Auto insurance fraud hits drivers’ wallets hard, not only with the apparent increase in premiums but also indirectly, through higher costs that are eventually passed down to consumers. A recent story on Fox Business reported about the heavy toll this type of fraud takes on many Americans.
According to the National Insurance Crime Bureau’s (NICB) 2013 report, 78,024 suspected cases of auto insurance fraud were reported nationwide in 2012, an increase of 12.7% from 2011 to 2012. Those numbers helped to raise a three-year total—from 2010 through 2012—to more than 209,000 questionable claims (QCs).
Out of all the types of insurance fraud, auto insurance makes up the largest piece of the fraud pie, the NICB says. There were 4.5 times more questionable auto insurance claims than homeowners’ personal property QC’s (17,183), and almost 17.5 times more than the third-highest category—workers’ compensation, including employers’ liability.
Industry studies have estimated that almost a quarter of the bodily injury claims related to auto accidents are false. In addition, there is almost a 10 percent fraud rate for property and casualty claims made against auto insurance.
This adds up to about $200-$300 per year in extra costs on each auto insurance premium. But, these are just considered direct costs. As far as indirect costs, the Texas Department of Insurance estimates that they add up to about $1,000 per family each year. These costs are the portion of inflated expenses that businesses have to pay to insurers as a result of fraudulent crime. This portion translates into increased costs of goods and services that are passed along to consumers.
In addition, hard fraud, or when the insurable event is fabricated outright or a staged accident, appears to be on the rise and feeds into auxiliary hazards of auto insurance fraud. Because staged car crashes often exploit people who happen to be in the wrong place at the wrong time, these victims unintentionally become involved in the accidents or in the subsequent series of events, which can have severe consequences such as injury or even death.
According to the Fox News story, there have been numerous incidents where staged accidents have spiraled out of control, resulting in critical injuries and fatalities. Although the instigators of these types of accidents have been prosecuted, it does not end the motivation to engage in auto insurance fraud.
Overall, the Coalition Against Insurance Fraud estimates that the total cost of fraudulent claims is in the range of $80 billion annually. The group has found that claims tend to rise during difficult economic times, which was evident during the recent recession.
The NICB has a toll free hotline to report fraud anonymously for further investigation. The number is 1-800-835-6422 or 1-800-TEL-NICB.