Are You Guilty of Car Insurance Fraud?


"Phantom Garaging" is a form of insurance fraud, growing in popularity—but did you know it affects your rates as an honest consumer?

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Insurance fraud. Sounds intense, right? Exaggerating numbers, false identities, court houses, laser beams, James Bond—fraud is the big time, people. But, it seems that a new kind of car insurance fraud fad has emerged, putting a more seemingly-harmless face on the body of a serious crime. Enter, “Phantom garaging.”

Phantom Fraud

Phantom garaging sounds way cooler than it actually is, for starters. Also known as “rate evasion,” this type of fraud occurs when people register for car insurance in one state, but live and operate their vehicles in another. Obviously to be evading rates, the registration premiums would be cheaper than the state in which people park their cars at the end of the day.

So let’s crunch some numbers here. Take Miami, for example. Miami ranks among the top 5 cities for highest car insurance rates, with residents paying 34% above the national average. If a Miami resident registered for insurance in Alabama, with rates right around the national average, we’re looking at some pretty extensive illegal savings over a few years.

This infographic from BuyAutoInsurance shows car insurance averages by state.
This infographic from BuyAutoInsurance shows car insurance averages by state.

You’re Affected

So, whether you’re a dirty fraudster yourself, or an honest insurance buyer, Phantom Garaging inarguably affects you. As a result of this cheating, other folks who pay the rates they should be paying end up subsidizing premiums of people who are cutting corners. So, honest consumer, this means your rates go up as a result of these other-state registrars.

So, what’s being done about these injustices? Meet the Bond—James Bond, of anti-fraud alliances: The Coalition Against Insurance Fraud. The alliance works by “speaking for consumers, insurance companies, government agencies and others.” Recently, the group appeared in front of the Senate Commerce Committee to speak on getting a bill passed in New Jersey that would crack down on this type of cheating, allowing law enforcement to be more effective when trying to combat Phantom Garaging. Howard Goldblatt, director of government affairs for the Coalition Against Insurance Fraud, told Property Casual,

“Current fraud laws in New Jersey do little to deter rate evasion and do not encourage prosecution. The proposed legislation would help insurers and law enforcement combat this crime.”

In addition, the coalition has partnered with other anti-fraud efforts in New Jersey grassroots campaign that includes letter-writing to state senators expressing favor for the bill and urging their support.

Its Legal When…

Being a college student, a good number of my fellow classmates are from out of state. So obviously, their insurance probably lies with their home state. Does this make them fraudulent?

No. In the bill, we see an explanation of situations where out-of-state premiums are perfectly legal:

“This subsection shall not apply to a person who insures a vehicle in another state, as permitted by and in accordance with the laws of that state, based on a second residence, or attendance at an educational institution, in that other state, if in obtaining the policy the person truthfully discloses to the insurance company or producer the state of the person’s principal residence and the state where the vehicle is principally garaged.”

While it seems like a lot of legal jargon, the upshot of it all is that if you’re open and honest with your insurance companies about where you’re living and where you’re driving your car, there shouldn’t be any problems.