignment of benefit agreements (AOBs) that allow shady contractors to handle the repair and claims process with insurance companies. Windshield AOBs were banned by Florida Senate Bill 2A of 2023. But unscrupulous contractors continue to prey on Florida drivers using quasi-AOB contracts called “payment instructions” agreements that allow contractors to handle glass claims.

This leads to six-figure settlements for simple windshield repairs that should have cost just $200-300. According to the Florida Institute for Justice Reform, approximately 27,000 AOB windshield repair lawsuits were filed against Florida auto insurers in 2020. The National Insurance Crime Bureau tracked an 8,650 percent increase in windshield replacement fraud in Florida between 2006 and 2019. The problem is only getting worse; the Florida Department of Financial Services reported that 46,000 auto glass lawsuits were filed in 2023.

According to Farmers Insurance, windshield replacement offers are almost always scams. And the risk may be greater than many people realize. For starters, the quality of replacement windshields and repair work is usually substandard, which can put your safety at risk when driving your car. The scam can also have a negative impact on your insurance coverage, leading to higher rates or non-renewal of your policy, Quigle says.

Experts say your best bet is to decline the offer. If you need a windshield replacement, contact your insurance agent or insurance company to report the loss. Find out if your insurance will cover it and arrange for a legitimate company, such as Safelite (which contracts with many national and local insurance companies), to come to your home or business to repair or replace your windshield.

5. Towing scams

At first glance, a tow truck that shows up after an accident or breakdown seems like good luck. But if you didn’t call a tow truck, it’s more likely to be what authorities call a “bandit” tow truck. Bandit tow services will ask you to bring your car to their shop and then ask you to pay hundreds of dollars to repair and return the car to them. The NICB warns that such scams are especially prevalent in big cities like Chicago and Houston.

A study by the American Transportation Research Institute found that the most common forms of towing fraud are excess and unnecessary fees, with most consumers falling victim to these scams. The study found that more than 80% of drivers experienced both, and roughly 30% of accident-related tows involved predatory billing practices.

Based on an independent analysis of complete records of original towing invoices from motor carriers for 2021, 2022 and 2023, the report found that 29.8% of collision-related tows involved some sort of “predatory billing.”

Be wary of any towing service that won’t provide you with any information about themselves, their services, or how they found out about the accident. There are some simple ways to protect yourself from becoming a victim of these scams.

Please contact your insurance company: If your car insurance company dispatches a towing service, details will often be provided so you know who is coming. If the details provided don’t match the towing service that arrives, consider calling the police or waiting until the correct service comes.
Request a printed receipt: It’s a good idea to get a printed invoice before you have your car towed, which should include an itemized breakdown of the towing service, storage, and other extra fees.
Choose your destination: A fraudulent towing service will likely require you to tow your car to their shop, but they should offer you the option to tow the vehicle to your desired destination.
Please avoid sharing your insurance information: Giving your car insurance details to a fraudulent towing company could allow them to take further advantage of you and your insurance.

6. Tax evasion on auto insurance premiums

When it comes to insurance fraud, policyholders aren’t always immune. According to the Insurance Information Institute, some drivers willfully deceive insurance companies by using fake addresses in areas with lower insurance rates when registering their cars.

Another example of auto insurance fraud is intentionally not adding a new driver to a household. For example, some policyholders intentionally do not add one driver (usually a teenager) to their family policy to avoid higher premiums. According to Triple-I, insurance fraud costs the average U.S. household between $400 and $700 in additional premiums per year.

Details about your personal information, vehicle information and driving history are often crucial to getting an accurate insurance rate and avoiding breaking the law. This includes your postcode, vehicle registration, past accidents and more.

What other types of auto insurance fraud are there?

Car insurance fraud can take many forms. The essence of most types of car insurance fraud is to extract more money from the insurance company than would normally be the case. Here are some examples of fraudulent activities:

Fee evasion: Premium evasion occurs when an individual provides false information, such as lying about the mileage of their vehicle, or manipulates circumstances to obtain insurance at a lower premium than they should legitimately pay.
False claims: A false claim occurs when an individual fabricates or exaggerates facts in order to obtain insurance benefits for an accident that did not occur or for damages that are unrelated to the covered event.
Retroactive application: Filing a claim before the policy is in effect is a breach of the policy.
Fake a stolen vehicle: This is done to report a vehicle that is not stolen as stolen to your insurance company in order to receive compensation for the loss.
Exaggerating or falsifying an injury: If you are in an accident and your insurance will pay a portion of your losses, it is fraud to exaggerate or fabricate the extent of your injuries after the accident in order to claim a higher amount of compensation.

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Tips to avoid car insurance fraud

Knowing that auto insurance scams exist is the first step, and to protect yourself, it helps to know some additional ways to avoid these scams.

Select the original manufacturing part: When repairing your car, be sure to avoid counterfeits and cheap replacements.
Document all incidents. This includes damages from the accident, police reports, and bills, which may be useful in dealing with future claims disputes.
Watch for unusual behavior: If anything seems suspicious, consider calling the police. For example, a passenger or mechanic who asks for personal, insurance or payment information from you without providing much information about themselves may be a cause for concern.
Keep your vehicle insurance information private: Aside from dealing directly with insurance companies and processing formal claims and reports, you may also need to be aware of other parties requesting information about your insurance policy.
Check the legitimacy of the agent and insurance company. Scammers may pose as insurance agents, agents, or insurance companies to sell you fraudulent insurance. Before providing any personal information or payment details, you can use your state’s insurance database to check whether the agent and insurance company are genuine and licensed.
Practice defensive driving: Driving defensively can reduce your risk of being involved in an accident or unintentionally becoming the victim of car insurance fraud. Keeping a safe distance between your car and the driver in front of you, driving the speed limit, and being observant of your surroundings can reduce the chance of an accident.
Please double check the price: Be skeptical of rates that seem too good to be true. If you receive a quote for car insurance that is much cheaper than the competition, it could be a scam or a policy full of exclusions that you won’t be aware of until you take out the policy.

Insurance fraud can catch you at your weakest moment, such as during an accident or breakdown. Be sure to carefully check the qualifications and customer reviews of anyone you work with. Also, remember that lying to your insurance company can void your policy and cause your claim to be denied. In some cases, you may even be subject to criminal charges.