Month: January 2018

Online auto insurance quotes higher thanks to fraud

Let’s just recap on how insurance works. The insurers estimate how much we’ll claim, add enough to cover their costs and produce a profit, and divide that total among all us policyholders. Assuming the actuaries have done their jobs properly, the income will match the payouts and everyone will be happy. Unfortunately, there an increasing amount of fraud both in applications and claims. This costs the insurers hundreds of millions extra and, when they start running out of money, they increase the premium rates. Yes, that’s right. We end up paying higher rates because of all the fraud. So how does this work?

One of the standard ways of cheating is to describe your vehicle as being for farm use. For example, Californian insurers offer discounts of up to 20% for all vehicles used on farms. The reasoning is simple. When the only real risks are hitting a tree or unexpectedly dropping the front wheels into a gully, comprehensive and collision cover can safely be sold at lower rates. In a recent survey where investigators looked at some 80,000 vehicles claimed as for farm use, nearly 6,400 proved to be high-performance sports and saloon cars. In many cases, this was saving the vehicle owners several hundred dollars per year. The Californian insurers estimated their total losses were around $150 million last year. The same problem affects many of the other declarations made when people complete their applications. Discounts are often awarded purely on the word of the applicant and without any follow-up checks. Before you all start dishonestly claiming discounts, there’s one thing you should know. The lawmakers long ago recognized the risk to the insurance industry so, as soon as the insurer realizes the misrepresentation, it can cancel the policy and, if it has suffered any losses, it can sue you to recover whatever it has lost, e.g. paid out on one of your claims. In other words, the policy is void from the outset.

At the other end, there’s an increasing interest from criminal gangs to stage accidents and claim for the personal injuries sustained by the passengers. To make this possible, there are fake clinics established to write the medical reports and sometimes less than honest attorneys or paralegals prepared to push the claims. This type of fraud is most common in the no-fault insurance states where parties claim on their own insurance rather from each other. The aim of this type of insurance is excellent. When everyone is honest, removing the dispute as to who’s at fault saves at lot of money. In other countries, no-fault insurance programs produce lower insurance rates. Unfortunately, we’re more inclined to be dishonest so there are billions of losses from staged accidents. All these losses are, of course, passed on to the rest of us as higher premium rates.

So when the next auto insurance quotes come and you find they have all risen, go to your PC and send an angry email to your member of Congress and local state representatives. More money should be allocated to fight this type of fraud. Unless more law enforcement officers cooperate with the insurance companies and routinely prosecute everyone who falsely claims discounts or makes false claims, all the online auto insurance quotes from now on will be higher.