6 Types of Car Insurance Fraud to Look Out For

• Car insurance fraud is more common than many people realize, costing insurers billions each year—and ultimately raising premiums for honest drivers.
• Fraud can take many forms, from staged accidents to inflated repair bills. Some schemes are easy to spot, while others are more sophisticated.
• Understanding common types of auto insurance fraud can help you recognize red flags and avoid becoming a victim.

Auto insurance fraud happens when someone provides false or misleading information for financial gain. Common examples include:

• Exaggerating damage after an accident to inflate a claim
• Staging collisions or intentionally causing accidents
• Falsifying injury claims or using fake medical bills
• Misrepresenting driving history or where the car is garaged

By learning how these schemes work, you can better protect yourself—and your wallet.

Car insurance fraud, or “premium leakage,” comes in many forms and costs property and casualty insurance companies an estimated $50 to $80 billion annually. Here are six ways people commit fraudulent insurance activities via a car insurance company.

Rate Evasion

Rate evasion involves the misrepresentation of information on an insurance application in order to get a lower insurance rate for the same insurance coverage. Though many rate evasion cases involve intentional lies about mileage or omission of accident history, fraud also may involve unintentional errors during the application process.

Regardless of the person’s intent, they’ll face consequences if they’re caught, including significantly higher premiums. Instead, it’s wiser to drive legally with a cheap auto insurance policy.

Here’s a look at how much each category of misrepresented information represents of the total money lost each year:

False Claims

Exaggerated or false insurance claims, like those involving nonexistent damages or bodily injuries, are fraudulent. Individuals target insurance companies by filing false claims to receive insurance payouts. For example, it’s common for people to create false claims by colluding with repair shops and medical professionals. Individuals may also purposely damage their property to file false claims, but car insurance doesn’t cover intentional damage.

Staged Accident

Those who stage accidents use false claims to get money from auto insurance policies, like personal injury protection plans. Staged accidents often happen in populated and urban areas and affluent communities, where people are thought to have superior insurance.¹ People can stage accidents in many ways, including intentional collisions with moving and parked vehicles.

Car insurance fraud refers to situations that involve the deceiving of policyholders, insurance companies, or other parties for financial gain. Typically, policyholders who engage in fraud aim to receive payouts or better rates from their insurers by lying, omitting information, or filing false claims. Fraudulent agents, brokers, and repair shops can commit fraud by selling fraudulent policies, engaging in premium diversion, repairing vehicle damage with salvage parts, and contributing to false claim reports.

There are two distinct categories of fraud: soft fraud and hard fraud.

Soft Fraud

Soft fraud is more common in auto insurance fraud. It usually results in less severe consequences, like fines and legal fees. This can include exaggerating a legitimate claim or lying during the application process to get a lower rate. For example, claiming your vehicle is worth more than your insurance company’s cash value of your car is considered soft fraud. Agent and broker scams are also forms of soft fraud.

Hard Fraud

Hard fraud is less common and leads to more severe punishment, including jail time. Hard fraud examples include planning or inventing a loss for claim payout (e.g., staged auto accidents or theft).

Car insurance fraud comes in many forms, but awareness is your first line of defense. The most common scams include:

1. Exaggerated claims
2. Faked injuries
3. Staged accidents
4. Vehicle dumping (owner give-ups)
5. Application fraud
6. Agent and adjuster fraud

These schemes can lead to higher premiums for everyone and serious legal consequences for perpetrators. Whether you’re shopping for a new policy or reviewing your current one, staying informed can help you avoid becoming a victim. For more information, review our pages on auto warranty scams and auto loan refinancing scams.

Want to make sure you’re getting the best value—without the risks? Get a quote from a trusted provider or compare our top pick car insurance companies to find coverage that fits your needs.