Insurance Scams and How to Detect Them

Sep 30, 2022 | Personal Insurance

Beware of these insurance scams!

As per the latest FBI Reports, the insurance industry has more than seven thousand (7,000) companies that collect more than $1 Trillion each year. This incredible industry is, unfortunately as well the reason why insurance fraud is rampant, providing gateways and bigger bonuses for agreeing to do illegal activities.

Insurance fraud or Scams are deliberate cheating done to a company or even by the company itself down to even an agent of an insurance company to serve personal financial gain. You can commit scams on any level of a transaction by an applicant or professionals to serve the complainants. Furthermore, agents of the company can also commit fraud.

There are a lot of people that commit this kind of crime.

  1. Organized syndicates that steal large amounts through fraud activities
  2. Technicians and Professionals who increase their service costs.
  3. Ordinary people want to cover the deductibles or filing for a claim to get more money.

The Cost of Fraud

There is an estimate of more than $40 billion in costs for insurance fraud reported every year, which means $400 to $700 is the cost on average for each family.

Common General Insurance Scheme 

  • Premium Diversion
    • Embezzlement of your insurance premium
  • Fee Churning
    • We reduce the initial premium repeatedly until the commission is no longer to pay its claim.
    • Also, transactions can appear legitimate if viewed alone; only after a longer period of time and their full effect can they be considered fraud.
  • Asset Diversion
    1. Involves acquiring control of the whole company with only borrowed financials. After the merger, it will the company be forced to pay the debt.

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Car Insurance Scams

One of the most common Insurance Scams is connected to your automobile. In addition, it is very critical that you insure your most used equipment to protect it and including yourself. Although Car Insurance Scams are common, there are as well many organizations that can help you with this kind of fraud. Also, just like any insurance scam, this can start at any point of your insurance enrollment and down to claims.

Here are the Types of Insurance connected to your Car.

  1. The Soft Insurance Fraud
    • This is intentionally exaggerating the damages of an otherwise legitimate auto claim.
    • Proving false information lowers your premium claim and increases the probability of you signing up with another application.
  2. The Hard Insurance Fraud
    • This is easier to detect in comparison with the soft attempt. Also, it’s an organized and deliberate act of car accidents, arson, and theft.

Agent Fraud

As soon as you buy your car, you are now an open target to all schemes. Furthermore, if you are unlucky and are able to encounter a bad agent, he can start you up by stealing all your money by not enrolling you properly to your insurance preference. So, when you encounter an accident, you will have to pay the full cost.


This is a practice that they do when agents sneak in extra coverage. This can cost you a couple of hundred dollars and give them a higher rate in commission.

Scammers like agents usually use confusion and pressure the consumer to rush and sign up with the policy without reading the fine print. Remember that this scammer will not invite you to their shop to browse around and choose the best option for you. Remind yourself that once they start collecting not relevant information like social security numbers, they might not just be cheating on your insurance deal. They might start taking your identity. So, remember never to say yes to rushed sales. Think it through!

Fake Injury Claims

Parents are most targeted by this kind of scheme. It happens when someone you had a completely non-injury kind of fender bender only turns up after 2 or 3 days with whiplash claims and asks you to pay for hospital bills. So, make sure you report any accident directly to the police to make sure you are covered and fully documented.

Car Repair Scams

Most people that drive do not have any idea what to call a certain part of their engines. These people are the usual targets of these scams. There are car repair engineers and mechanics that will take advantage of you and will install substandard parts.

  1. Fake or counterfeit airbags – in a year, there are at least 1.6 million airbags inflated during car crashes saving the same number of lives. 
  2. Wind Shield Replacement Rip-offs – Never accept an offer from a stranger saying that he can repair your windshield for you. Most of them will use fake brands and will crack easily.

Staged or Fake Accidents

In a very intricate scheme, scammers will carefully stage and choreograph an accident with implanted witnesses, doctors, and pretend legal advisors that will provide false testimony and or advice. These efforts will shake you as a driver to submission. Here are a few noticeable stage accidents and what to look at.

  1. Swoop and Squat – The act starts with someone squatting near in front of your car while there is a car in your back ready to softly rear-end you, causing your car to skid in front, hitting the person in front of you. The third car will then swoop passing you to pretend that it was the car that started the incident.
  2. Drive Down – The choreography will start with a person waving at you to turn or merge at an intersection. If you took the bait, the scammer would speed enough o cause a crash. Then they will claim that you came out of nowhere. There are other versions of this Drive Down tactic on left or right turns.
  3. Side Swipe – This usually happens at intersections with unclear borders. The scammer will occupy the outer lanes and side-sweep your car as they pretend to be turning. Because of the unclear borders, they will claim that you caused the accident.
  4. Panic Stop – A team of con artists will fill up one car and they will slam their breaks in front of your car. The scammers will claim various injuries and will pin you. 

To avoid any of this, make sure to contact the police or 911 immediately. Collect all information needed for the claim and make sure to take photos of car hits. This will make sure you have all documented evidence.

The Bad Samaritans

Scammers will pretend to be doctors, lawyers, or even insurance agents. They will then attempt to vital information from you and pretend to file an insurance claim on your behalf. Hundreds over hundreds of false claims are reported daily to increase premiums or even loss of coverage for you.

Protect Your Car and Yourself

There are a lot of ways to make sure you do not fall into these kinds of scams.

  • Drive carefully – AS you drive, make sure you follow all protocols needed.
  • Make it official – Get an official accident report, even for the simple fender bender. Call the police and get an official statement from all witnesses.
  • Pull out your windshield camera and handheld camera  – take a lot of photos of people, witnesses, scratches, and even the so-called victims, and ready all of those for evidence.
  • Surprise tow trucks  – Never allow anyone to tow your car unless the police are done with their investigation. 
  • Look at the witnesses  – Bystanders can be a part of all the acts. Make sure to pay close attention to them offering to call lawyers.
  • Call your next agent – once the police are conducting their preliminary investigation, contact and alarm your insurance about the incident. This will make sure that they are aware of claims.
  • Report the scam – now that you know what to look for if you are being scammed, make sure to file a report about the scam too.

What To Do – if I was a victim?

  • Alert your Insurance Agent – Making your company about your suspicions is very critical. After all, they are the ones that will cover all the costs. The sooner they know what happened, the sooner they can take action and resolve the issue for you.
  • If it is not documented, it never happened. This is critical to legal proceedings. Prepare the following:
    • Your insurance policy
    • Premium payments proofs
    • Copy of estimates for your repairs.
    • Photos and notes you took on the day of the accident.
    • Copy of the official police report from the authorities.
  • Report the Scam to the proper authorities – the National Association of Insurance Commissioners (NAIC) or National Insurance Crime Bureau (NICB) 1-800-TEL-NICB are the best people to information so they can be more effective in spreading awareness of this kind of scam.

We hope you learned a lot about insurance scams. We at Team AIS take great pride in having agents that are trustworthy and very willing to help you with all your queries.

If you’re looking for a good independent agent who is an expert when it comes to insurance,  please consider giving us a chance to help you! Call us at Advantage Insurance Solutions here in Denver, CO. We can tailor your coverage to your specific needs, maximize protection at the best value, and suggest ways that you can adjust your coverage to take advantage of discounts that insurers give for packaged policies.

Let Our Team Be Your Advantage Today!

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