Car insurance fraud occurs when someone intentionally provides false information or stages an event to receive money from an insurance company. Common examples include staged collisions, fake theft claims, exaggerated repair costs, and false injury claims. Insurance fraud is a criminal offence in Canada and contributes to higher insurance premiums for all drivers.
What Are The Most Common Types Of Car Insurance Fraud?
Hard (Pre-meditated)
Hard fraud refers to a situation in which someone plans or invents a loss for a claim payout, for example, deliberately planning or staging a car accident in order to receive an insurance payout. Unlike accidental mistakes or exaggerations, these schemes are intentional and can often involve collisions that are fabricated, fake thefts or organized scams. Since hard fraud increases costs for insurers, it also contributes to higher premiums for all drivers.
Canadian drivers end up paying an average of $125 annually to combat car insurance fraud. Ontario drivers pay an average of $236 every year to cover the cost of insurers getting defrauded. These crimes can result in jail time. Specific examples of hard fraud include:
Staged collisions are one of the most common forms of hard fraud. In these schemes, fraudsters intentionally cause or manipulate accidents to make an innocent driver appear at fault. They often work with passengers, witnesses, or repair shops to maximize the insurance payout.
- Rear-end collision/start and stop collision
- Sideswiping
- Wave and hit
- T-bone accident scams
- Making an insurance claim for an event that never happened
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Soft
Soft fraud is more common than hard fraud and involves exaggerating certain aspects of an otherwise legitimate auto insurance claim or lying when applying for a car insurance policy to get a lower rate. Though many may view these actions as harmless, they are still considered insurance fraud. Due to this, they contribute to rising premiums for everyone. This type of fraud does more to increase premiums for other policyholders than hard fraud. Specific examples of soft fraud include:
- Missing drivers
- Over-reporting
- Pre-collision vehicle damage
- Lies about location
Hard Fraud | Soft Fraud |
Planned and intentional | Exaggerates a legitimate claim |
Often involves staged collisions | Often involves falsified information |
Criminal offense | Criminal offense |
Higher financial impact | More common than hard fraud |
What Are Some Other Types Of Insurance Fraud?
Insurance fraud can also occur after a legitimate collision. This involves some individuals exaggerating repair costs, falsely claiming injuries, or seeking unnecessary medical treatments to increase their settlement. In other cases, dishonest repair shops inflate estimates or use unsafe replacement parts while billing insurers for new components. Some examples can include:
- Car damage leading to exaggerated insurance claims: Persons submit a claim to their insurance company for the $2,500 damage to their vehicle. However, instead of repairing it, they keep the money or inflate the cost of damages ($4,000) so they can walk away with a larger payout.
- Fake injury claims: To mitigate the risk of being a victim of a fake injury claim, it is always best to file a police report. If the car insurance scam artist is overstating the injury sustained, but the police report shows very little to no damage to the car, the insurance company will cross-compare the claim versus the police report to determine a fair payout.
- Faulty airbag replacement: This car repair scam happens when mechanics don’t replace the airbag after an accident. According to the National Insurance Crime Bureau, questionable shops may use salvaged airbags to replace a customer’s airbag. They may also affix a deployed airbag to a non-deployed steering wheel, making it look like the airbag deployed to increase the insurance claim payout.
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What Are The Consequences Of Car Insurance Fraud?
Unfortunately, we all pay for car insurance fraud. Some consequences include:
- Increased car insurance rates: Approximately 15% of your annual premiums go towards paying for insurance fraud and scams.
- Out-of-pocket costs: You can be responsible for paying for damages, although the accident wasn’t your fault.
- Inconvenience: Being a victim of car accident scams costs you time and money.
What Are The Penalties For Car Insurance Fraud In Canada?
Insurance fraud is a criminal offence in Canada. Depending on the amount involved, offenders can face substantial fines and lengthy prison sentences under the Criminal Code of Canada:
- Fraud under $5,000: Auto insurance fraud under $5,000 carries a maximum sentence of two years in jail.
- Fraudulent acts over $5,000: Car insurance fraud over $5,000 earns the convicted party a maximum of 14 years in jail.
- Committing fraud over $1 million: Auto insurance fraud over $1 million carries a minimum sentence of two years behind bars.
How To Prevent Insurance Fraud After A Collision
So, you’ve just got into a car accident, now what? While you cannot always prevent fraudsters from targeting you, you can take steps to protect yourself after a collision. Staying calm, documenting the accident, and working with trusted professionals can make it easier to support your insurance claim and reduce the risk of becoming a victim of a scam.
- Call 911 if you were in an accident; report it. If possible, take photos of the scene and the vehicle’s damage. In the same vein, remember to also collect the other driver’s information (i.e. plate numbers, insurance information, driver’s licence, and how many people were in the car).
- Use trustworthy professionals: Go to body shops or a medical/legal professional that you know.
- Keep track of your records: Double-check all bills and statements to ensure that they’re accurate and only include the services or treatments you received.
Car Insurance Fraud: Frequently Asked Questions
Is car insurance fraud a crime in Canada?
Yes. Car insurance fraud is a criminal offence that can result in fines, restitution and imprisonment depending on the severity of the offence.
How do I know if I’ve been targeted by a staged accident?
Warning signs include drivers suddenly braking without reason, encouraging you to not call police, or insisting you visit a specific repair shop.
What should I do if I suspect insurance fraud?
Report the incident to your insurer, contact the police if necessary, and document everything with photos, witness information and written notes.
Yes. Fraud will increase claim costs, which can in turn contribute to higher premiums for policyholders.
Protect Yourself Against While On The Road
Car insurance fraud affects everyone by driving up insurance costs and making the claims process more challenging for honest drivers. Fortunately, knowing how these scams work and taking the right steps after a collision can help protect you from becoming a victim. In conclusion, at isure, we take car insurance fraud seriously. If you suspect that you’ve been a victim of fraud, contact us if you think anything is suspicious. You’ll be protecting yourself and may save someone else from becoming a victim.
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