When Auto Insurance Fraud Gets Prosecuted

Car insurance fraud adds to the cost of every consumer currently insured by a policy. Do you know the many faces of auto insurance fraud? Are you aware of the penalties and punishments associated with them?

Car Insurance Fraud Cost Statistics

The Coalition against Insurance Fraud reveals that in 2007 alone, insurers paid out between $4.8 billion and $6.8 billion in bolstered auto claims. Usually these costs are incurred by claim filers with injuries that are difficult to dispute, such as whiplash or back pains. Another face of auto insurance fraud is that of the consumer trying to save some money.

Rather than registering a vehicle in a high-cost ZIP code, they may register and insure it at grandma's address, where car insurance rates are considerably lower. This practice led to losses totaling approximately $15.9 billion for the insurance industry. Entrepreneurs occasionally attempt to insure a commercially used vehicle under a cheaper personal policy by claiming that the car or van is used for personal use only.

Legislative Penalties vs. Consumer Attitudes

Did you know that all states - except Virginia, Oregon and Alabama - consider car insurance fraud a crime? In stark contrast, the Coalition shows that consumers present with a very lax morality when it comes to defrauding insurance companies.

Approximately 55 percent of consumers surveyed in 2010 believed that poor customer service lays the foundation for fraud. An economic downturn makes it acceptable for 76 percent to commit fraud, while two out of five individuals would turn a blind eye to someone else committing fraud.

Cost of Committing Auto Insurance Fraud

Due to the passage of H 1087, Floridians convicted of violating the law to receive "insurance proceeds from a motor vehicle insurance contract" face fines in the amount of $5,000 for a first offense, up to $10,000 for a second offense and up to $15,000 for a third offense. The Insurance Institute of Michigan explains that auto insurance fraud is a felony in the state; it carries a prison sentence of up to four years and a fine of up to $50,000; restitution payments are mandatory.

Cars Direct summarizes that states prosecuting car insurance fraud as felonies usually charge penalties of up to $150,000. Jail time is a given and probation is rare. If the fraudulent acts are prosecuted as misdemeanors - usually this is the case when a car is not destroyed in the commission of the crime - fines may go up to $15,000 and probation or jail terms of up to five years are the norm.

Sources

Coalition against Insurance Fraud: "Go figure: fraud data;" "Consumer attitudes"

Florida Senate: "H 1087"

Insurance Institute of Michigan: "Insurance Fraud"

Cars Direct: "Auto Insurance Fraud Penalties and Consequences"