Everyone pays for your car insurance fibsPete Moraga, spokesperson for the Insurance Information Network of California (IINC), says the media usually focus on more sensational incidents of "hard" fraud like accident scams run by crime rings. "Most people think of insurance fraud as the headline-grabbing crimes of staged auto accidents and workers comp fraud, but soft fraud is the hardest type for the industry to deal with because it's harder to detect," he explains. "'Claims padding'" is an example. You get rear-ended and claim more pain or injuries than you actually suffered. Your car is damaged, but you urge the body shop to fix dents that never happened. "These may seem innocent enough -- and perpetrators may think it's a victimless crime. But it really is a crime that everyone with an insurance policy pays for in higher rates. Consequences could be jail time, paying back the fraud costs and the humiliation of going through the legal system," says Moraga.
Soft fraud "is far more common" than hard fraud and contributes significantly to the $30 billion a year all fraud costs insurers, according to Allstate. The company says insurers report "some degree of fraud" in as much as 15 percent of all their claims, and "questionable claims" have climbed by about 20 percent since 2009. (See: " 6 shady ways to kill a car insurance claim.")Here are a few common examples of car insurance soft fraud, as described by Allstate and the auto buying and research site, CarsDirect.com:
- Grade faking: A parent or student lies about high grades to get a good-student discount.
- Location lies: A policy-holder tries to get a premium cut by using a parent's address in a rural, less-traveled area to register and insure a car that's usually driven in a more accident-prone city. He also tells his insurer that he drives half the miles he really does.
- Missing drivers: A family fails to inform their insurer that there are two teen drivers in the household, not just mom and dad.
- Community service
- Fines and restitution
- Time in jail or prison