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What is car insurance fraud?

Fact-checked with HomeInsurance.com

The auto insurance industry is complicated and involves millions of dollars changing hands every day. And whenever there is a large amount of money running through complex systems, there is opportunity for fraud. 

Most of us have car insurance, but we may not understand all of the underlying rules and procedures that companies put into providing that insurance. Bad actors can take advantage of this misunderstanding and use it to profit through trickery. But regular people with car insurance commit their share of insurance fraud, too. 

Committing insurance fraud can result in loss of insurance, hefty fines and even legal action. We’ll walk through how to spot insurance fraud and the consequences of engaging in it. 

Car insurance fraud definition

Automotive insurance fraud is any kind of fraud that’s committed using auto insurance. This fraud can be committed by professionals and companies working in the industry. But it can also be committed against them.

There are two main categories for car insurance fraud—hard insurance fraud and soft insurance fraud.

Hard insurance fraud involves creating a situation that allows you to make a claim on a car insurance policy. A common example for this type of fraud is staging a car wreck with the goal of benefitting from the resulting claim.

Soft insurance fraud involves exaggerating or flat out fabricating the damages or expenses involved in an auto insurance policy or claim. A common example for this type of fraud is a mechanic making unnecessary repairs to your car with the goal of charging the insurance company a higher bill.

Soft insurance fraud is the more common form because it’s easier to commit and harder to spot. Hard insurance fraud is usually more costly to the insurance provider and comes with higher penalties. 

Types of car insurance fraud

Car insurance fraud is varied, but there are a few common schemes. We’ll run through the most frequent kinds of car insurance fraud. Once you know what to look for, you can better protect yourself from auto insurance fraud if it ever comes up. 


This fraud occurs after a car wreck. A person who was not in one of the cars claims they were injured in the wreck. The goal of this fraud is to file a claim with the insurance provider to receive money for medical bills.

If you’re in a car accident and someone new arrives on the scene and claims they were in the other car, it’s a good indication that the person is trying to run a jump-in scam.

Falsely reported stolen vehicle 

This fraud occurs when a car covered by an insurance policy is reported stolen. If the car was taken with the owner’s permission or it wasn’t taken at all, then the report to the insurer is false and thus fraudulent. The goal of this fraud is to collect the insurance claim for a stolen vehicle.

If you give your friend your car to hide then report it missing to the insurance provider with the hope they will reimburse you for the cost, then it’s fraud. This usually results in being dropped from your insurance policy and runs the risk of the provider taking further legal action.

Replacement scams

This fraud happens at the mechanic when your car needs repairs after sustaining damages covered by your policy. The mechanic claims they replace the damaged parts in your car with brand-new parts when they actually made the repairs with cheap or used replacement parts. The goal is to charge your insurer a higher bill for the brand-new parts and keep the extra money.

If your insurance covers hail and your car hood sustains hail damage, you can make a claim and have the insurance pay for the repair. If the mechanic says they ordered a new hood from the manufacturer when they actually pulled one off a junkyard car and attached it to your car, they are committing fraud. 

False claims

This fraud usually happens after an accident and it usually takes the form of a false injury. One of the parties claims they were injured in the wreck when the injury did not occur. Similar to a jump-in scam, the goal here is to get a payout from the insurer that’s ostensibly for medical bills.

If you get in a slight fender bender and the other driver says they have severe back and neck injuries due to the accident, the other driver might be trying to make a false claim on your insurance.

Providing false information on a car insurance application

This fraud occurs when signing up for a new auto insurance policy or when making changes to an existing policy. Car insurance premiums can cost more or less depending on factors such as location and driving habits. The policyholder makes false claims on their application with the goal of getting a lower rate.

If you move to a more dangerous area with higher levels of property crime, then your insurance premium might go up. If you don’t tell your insurer that you moved, then you are committing soft insurance fraud. Providing false information on a car insurance application could lead to the denial of claims and even getting dropped from the insurance policy altogether.

Vehicle Destruction

This fraud happens if a car is intentionally damaged or destroyed with the goal of filing a claim with an insurance provider. If you destroy your car because you would like the insurance company to pay for a new one, it’s a serious form of hard insurance fraud. This kind of fraud can not only lead to getting dropped from the policy, but the insurance company may turn the case over to authorities and file criminal charges. 

The consequences of insurance fraud

Insurance fraud is hardly a victimless crime. The FBI estimates the cost of non-health insurance fraud at over $40 billion annually, representing an average cost of $400 to $700 in higher insurance premiums for the average U.S. family.

That means there’s a good chance a significant part of your premiums are used to pay for the cost of others’ insurance fraud.

When you file a claim, the insurance provider will assign a claims adjuster to follow up. The claims adjuster will investigate the claim and make sure nothing about the claim is fraudulent.

If any fraud is found in your claim, the claim will be denied. The insurance provider may take further action and drop you from your insurance. In some cases, the provider might file a police report and pursue legal action. This legal action can be civil or even criminal, which could mean jail time.

After an accident, if you exaggerate the damages, then it’s fraud. If you accurately describe the damages after the accident but put false information in your original insurance application, then it’s still fraud. 

How to report insurance fraud

If you suspect any insurance fraud, the first thing to do is contact the insurer and report it. How long does an insurance company have to investigate a claim? Different states have different laws, but the claim usually needs to be resolved in 45 days or less.

Some bad actors pose as car insurance companies selling policies. If a company tries to negotiate with you on pricing, it’s a good indication the policy is fake. If you feel you can’t trust the insurance company because you suspect the fraud is on their part—such as fake car insurance—then you have a few options.

You can either contact the police or your state insurance department to report the suspected fraud. The National Insurance Crime Bureau (NICB) is also available for insurance fraud reports. The NICB can be reached at 1-800-TEL-NICB (1-800-835-6422).

The takeaway

  • Car insurance fraud can be committed by or against policyholders, as well as insurance companies. 
  • Soft insurance fraud is common and hard to spot.
  • Hard insurance fraud is very costly and could result in serious legal trouble.

Any fraud committed with the aid of car insurance is considered car insurance fraud. This fraud can be committed by mechanics, policyholders or even insurance providers. When filing a claim, keep your eyes open for anything that doesn’t make sense. The best personal protection against fraud is vigilance.

Julian Dossett

Julian is a freelance writer for Coverage.com, where he writes about auto and home insurance with an eye toward consumer advocacy. His work has appeared at The Simple Dollar, Bankrate, Reviews.com, Blockchain Beach and MSN.com. He’s currently based in New Mexico.

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