Auto insurance fraud is a costly problem
Insurance fraud is quite prevalent, but not necessary always in the spotlight. Many people don’t understand how fraud affects the insurance industry or that fraud also has an impact on them as well. In the auto insurance sector, fraud has become quite common, partly due to the prevalence of certain laws and the that there are groups devoted to committing fraud in a highly organized manner. Some of these groups are lead by medical and insurance professionals as well.
According to the Coalition Against Insurance Fraud, fraudulent and abusive auto injury claims added as much as $6.8 billion in excess payments in insurance claims in 2007. Since then, fraudulent claims have become more common and the financial impact that they are having on the insurance industry has been more profound. Underwriting fraud has also become a serious problem for the insurance industry, with insurers losing an estimated $15 billion due to fraudulent activity and simple errors.
What this means for people with insurance coverage is that their coverage is becoming more expensive. Because fraud is causing financial damage to insurers, these companies are looking to recover from this damage. In order to do so, they often raise premiums on the coverage that they provide. The problem, however, is that raising rates brings a great deal of regulatory attention to insurance companies. Regulators are often questioning whether or not rate increases are necessary due to current trends in the market and the economic climate. As such, insurers must navigate the regulatory landscape in order to recover from losses when they fall victim to fraudulent activity.
In some states in the U.S., there are no-fault auto insurance laws, which make insurance companies liable for damages from auto accidents regardless of which party may be at fault. In these states, staged accidents have become a common way to exploit no-fault laws, introducing further financial pressure on insurance companies and giving them a major incentive to raise rates.
Because insurance companies are for profit entities, they are often considered greedy when raising rates. There are many things that influence rates, however, that are often not understood by consumers.