Auto insurance fraud is a method by which an individual or insurance company claims more money than they are entitled to. Automobile insurance fraud can involve a staged car accident or a real accident with bills that hide the false claims or state that the costs are higher than they actually are. Insurance companies can also participate in insurance fraud by denying the claims and benefits of victims who deserve them. One in three auto insurance claims are fraudulent.
When a car accident is staged as a way to commit auto insurance fraud, the driver will usually take out an insurance policy that will cover the damage from the accident. The driver then stages an accident to collect more money than he or she deserves. One type of car accident scam is called the swoop and squat, in which two vehicles work together against the victim. One vehicle is known as the squat vehicle and is in front of the victim, while the swoop vehicle cuts off the squat vehicle, causing a sudden stop by the victim, who crashes into the squat vehicle. The swoop vehicle flees the scene, leaving the victim responsible for damages and injuries.
Another type of scam in auto insurance fraud is a side swipe, which usually takes place at an intersection. The driver committing auto accident fraud puts a vehicle in the leftmost turning lane, and the victim is sideswiped by that driver. This type of accident is mostly corroborated only by word of mouth, and the victim is commonly left responsible for the aftermath of the crash.
Finally, a third car accident scam is the panic stop, which involves a vehicle of passengers driving in front of the victim. When the victim is distracted, such as checking the rear view mirror or changing the radio station, one of the passengers in the car in front signals to the driver, who slams on the brakes, causing a rear-end crash. The victim will be at fault because his or her eyes were off the road.
If an accident is not staged, auto insurance fraud can occur by holder-based fraud or bad faith insurance. Examples of holder-based fraud include totaling a worthless car and later claiming it was valuable and pretending to be injured in an accident. Bad faith insurance fraud is fraud in which legitimate auto insurance claims are denied by the insurance company on a nonsensical cause not stated in the policy. This type of auto insurance fraud also works when the insurance company simply refuses to process the claim at all. The policyholder may appeal any denied claim, as long as he or she has reason to do so.