How Car Insurance Fraud Increases The Price Of Premiums

Whether it’s outright fraud or something that travels closer to that gray area, the fact is that all insurance fraud results in higher premiums. There is no justification for it, and in the end all insurers wind up paying the piper for it.

The Big Lie

There are people who will stage accidents to collect on the insurance premium. They will fake injuries and cause damage to their own autos or other people’s autos to collect what they perceive to be free money. Whether they are faking a theft, lighting their own auto on fire or designing some other loss to collect from the insurance company, the end result will be the same. Fraud causes rising premiums for everyone who owns and insures an auto.

The Little Lie

This one is more common, less expensive and just as costly to the insurance company. This involves the little lies that insured people will tell to get more money from their insurance company. They may claim that a fender bender damaged a door panel that had been damaged by something else. They may inflate the value of the stereo system that was stolen out of their car.

Whatever the lie, anytime you collect money for damages that are not legitimate to the claimed accident or saying that something is worth more than it actually is, you are guilty of committing fraud. Your check may be larger today, but your premiums will also be larger tomorrow.

The Result

Insurance companies plan on producing a certain profit level every year. Every single claim that is paid eats into that profit level. When the profits start to fall below levels from the year before, insurance companies will quickly look for a way to offset the drop.

It doesn’t take them long to find a way to increase profits again. The first step is to increase premiums across the board. Maybe it’s a 1% increase and maybe it’s a 20% increase, but it spreads the cost of the fraud out over the entire pool of customers.

If this does not prove to be sufficient to cover the lost profits, companies will start looking for ways to deny claims. In dire situations, such as what the UK is currently facing with rising fraud levels, they will start taking steps to catch and prevent the fraud. However, the first course of action for insurers remains passing the cost on to their customers through higher premiums.