Automobile Insurance Fraud

As gas prices continue to soar, the economy barely gets rolling, and all of those great deals we saw over the past few years for buying new cars begin to dwindle, Americans are calculating and refinancing, budgeting and saving wherever and whenever possible. And yet, there are some costs that just can't be avoided: rents or mortgages, health care, gasoline—and car insurance. It seems there is little to nothing the average consumer can do, beyond some basic comparison-shopping, to substantially reduce the cost of their car insurance.


While it's true that there are certain factors to consider—your driving record, of course, the type of car you drive and how many miles you put on it annually, your age, where you live, and the type and amount of coverage you're getting—why is it that if none of that changes, the cost of your auto insurance continues to rise? And why does it fluctuate depending on where you live? Are some areas of the country more prone to accidents and theft?

The Problem: Fraud
Automobile insurance fraud is often conducted in rings, sometimes with ties to organized crime. From fabricated losses to staged accidents, superfluous repairs and medical treatments, there has been a huge rise in fraudulent auto insurance claims that is costing consumers millions of dollars in premiums, with certain states including New York, California, New Jersey, Florida, and Massachusetts carrying the brunt of those costs, according to the National Association of Insurance Commissioners (NAIC).


One might think that in states like California and New York, states with the most insured cars in the country, costs would be substantially lower due to the amount of people paying into the system (8.6 million in New York alone). However, they are not. One of the biggest drains on the system is the no-fault laws that are on the books in about a dozen states. These laws require insurers to automatically pay for personal injury claims, sometimes up to $250,000, regardless of who may be found at fault. While originally designed to reduce the litigious nature of car accidents, they have increased the rates of fraud and contributed to rising rates.

How Does it Work?
Designed to simplify the process of settling medical claims, for example, in no-fault states, each insurer pays the medical bills for the person carrying their policy. Unfortunately, between staged accidents, unnecessary and expensive medical testing, and unnecessary visits to doctors and chiropractors, these laws have made it much easier for corruption to grow. The numbers of claims as well as their costs point directly to a sophisticated, deliberate effort rather than crimes of opportunity and normal inflation.