How to tell a legitimate car insurance broker from a fraudster
In 2021, scammers made more money through social media than any other method. They cost over 95,000 people a collective $770 million, accounting for 25 percent of all fraud losses reported to the Federal Trade Commission (FTC). Social media is a cheap and easy way for scammers to create fake personas or hack into real profiles and scam the user’s friends.1
The latest social media scam, especially as it relates to car insurance, is ghost broking. This is when people pose as insurance brokers to sell fraudulent policies. Find out how exactly ghost broking works, how to spot it, and what to do if you fall victim to a fake insurance scam like this.
Ghost brokers are scammers who pose as insurance brokers to sell either fraudulent or nonexistent auto insurance policies. Often, these scams take place on social media, although they may also occur through local businesses, word of mouth, student websites, or forums about money-saving.
Ghost brokers target people who may have higher insurance costs, such as college students, teen drivers, or undocumented immigrants. These individuals may be eager to reduce their insurance expenses and unfamiliar with how insurance works — and thus more likely to fall for scams or prices that seem to be good to be true … because they are.
Car insurance for undocumented immigrants is more expensive typically, due to their lack of driving record in the U.S. However, in some states like New York, car insurance companies can’t set rates based on a customer’s citizenship or legal status in the U.S.2
Ghost broking works in one of three ways: forgery, falsification, or cancellation.
Some ghost brokers buy real auto insurance documents and alter the names and dates to those of the person they’re scamming, passing them off as legitimate policies. They sell the policies to multiple people, collecting the premiums without actually providing the insurance service.
Other scammers buy real policies for customers but falsify their personal information to lower the cost of auto insurance. For example, because auto insurance costs more for teens, ghost brokers may report the driver as being older than they really are. Or, if someone lives in a neighborhood with a dense population and high rates of auto theft and car vandalism, the ghost broker may change the submitted ZIP code to one with fewer people and lower crime rates.
The issue arises when the insurance company finds out about the falsified information. They’ll cancel the policy, which will leave the victim without insurance and make it harder for them to get insurance in the future. Meanwhile, the scammer will collect the prorated refund, leaving the customer high and dry.
The last method of ghost broking is when a scammer buys a real policy with real driver information but then, without the knowledge of the customer, cancels the insurance and collects the refund.
Every state has different insurance cancellation notification laws. For example, in New Mexico, companies have 15 days to notify their customers of cancellation for misrepresentation or fraud, during which a ghost broker can pocket the prorated refund without the customer knowing the policy was canceled in the first place.3
Because ghost broking is such a recent phenomenon, there’s no good national data on how common it is in the U.S. However, we know that from 2019 to 2021, digital fraud in the insurance industry in general increased by 54 percent. In the same period, scammer and solicitation fraud around the world increased by 57 percent, according to a report from TransUnion.4
The consequences of falling prey to ghost broking and driving without real insurance, even unknowingly, can include fines, points on your record, and more expensive policies in the future. In the worst-case scenario, you could be convicted of insurance fraud, leading to imprisonment or community service.5
You may face consequences even if you haven’t been personally affected by ghost broking. Generally, insurance fraud, not including health insurance scams, costs consumers more than $40 billion a year, which breaks down to $400-$700 more in auto insurance costs for the average American family. As car insurance companies determine their pricing, they take fraud into account, causing premiums to rise for all — not just direct victims.
So, how can you tell if a broker is legitimate or not? Look out for the following red flags.
Fortunately, there are a few easy ways to lessen the chance of getting scammed.
Despite our best prevention efforts, we can all fall victim to scams. If you’ve been impacted by ghost broking, here’s what to do.
Social media a gold mine for scammers in 2021. Federal Trade Commission. (2022, Jan 25).
NY DEPARTMENT OF FINANCIAL SERVICES AND DIVISION OF HUMAN RIGHTS TAKE ACTION TO PROTECT NEW YORK DRIVERS FROM DISCRIMINATION IN AUTO INSURANCE BASED ON IMMIGRATION STATUS. New York State Department of Financial Services. (2020, Jan 16).
New Mexico Statutes Section 59A-18-29 – Cancellation of certain policies. Justia US Law. (2018).
2022 Global Digital Fraud Trends Report. TransUnion. (2022).
Ghost Brokers. Insurance Fraud Bureau.
Insurance Scam: Beware Of False Agents & Fraudulent Policies. Allstate. (2022, Jan)
Everything you need to know about ghost broking. InsurTech. (2021, Jul 12).
Search Businesses and Charities. Better Business Bureau. (2022).
Insurance Fraud. Federal Bureau of Investigation. (2022).