Top car insurance scams and how to avoid them

Car insurance scams can take many forms, from staged accidents to exaggerated claims, resulting in financial losses that affect everyone. Not only do they drive up costs for insurers, but they also lead to higher premiums for honest drivers.

Because of the insurance industry’s massive size — over 7,000 companies collect more than $1 trillion in premiums annually — it’s a lucrative target for fraudsters. According to the FBI, the total cost of non-health insurance fraud is estimated at more than $40 billion annually, or between $400 and $700 in increased premiums for the average U.S. family.

Janet Ruiz, director of strategic communications for the Insurance Information Institute (Triple-I), an industry research and outreach organization, says if you’re involved in an accident, don’t be offended if your insurance company asks many questions that could seem like it’s accusing you of fraud.

“We all pay for fraud,” she said. “Helping your insurance company detect fraud [by cooperating with investigators means] you’re helping reduce premiums.”

Key highlights

• Staged accidents and phony injury claims are two common types of car insurance fraud.
• Unauthorized towing scams are another form of insurance fraud.
• If you suspect fraud, document what you can with photos, videos, and notes, all of which can help investigators.
• Be prepared to answer detailed questions from claims investigators and cooperate to the best of your ability.

What are car insurance scams?

Car insurance scams are deceptive practices designed to defraud insurance companies, policyholders or others for financial gain. Common scams include staged accidents, exaggerated claims and fake insurance agents or “ghost brokers” who apply for a genuine policy in your name, keep your premium payments, and then cancel the policy.

“It can be difficult for an individual in an accident to know whether it was staged, but when you’re working with your insurance claim rep, they’ll see red flags,” Ruiz said.

Potential red flags include personal injuries or physical damage that seem more extensive than the circumstances warrant and the type of medical providers are involved in treatment and billing.

Common car insurance scams

• Staged accidents. Scammers meticulously plan staged accidents, often involving fake witnesses, doctors and legal advisers who provide false testimony or advice. The coordinated effort can make it difficult for victims to prove their innocence.

Common staged accidents include the swoop and squat, the drive-down and the sideswipe.

In the swoop-and-squat, the scammer’s car, known as the “squat” car, drives in front of the victim. A second car cuts off the squat car, causing a rear-end collision when the victim cannot brake in time. The “swoop” car then speeds away.

In a drive-down, the scammer signals to the victim to turn or merge at an intersection, then speeds up when the victim begins to turn, causing a collision. The scammer then claims that the victim appeared unexpectedly or that they were distracted.

Scammers use the sideswipe at intersections with unclear lane markings. The scammer may occupy the outer lane and sideswipe a victim's car as they turn. The scammer claims the victim caused the accident because of the ambiguous lane divisions.

• Fake injury claims. Even a minor fender bender can have serious consequences. A distracted driver involved in a collision may later be targeted by the other party, who claims whiplash or other injuries.
• The bad Samaritan. When involved in a car accident, be wary of people approaching you while waiting for the police. They could be scammers posing as lawyers, doctors or insurance agents. They aim to obtain your personal information and file fraudulent insurance claims on your policy. Multiple false claims can increase premiums or cancel your insurance coverage.
• Agent fraud. Fake insurance agents may fail to set up promised insurance plans, keep your payments and leave you uninsured. Others may slip additional, unwanted coverage into your policy, increasing your premiums.

Insurance scam red flags include agents who seem overly eager or pushy. Scammers often use fear and confusion to pressure consumers into making quick decisions. They may discourage you from comparing offers or verifying information from official sources.

• Towing scams. A tow truck arriving at an accident scene or breakdown may seem like a stroke of luck. But it could be a “bandit” tow truck if you didn't call for assistance. These unscrupulous operators will tow your vehicle to their shop and demand exorbitant fees for repairs and release. The National Insurance Crime Bureau has warned that such scams are rampant in major cities like Chicago and Houston.

An American Transportation Research Institute study found that unnecessary charges are the most common towing scams. The study analyzed towing invoices from 2021 to 2023 and found that nearly 30% of crash-related tows included some form of predatory billing.

How to avoid becoming a victim of car insurance scams

To minimize the risk of falling victim to a car accident scam, experts say it’s crucial to take action. First, gather detailed information from the other driver, passengers and witnesses, including their names, contact information, and vehicle details.

Document the accident scene promptly with photos, capturing the damage to both vehicles. Report the incident to the police as soon as possible, noting the officer’s name and badge number. Notify your insurance provider promptly.

Other steps to take to protect yourself from car insurance scams include:

• Verifying agent credentials. Research any insurance agent’s background before signing a policy. Check their licensing information and look for complaints or disciplinary action.
• Reviewing policy documents carefully. Read your policy documents thoroughly for suspicious language. Contact your state’s insurance bureau if you suspect fraud.
• Avoiding unsolicited offers. Be cautious of insurance offers from door-to-door salespeople, telemarketers or unsolicited online advertisements.
• Choosing reputable repair shops. Select repair shops recommended by your insurance company, which often are verified for their quality of work.

What to do if you suspect a scam

If you think you have witnessed or are a victim of a car insurance scam, follow these steps:

• Contact your state’s fraud bureau. Many states offer hotlines or an online reporting system for scams.
• Reach out to the insurance company. Report car insurance fraud to the company’s headquarters if you can’t find a specific reporting channel.
• Call the National Insurance Crime Bureau (NICB). The hotline is (800) 835-6422. The NICB works with law enforcement and insurance companies to combat fraud.

“If you suspect you have witnessed an insurance scam, gather as much evidence as possible. Take photos, note suspicious behavior, and cooperate fully with investigators,” said Joseph Matos, a spokesperson for the Coalition Against Insurance Fraud. “Don’t confront the other party. Scammers tend to become very confrontational.”

Frequently asked questions

What is the difference between ‘hard’ and ‘soft’ fraud?

“Soft” fraud involves exaggerating or fabricating details of a genuine car accident, such as claiming more extensive injuries or property damage than actually occurred. “Hard” fraud is more serious, involving intentionally causing damage to a vehicle to file a fraudulent claim.

Both types of fraud can have severe consequences. If caught, you could face fines, jail time or the loss of your driver’s license. Even if you’re not directly involved in a fraudulent claim, being associated with one can lead to higher insurance rates.

Are there legal consequences for committing car insurance fraud?

A conviction for auto insurance fraud can have severe legal and financial consequences. The penalties vary by state but typically include fines, probation or jail time.

Specific penalties depend on factors such as the amount of money involved, the offender’s criminal history, and the jurisdiction where the crime was committed.