Auto Insurance Fraud: How to Avoid or Deal with Car Insurance Fraud

February 15, 2012

Learn to recognize signs of car insurance fraud, in the form of phony car accidents and thefts, before you get caught in the crossfire.

Contract Violation

Car insurance fraud is a reality that all drivers should be aware of. Thankfully, 95 percent of drivers file insurance claims honestly and with no intent to commit fraud, but don't let yourself be caught off guard, thinking the small percentage of insurance con artists could not possibly affect you. Fraud raises auto insurance costs for honest customers, and for that reason alone people should educate themselves about the possible scams that are out there. As a driver, you are responsible for paying attention to your surroundings while in your car. By following the rules of the road, using your common sense and not engaging in high risk activities such as cell phone use, applying makeup or being otherwise distracted, you will go a long way in helping yourself avoid accidents in general and falling victim to car insurance scams.

Fraudulent Accidents

It can happen during mid-afternoon traffic, on a busy interstate or on a freeway. Once the accident is over, the blue collar criminal work is done. Now, the white collar criminal work begins. It starts with the doctors, therapists, auto repair shops and lawyers all getting their share of the payout from a staged car accident (paid by insurance companies). But ultimately, the cost is passed on to individual drivers. The best way to avoid being scammed is to be an alert, defensive driver, but being aware of some of the scams helps too. When you drive, watch out for 3 in particular: the swoop and squat; the side swipe; and the panic stop.

Swoop and Squat
The swoop and squat usually involves 2 automobiles in on the scam and a third who is the victim. The first of the con cars is the "squat" vehicle, positioning itself in front of the victim's car. The second vehicle is the "swoop" car, which pulls ahead of both vehicles and swoops in front of the squat car. The squat car applies its brakes suddenly, and causes the victim to smash into the rear end of the squat car. The swoop car drives away, while the victim and the driver of the squat car exchange information. Rear end collisions are almost always the fault of the car in the rear, and even though the victim may tell the police officer about the swoop car, there is nothing that can be done. The victim is then forced to pay for any damage and/or personal injury, of which there is sure to be some.

Side Swipe
At large intersections with 2 left-hand turn lanes, the con artist positions their car in the outer of the 2, while the victim turns left from the other lane. As can happen, a distracted left-hand turner may drift into the other turn lane, at which point the con artist side swipes their automobile. At busy intersections, a con artist can plausibly deny any wrongdoing, even if they were the driver who drifted lanes. Once again, an unknowing victim may end up scammed and ultimately liable.

Panic Stop
The panic stop works in much the same way as the swoop and squat, although there isn't necessarily a swoop vehicle. A scammer pulls their car in front of a potential victim. There are passengers in the scammer's car who keep watch for any signs that the driver behind them is distracted, such as cell phone use. The passenger then lets the driver know that their victim's eyes aren't on the road. The driver slams on the brakes, resulting in a rear-end collision. As with the swoop and squat, the rear driver is at fault, despite the excuse that the front car suddenly stopped for no apparent reason, leading again to damage or personal injury liability for the victim.

The best way to avoid these types of auto insurance scams is to remain alert when driving. Don't take your eyes off the road, especially when you are in heavy traffic. Obey the speed limit and follow the 4-second rule. The distance between you and the car in front of you should be at least 4 seconds. That means it should take you that long to reach the car ahead of you should you have to stop suddenly.

Auto Insurance Fraud Car Theft Schemes

Many schemes involve supposedly stolen cars.

Owner Give-Ups
With this scam, the owner of a car lies about their car being stolen. Meanwhile, the owner arranges for the car to be destroyed or irretrievably hidden. After claiming the car was stolen, it is often found later burned out, at the bottom of a lake or even buried.

30-Day Specials
If an owner can hide their vehicle for 30 days, it may be long enough for it to be fraudulently reported stolen and the owner to claim the insurance settlement. Like the owner give-up, the car is often found later after having been abandoned.

Export Fraud
A more complicated scam, a fraudster gets a bank loan for a car, makes the purchase and obtains insurance for it. Then, the owner reports the car stolen to a domestic law enforcement agency, but really ships the car illegally overseas to sell on the black market. The crook not only collects the insurance money for the stolen vehicle, but they usually realize a profit from the illegal sale.

Phantom Vehicles
Perhaps the boldest scam, when one forges a title and registration to insure a vehicle that does not exist. Then the phantom vehicle is reported stolen, and the owner files an insurance claim to collect the proceeds.

Other Forms
Another form of fraud is claiming an accident was a hit and run. For example, you hit a pole and damaged your car. If you say it was a hit and run, you attempt to get away with fault. One last form is when you include things that were wrong with your car before the accident in with the claim. This is illegal and considered "soft" fraud.

What to Do

If you see a staged car accident, call the police or the National Crime Bureau at 1-800-835-6422. Many insurance companies have a unit within the company that specializes in dealing strictly with suspicious accidents or thefts.

If you think you have been involved in a staged auto accident, here are some tips to help you protect yourself:

Write down the car make, model and license plate numbers right away, as a precaution if they leave the accident scene.

Call the Police Right Away
Even if the other driver just wants to exchange papers and drive away. This is your best defense against someone committing a fraud against your insurance company. Drivers who are in a hurry are often hurrying for a reason. They want to be out of your sight as quickly as possible, many times contacting their attorneys while you simply drive home.

Contact Your Agent
As soon as you are off the phone with police-even before they have arrived, in fact-contact your insurance agent with details of the accident, including the fact you have some backup images "just in case." Don't settle the claims for cash.

Take Pictures
If you have a cell phone with a camera, take a picture of the offending car. Document all damage and "injuries" that might have occurred. This may seem harsh, but many times fraudsters will contact their attorneys, who set up the person with a doctor and will provide a list of "injuries." If you have pictures of the other victims smiling and laughing with you after the accident, it is hard evidence to refute, and is often an indicator that fraud is taking place.

File Reports on Time with the Police
This is one that you know that others involved in an auto insurance scam will be doing. They will be filing reports, visiting doctors and other specialists and possibly working with auto body shops, to ensure that their side of the scam works to the fullest.

Watch Your Mail
If you are unaware that auto insurance fraud is taking place, and that they are using your accident as part of their plan, you may receive a summons to court to "show cause" why an action should not be started against you or your insurance company for injury and damage to vehicles involved in the accident. If this happens, contact the police in the jurisdiction where the summons may be issued, to let them know you will work with them if this is a scam.

Answer All Summonses
If summoned to court, be sure you are there with your own attorney or your insurance company's attorney, as well as with all documentation, photos and any other information you may have. Suddenly the other side might request a delay in the case, if you have your information, because this is something they were not expecting.

Get in Touch with the State Fraud Bureau
Each state has a local fraud bureau that collects information about car insurance fraud and other scams, and keeps consumers updated on what to do. Most fraud bureaus deal with all kinds of scams, but check with each state to get additional details. You can find an updated list of local fraud bureaus here.

Contact the National Insurance Crime Bureau
The National Insurance Crime Bureau collects statistics about the scams that are making the rounds. This is an independent agency run by the insurance industry, and you can contact them at their toll free number: 1-800-835-6422.

Register a Complaint with the State Insurance Commissioner
Ensure that you register a complaint with the agency as soon as possible. Call them at the designated call center, and they will get back to you after reviewing your paperwork. The process can be long and complicated, so have patience. You can get in touch with each individual state insurance watchdog agency here.

Each agency requires detailed information about the scam. If it was a phone call scam, try to provide telephone numbers, paperwork and other details to each agency that you get in touch with. Remember that there is a very low chance of getting your money back in a case of auto insurance fraud, and you will have to very patient.

With a little information and the right precautions, you can help yourself avoid the additional costs that staged auto accidents and car insurance fraud can end up costing you and your insurance company.