Five ways that car insurance fraud affects you

Brian O’Connell

State and federal authorities have seen a spike in car insurance fraud. How does that affect drivers? Right off the bat, it hikes drivers' car insurance rates – but that’s just for starters.

Here are five ways that car insurance fraud can hit your wallet:

1. Car insurance fraud boosts car insurance rates. The more fraudulent claims that insurance companies must pay, the higher the rates they have to charge to the rest of the public. “Insurance rates are established after considering a number of factors in an area, claims activity being one of them,” says Frank Scafidi, a spokesman for the National Insurance Crime Bureau.

2. Car insurance fraud raises your taxes. Scafidi says fraud diverts law enforcement resources -- manpower and money -- away from situations like auto accidents and robberies. "That’s just a waste of taxpayer funds that goes beyond just drivers," Scafidi says.

3. Car insurance fraud bumps up legal expenses. When insurance companies have to spend money on legal costs related to insurance fraud, they pass those costs on to consumers. “Time wasted fighting bogus claims in court eats at insurance company resources -- that leads to higher premiums,” Scafidi says.

4. Car insurance fraud boosts medical costs. Insurance thieves who file phony accident claims to cover non-existent injuries wind up raising the medical costs for others.

5. Car insurance fraud jacks up auto repair costs. Scafidi says car insurance scammers who sell their vehicles for parts or who file false stolen-vehicle claims can increase the price of car repairs and the value of vehicles in a certain area.

Joe Wehrle, president and CEO of the National Insurance Crime Bureau, has pointed out that insurance fraud "is not a victimless crime." For instance, car insurance fraud and abuse in New York "cost the state's honest drivers and their insurers" an estimated $204 million in 2010, amounting to a "fraud tax" of $1,311 per claim, according to Loretta Worters, vice president of the Insurance Information Institute.

Across the country, car insurance fraud is on the upswing. According to the National Insurance Crime Bureau, questionable insurance claims (including those involving cars) were up 24 percent from 2008 through 2010. The bureau defines questionable claims as those that insurers refer to investigators "based on one or more indicators of possible fraud.”

No shortage of scams

What are the other “favorite” ways that insurance fraud criminals try to make a buck? The National Insurance Crime Bureau reports these forms of fraud are at the top of the list:

Staged accidents. In “staged” accidents, insurance fraudsters typically stop all of a sudden in front of another vehicle, triggering an accident. The rear-end collision is among the toughest for insurance claims investigators to disprove.

Fake theft. A vehicle owner seeks to make a quick buck by arranging to have his car stolen, an then files a claim with the insurance company for a car that actually isn't gone.

Claim padding. A fraudster inflates the bill at a body shop, at a tow shop or in the claim adjustment process, and then pockets the excess money.

"Fraud is only limited by the imagination of those who engage in it," Scafidi says.

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