Ultimate Guide To Auto Insurance Scams And How to Avoid Them

The auto insurance business is a highly competitive sector. As the market develops and grows, so do the market challenges. To stay in the game some car insurance companies may develop dubious practices in order to make profit. They themselves are a target of preying clients as well. In the automotive insurance industry fraud can happen on many levels and from diverse angles.

An accident can be a planned, coordinated effort, and innocent unsuspecting drivers can become the victims in an auto insurance scam. On another note an insurance might try to overcharge you with either unnecessary services or even fake services.

Insurance firms are looking for new ways to attract long-term clients. They bring new tech trends to innovate and make the experience better, such as the Internet of Things.

But the best solutions aren’t always affordable. It takes time to make a company efficient and reduce service costs. Some firms however, will compromise quality to offer lower prices.

The Ins And Outs Of Auto Insurance Scams

Can you really trust your provider? These companies exist to reduce your financial losses in case of an accident. It may be pricey and mandatory, but it is anyway good that we have such an option available in the first place.

Auto insurance scammers inflate prices at the point of making no sense. If you’ve ever stressed about hidden fees or extra charges, that could sound familiar to you.

This practice has countless variations. Some sellers will do everything in their power to overcharge you, even stage fake accidents.

They use low entry prices to lure in customers and then use dirty tricks to take advantage.

But insurers aren’t always the villains of the tale. There’re many cases of auto insurance fraud led by clients to avoid expenses.

Regardless of the version, the process is similar. Someone in the business misstates or hides information for their interest. They use ingenious ways to go around regulations for their cash grab.

Why Is Fraud So Common?

Auto insurance is a competitive sector. The market is so saturated in some areas that it turns into a price war.

If you are going to compete in price, you have to ensure the service quality first. However, many firms feel tempted to dropping prices, hoping to get a lot of sign-ups.

But how do they make profits? That’s the first mark of suspicion.

If the initial price seems too good to be true, they may try to squeeze out the funds from another side. If you spend the average amount, you at least usually know what you’re paying. When it’s too cheap, beware of their conditions and hidden fees.

It is wise to look at this objectively and not look at the insurer as being evil: they’re just acting based on incentives. Even the most trusted companies might use some softer techniques.

A company may offer a low price in the first year. They offer a cheap plan without mentioning long-term commitments in a visible place. As we know this is usually mentioned on the small print or hidden somewhere deep in the text. The upcoming service fee costs are misrepresented or omited.

A business does not explicitly need to lie to make someone do what they want them to do. They can misdirect by exaggerating or hiding information.

Types Of Auto Insurance Scam

Due to the many variations, preventing insurance fraud can be a challenge. Some people never realize the scam, even after working with these insurance companies for years.

Dishonest agents will show you only what they want you to see. The best you can do is ask questions, become aware of the risks, and learn to recognize the potential problems.

Redundant Services

It’s not easy to sell insurance. Essentially, you want clients to buy an abstract service that has no value in the present. Despite the terms and conditions, insurance will give you “peace of mind” on the road.

If it’s hard to sell for the closer, it’s even harder for the client to make sense of it, especially with the many companies to choose. It’s too easy to feel confused about their packages and extra services.

Don’t ask the barber whether you need a haircut.
Warren Buffett

An agent can give you the cheapest offer if you ask him. But it doesn’t mean it follows your best interests. The insurer doesn’t need to show you the details unless you ask for them!

If you had a recent car accident, you are more prone to buy insurance services you don’t need. Before you know it, you’re overpaying for underperformance.

Fake Accidents

Causing damages is a big red flag for auto insurance fraud. Whether it’s in the road or parking lot, it’s an excuse for scammers to raise prices.

Imagine you’re an experienced driver. You never had an accident, and you don’t think you will. Would you go for the premium pack or the minimum viable offer? Exactly.

No-fault insurance sounds attractive but involves higher rates. If you have a tight budget and never had problems on the road, at-fault insurance is cheaper.

People know at-fault insurance involves more risks than no-fault. What they don’t expect is that their insurer could produce the accident on purpose. Sadly some fraudsters won’t doubt crashing into your car or causing injuries. “It’s your fault,” they’ll say.

Having a dashcam to record the scene on camera, however, will protect you in this case, thus it is advisable to have one.

Vehicle Damage

Like fake accidents, insurers can coordinate to destroy your car while it’s parked.

It works better if there’s an excuse to justify it.

  • Are you parking in a bad neighborhood? A busy street?
  • Is there a construction site nearby?
  • Was there a storm?
  • Do you keep the car parked for many months without using it?

They may use any of these excuses to make the crime less noticeable.

In some countries, they use this variation for rented vehicles. A person could rent a car or motorcycle for a few days, park it for the night, and find it damaged in the morning.

Cheap auto insurance may look like an opportunity from the outside. If the company has no history, you’re at risk of sabotage. Do your due diligence about the insurance company.

Decision Pressing

Not only do they offer low prices, but they also want you to act fast. It may be harder to walk away than signing the contract. They want you to make decisions rapidly, even though you just met them.

The reality is, you won’t have time to think if you move fast. If you overlook the details of the contract, insurers will exploit that.

Examples Of Automotive Insurance Fraud

Here are a few examples of what clients themselves may try do or what you you could find after reading the small print.

Overpriced services

Your insurer has estimated very high repair costs for the last accident. As you research, you may find terms that look overly technical, vague, or unnecessary.

Some legit companies will even lower your insurance by simply asking them. But if the agent is evasive with your questions, you’d better look for a more transparent firm. These “fees” are there to make insurers money in most cases.

Hidden Costs

You’ve got this cheap auto insurance contract. It doesn’t become a problem until you find unexpected charges from the company.

As you sign the agreement, you may find hidden services. By default, some insurers could sign you for their “recommended products” along with the main service.

Although you can remove this add-on anytime, these hidden costs can lead to disappointments.

Make sure you know where your money goes! Long-term plans usually make the first year cheap or free to attract clients. They advertise the first year offer, but clients never hear of the long term commitment unless they research on their own.

Clients Faking Information

Most companies offer the average price, but it rates change based on your state and vehicle. You omit or misstate your information to reduce expenses.

You could lie about your address, state, vehicle model, status, or credit score. If the insurer finds out, they can cancel the contract and even report it.

Auto Insurance Companies: Legit VS Fraud

Some practices scammers follow are confusing. They don’t seem right, but then again there’s no rule against it. If any part of the contract seems ambiguous, you should ask for details. Avoid making assumptions and go straight to the facts.

Comparing can help you distinguish those grey areas. Simply ask what a legitimate business would do. Then, it’s easier to contrast and find out what’s wrong.

There are key differences between legit and dubious car insurance companies. We can help ourselves distinguishing between them with the following guidelines.

How Did You Hear About This Company?

They may use countless of channels: email, cold calling, content, paid advertising, referrals. Any method falls into one of two categories: outbound or inbound marketing.

Outbound is the traditional method where the seller approaches the client. Most consider it an intrusive form of marketing, which is why you need a good pitch to grab attention.

Big brands still practice cold calling and email because it’s effective, usually after doing inbound marketing.

The second type is the most preferred by customers. Here, the seller creates trust by offering value, being transparent, and helping clients make informed decisions. It’s the most used tactic today.

That’s why you will rarely see scammers using inbound marketing. It requires you to be transparent and build a reputation. Scammers will use email, cold-calling, and advertising. But inbound isn’t really compatible.

Is the Insurer Transparent?

Transparency goes hand in hand with inbound marketing. When working with legit firms, it’s easy to find information and feedback online. In a two-minute search, you can read last month’s client reviews.

These auto insurers may create video and textual content explaining how things work in their business.

Suspicious insurers, however, are hard to verify. You barely find any information about them on the Internet. And if you do, they may have manipulated the reviews to give a good impression.

The only reason people work with them is probably the price. If they cannot answer your questions with clarity, they may be trying to sell you their scheme. Scammers can be evasive when answering questions but direct when asking for a payment.

If you find yourself in such stressful situations, it’s better to look elsewhere. A trusted company will not push hard on their clients to close the deal.

Are They Credibile?

It definitely helps to have someone to listen apart from the salesman himself. Find someone who worked with them that has no incentives to make you join the program.

When you read online reviews, look for both extremes. You don’t want to find only positive reviews or only negative. If you compare reviews from multiple websites, it will help to find their real identity

How To Prevent Car Insurance Scams

Auto insurance scams are frequent all over the world. They could be as trivial as hidden fees or as threatening as a planned accidents. We can minimize these risks by making better decisions.

The first step is to educate oneself. Then you will have a better idea of what to expect from car insurance companies. What else could you do to protect yourself?

Before working with an insurance business,

  • …compare. Ask other companies about their conditions, so you know what’s the average offer in the market.
  • …document. What’s the history of this auto insurer? How many clients have worked with them, and what are their opinions?
  • …evaluate. What would a legit company do? How can they offer a lower price? What don’t I see?
  • …observe. How did they reach out? What aren’t they talking about? When answering questions, do they look open or elusive? Are they selling more than listening to me? If the seller pushes you to take action with “limited-time offers,” that impatience is a reason to distrust.

Once you receive the proposal,

  • …read everything. Is there any term you don’t understand? Ask them, and don’t move forward until it’s clear.
  • …contrast. Go to the best companies and ask for a quote, even if you aren’t going to buy from them. Now, contrast both versions to see if everything makes sense.
  • …diverge. Scammers like to make excuses to force you to take a single direction. If you don’t like what you see, don’t doubt asking for optional products. Trusted firms will offer you alternatives for a more customized service.
  • …get buyer protection. Use a safe payment method to chargeback in case the insurer changes the terms or rips you off. It may cost you 1-5% more, but it’s worth doing it when working with unknown agencies. For example, you can cancel the contract within the first thirty days if the other party doesn’t keep its word.

Staged Auto Insurance Scams

This type of car insurance fraud is reversed from what we have looked above and the financial burden is put on the insurance company. We will look at the burden of false or staged insurance claims they have to carry on a daily basis.

Staged car insurance fraud occurs when insured and uninsured drivers try to stage an accident, so that they can collect money from the victim’s insurance company. Insurance fraud has been around for hundreds of years. Even back in ancient Greece, when insurance first began, ship owners would purposely hit another ship or sink their own ship to collect money from their insurance policy. Today, there are many forms of car insurance fraud, such as the swoop and squat and the intentional brake-slam.

Intentional Brake-Slam

Intentional brake-slam happens when a driver drives in front of you and slams on the brakes purposely out of no where, so that you can crash into them. To the insurance company, this will look like it is your fault, so you will have to pay the driver who really caused the accident. Today, many insurance companies are aware of these happenings and are wearier of whom to give out the money to. Deep and thorough investigations regarding accidents such as this are given to ensure that it was not staged or fraudulent.

Swoop and Squat

With the swoop and squat, there are more than one drivers and vehicles in on the scam. Two of the vehicles in the three car accident have criminal drivers. The “squat” driver positions his car in front of the victim, while the “swoop” driver passes in front of the “squat” car, which causes him to slam on the brakes, causing the victim behind them to crash into the rear of the “squat” driver.

Not enough time is given for the victim to swerve or slow down. Of course the swoop car doesn’t stick around to explain to the cops what happened, so it is left up to the victim’s insurance company to pay for the accident and file a report as the cause of the accident. All personal injury and damage claims that are given have to be paid for by the victim.

Many people may not realize what just happened. The swoop and squat is a very dangerous matter and may at times result in a fatal accident with the victim and/or criminals. This is especially so when the staged accident occurs on the freeway. Many car insurance fraud criminals may look at it this way, ‘the faster the victim is going, the more damage will be done’. But they aren’t thinking of the fatal consequences, especially that of the squat driver who will be heavily rammed. Their car could easily be pushed into oncoming traffic or in front of other fast cars speeding down the next lane.

Side Swipe

Another type of car insurance fraud is the side swipe. Staged by criminals during busy intersections that have dual left turn lanes. The criminal is located in the outer turning lane and the victim is in the inner turning lane. When the victim’s car drifts into the outer turning lane, the criminal side swipes him.

The criminals make sure that this is done in busy intersections, so that there better chances of the victims car drifting into the wrong lane during the turn. To ensure this, the criminal does preliminary surveillance to make sure that the intersection is busy enough for the side swipe to work.

Panic Stop

Then there is the panic stop. When a criminal drives an old model car with a lot of passengers, he has one of the people in the back look out the rear window. The sign given to do the panic stop will be given once the person in the back notices the car behind them is distracted, either by answering a cell phone, turning around or changing the radio station. As soon as this occurs, the passenger signals the driver to slam on the brakes, which then causes the distracted victim to collide into their rear.

Victim is totally at fault, especially since he was “distracted”. Of course only perpetrators know that this was just another one of the car insurance fraud scams. The passengers within the car may also fake injuries and the old model car would likely have a lot of damage. The victim is left penniless with points on their license and higher monthly car insurance premium rates.

The Bad Samaritan

Suppose you were in a car accident and you’re standing on the side of the road waiting for the tow truck and police to arrive. It’s too late to avoid the accident, but the scam in this scenario comes later.

A bad samaritan could come in contact with you – or even call you, thanks to the advice of a tow service, truck driver, mechanic or another involved individual – and impersonate a consultant to persuade you to use the services of a particular clinic, garage, tow service or lawyer for your injuries.

You have probably never heard of the recommended service, and with good reason – they are fraudulent. It’s all part of a trap to get your funds, information or to file false or bogus insurance claims, of which they may take a hefty share.

The Fake Injury Claim

This can happen in any type of accident, not just car collisions. Suppose you have fender damage and the other driver immediately reports back pain, neck pain or other injuries. If the driver requests hospitalization, he will file a claim with your insurance company to cover the costs, even if the claim is fake.

Whiplash and phantom pain are particularly difficult to show on an x-ray, so fraudsters could work and collaborate with shady doctors and physical therapists and pay them to confirm their injury reports so they can get a payout from the insurance company.

To avoid being cheated in a minor accident, you should file a police report. If the official report shows only a scratch or minor damage, it is far less likely that an insurance company will believe that the other driver has suffered significant injuries – and they have official evidence of this.

Mythical Car Theft

Some even commit car insurance fraud on themselves, using their own car as a means to get insurance money. For instance, the con artist might have someone steal their car which is then destroyed, usually found burned or buried underground and insurance money is collected for the damage done.

Another instance; con artists buys a car that needs lots of repairs then pretends it is stolen. He hides it for thirty days, long enough for the insurance company to settle the claim of the stolen vehicle. Later the car is found “abandoned” after the insurance money was paid.

The Export Scam

Another known trick is the export scam. Perpetrator secures a bank loan for a brand new car. He reports the car as stolen to the authorities, but in truth it is exported to another country to be sold in black market. Perpetrator not only collects money from insurance agencies, but also profits from the sale.

Wrapping It Up

Fraudulent schemes make car insurance more dangerous than secure. Some companies will lure you with low prices and then scam with hidden costs. If not, they could sabotage the vehicle to increase your expenses.

As drivers, we have a choice to take control and protect against these schemes.

If you just started working with a new company, pay close attention to the road. Drive as a responsible driver would, and keep the vehicle in a private parking lot. If not, you can use a dashcam to record the events. In case of damage, it can be a life-saver.

The no.1 advice to protect against any scam is to prevent, not react. Pay close attention to the conditions the company is showing you.

The next time you look for auto insurance, picture what a trusted company would look like. No matter the stories they tell you, use that description to make your decisions.

But even the most proactive person gets it wrong from time to time. When you find yourself in a fraudulent situation, take responsibility and report it.

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