The Cost of Car Insurance Fraud - Fake Claims, Increased Rates, & More

We all know that car insurance companies are for-profit businesses out to make a buck. Not only do they need to make a profit for their shareholders (owners), they also have to cover the salaries and commissions of sales agents, the rent on their office buildings, their TV marketing and advertising, and a whole host of other expenses. When you pay your car insurance premiums, you are not only paying to insure against future accidents - you’re also paying for all of this. But hey, this is America - we know how the free enterprise system works, and it works well. The problem is that in addition to all of these expenses, your premiums also have to cover an unhealthy dose of car insurance fraud.

Who Does Car Insurance Fraud Hurt?

You might have a shady friend or family member who you know has engaged in car insurance fraud. "It’s no big deal," they might say - "the car insurance companies have billions, and they overcharge their customers!" While the latter may be true, the first assertion - "it’s no big deal" - is resoundingly false, as is the implied notion that car insurance fraud only hurts car insurance companies. Do you really think they let it come out of their CEO’s paychecks? Of course not! Car insurance companies absorb the cost of fraud just like any business absorbs any cost - by charging their customers more. When Uncle Lloyd files a false claim to make/save himself $500, he’s not "sticking it to the man" - he’s stealing from the company’s thousands of customers.

An Example of Car Insurance Fraud’s Costs

Car insurance rates have generally outpaced inflation, but recently, their increases have begun to slow. In some states, car insurance rates are actually dropping precipitously, especially in Massachusetts. The reason for overall declines in car insurance rates are many, but in Mass., the number-one reason is clear: Reduced fraud.

Car insurance rates in Massachusetts will drop by a staggering 11.7 percent in 2007. This equals a reduction in annual rates from $1,018.42 to $898.81 - $119.61 in savings for the average customer. The reason? Car insurance fraud was significantly reduced, thanks to an aggressive crack-down by the state’s insurance commissioner.

It’s All Fun and Games Until You Wind Up in Jail

Some people continue to think that car insurance fraud is a "victimless crime" or that "everybody does it." Well, in Massachusetts, that type of thinking can land you in jail. Take Essex County for example: Since 2003, 213 people have been charged with car insurance fraud, and over $30 million in fraudulent claims have been snuffed out. Remember, this is in just one county! The Essex County prosecutor’s actions caught on and swept through Mass., resulting in the dramatic savings that the commissioner announced for 2007. How long will it be until other states wise up? If you’re a car insurance fraudster, you might want to find another hobby.

Car insurance fraud is a major problem that government is only beginning to address. Remember, when someone commits car insurance fraud, they are literally stealing from their fellow insureds. They might as well break into your house and steal $100 from your wallet - it would be more honest! If you are asked to take part in the defrauding of a car insurance company, keep this in mind. And if an appeal to your morality doesn’t inspire you, consider how much fun you might have decorating your cozy new jail cell. My guess is that you’ll decide it’s better to play by the rules!