High Auto Insurance Premiums: The Fraud Factor

So your monthly insurance premiums are pushing $100 a month, and you’re convinced your insurance company is taking you to the cleaners. Right? Not so fast. MoneyCentral reports this week that, in 2001, drivers in four states—New Jersey, New York, Rhode Island, and Massachusetts—paid average combined high auto insurance premiums in excess of $1,000. Washington, DC, also boasted annual average premiums over $1,000, ranking between New York and Rhode Island. The national average for that year was $817.43.

The figures come from a study compiled by the National Association of Insurance Commissioners (NAIC), which says the term “combined premium” comprises liability, collision and comprehensive coverage. NAIC reports that a major factor contributing to high auto insurance premiums is the robust Northeast economy. Simply put, more money equal finer and newer automobiles, which cost more to insure.

While this is no doubt true, there is another factor that may contribute at least as much to Northeast auto premiums as the robust economy: insurance fraud. According to a February 2011 press release by the office of Senator Charles E. Schumer (D-NY), staged car accidents and other scams cost drivers and insurers in New York in excess of $229 million a year in inflated insurance premiums.

A common example of auto insurance fraud is the “Swoop and Squat.” In this scenario, the scammer swoops in front of you, jams on the brakes, and you hit them from the rear. Inside the scammer’s car are passengers who then pretend to have severe and painful injuries, even if the collision was at a very low speed.

The upshot: a black mark on your driving record, elevated premiums for years to come, and a big cash settlement for the scammer.

ScamBusters.org, a great website whose mission is to help people identify and avoid scams both on-line and off, devotes a page to staged auto accidents and other forms of insurance fraud. To reduce your odds of being caught up in such a scam, ScamBusters recommends the following defensive measures:

  • Don’t tailgate, which helps reduce the chance of “swoop and squat.”
  • Always keep a pen and paper and inexpensive camera in your glove compartment so you can be prepared if you’re ever in an accident. Write down all the important info immediately if you’re in an accident: license plate number, insurance info, etc. Take pictures of the damage done to both cars and the passengers.
  • If you’re in a collision, count the number of passengers in the other car and get their names, phone numbers, and driver’s license numbers. That way, people not in the car cannot make claims against you.
  • Call the police immediately even if there is just minor damage. Get a police report, including the officer’s name. Make sure it accurately describes the degree of damage.
  • Watch how the people in the other car behave. If they stand around joking until the police come—and then all of a sudden complain loudly about pain—you know something isn’t right.
  • Only use medical, car repair and legal professionals you trust.

So what’s the bottom line?

The police can’t be everywhere at once, and insurance companies have to turn a profit to survive. The reason scammers manage to make off with hundreds of millions of dollars a year in other people’s insurance premiums is that—far too often—scams work! Why do they work? More often than not, they work because drivers fail to take common-sense precautions like the ones listed above.

Senator Schumer and others have proposed massive legislation aimed at recovering more damages from succesful scammers in an effort to reduce the cost to insurance holders, but to some degree this puts the cart before the horse. An alert, responsible, and prepared driving public means that scammers will have to work harder for their living… and, the criminal mind being what it is, that should be enough to push many of them into another line of work.


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