5 Common Ways Insurance Fraud Can Happen

Across the country, consumers lose more than $300 billion annually to insurance fraud. For most families, that is an average of $400 to $700 in additional premium costs each year.

Auto insurance is one of the most common types of insurance coverage, and one that often presents an opportunity to unknowingly commit fraud under innocent circumstances.

Most insurance customers are honest and do not set out to commit fraud.

Here is a look at some auto insurance fraud scenarios that commonly occur:

Rate Evasion

While fudging on an address might seem harmless enough, it is a practice known as rate evasion, and it is considered a form of insurance fraud. With rate evasion, people claim to live in another state or county to reduce their insurance rates.

Padding, Inflating and Embellishing

Padding or inflating an insurance claim involves increasing the amount of the claim by a small amount to make up for the deductible or increasing the amount of an insurance claim loss to profit from the loss.

Policy Misrepresentation

Car insurance misrepresentation occurs when someone is not truthful on their auto insurance application. Examples of car insurance misrepresentation include applying for insurance under a false identity or omitting information about a previous car accident.

Fronting

Fronting in car insurance is when someone, often a parent or older driver, claims they are the main driver of a vehicle when in fact it is a younger or more inexperienced driver who will be using the car the most. Insurance companies assign each car to one primary driver, and they use the primary driver's driving record and risk profile to calculate its rates.

Premium Theft

Premium theft occurs when an unsuspecting shopper/customer purchases auto insurance from an individual unlicensed or otherwise not permitted to do so. Instead of providing coverage, these agents pocket premiums. Should the driver ever need to make a claim, the driver is left high and dry with a voided policy.

The Bottom Line

Policyholders can avoid potential fraud and help keep rates down for everyone by being as accurate as possible when purchasing a policy or making a claim.