The Absurd Spectrum of Auto Insurance Fraud

Insurance fraud costs the industry $50 billion per year — which could mean $400-700 annually out of your pocket

back of police officer

Far from a victimless crime perpetuated against bloated corporations, insurance fraud reaches into the lives of everyday citizens. It costs the industry more than $50 billion each year. Not million—billion. And insurance companies pass their expenses on to you, the everyman consumer, resulting in premiums that cost the average family $400-$700 more than they should per year. So even if you never commit insurance fraud yourself, it still hits you in the wallet.

You may have heard of people burning their cars to collect insurance claims or hiding their cars far and wide and claiming they were “stolen.” However, insurance fraud gets much weirder than that. Below, we explore the spectrum of auto insurance fraud—from complicated fraud networks, to the types of fraud otherwise law-abiding people might be tempted to commit, to the odd lengths some people will go for a payout.

car on fire with black smoke pouring out

Outright Insurance Fraud: Florida Insurance Scam Ring

Last year, law enforcement in South Florida busted an extensive crime ring committing elaborate insurance fraud. Dubbed “Operation Cold Call” by investigators, the scheme involved chiropractors, lawyers, and clinic employees engaged in an organized personal injury protection (PIP) fraud scheme. Over the period of a year, undercover agents infiltrated a wide network of con artists who illegally recruited (and then paid) people to lie about their injuries and care they’d received after crashes, resulting in hundreds of thousands of dollars of stolen funds. One investigator told CBS 10 News that each so-called patient is worth $10,000 in insurance claims.

Insurance fraud schemes involving payment for fake injuries that are never actually treated are rampant in Florida, causing upstanding residents to pay about 40 percent more for PIP than they should, CBS reported. Fraud rings like this aren’t unique to Florida, and people across the U.S. are affected by similar crimes. However, Florida law enforcement cite Operation Cold Call as the first of many state-wide insurance fraud crack-downs, which is good news for residents who’ve been overpaying.

Con artists in Florida recruited people to fake post-crash injuries to claim big insurance $.

The “Gray Area” of Insurance Fraud: The Montana License Plate Scam

It’s clear to most of us (or it should be) that the people involved in the Florida insurance scam were committing fraud—heck, they even knew it, as they made sure to tell undercover investigators to emphasize that when recruiting, they were “marketing” not “paying people to commit insurance fraud.” But other types of insurance fraud are a little murkier—at least on the surface—and even otherwise law-abiding citizens can be lured into committing them when the possibility of saving money seems too good to pass up. 

The state of Montana doesn’t require vehicle inspections, nor do they have sales or use tax on the vehicles themselves, and some people are tempted enough by the savings to register their cars in Montana even though they live and drive in a different state. In fact, an entire industry exists to help people do this, writes Jalopnik. Here’s how it works: an out-of-state resident hires a Montana law firm to create a sham LLC (Limited Liability Company) or corporation which then buys your expensive exotic car or RV etc., incurring no sales or use tax. The vehicle is plated and registered in Montana, and the owner takes it home to the state in which they live. Technically the LLC bought the vehicle and the actual owner is just driving a “company car,” so everything appears above-board. But, the truth of how scenarios like this play out is more complicated.

Montana has an entire industry which helps residents commit insurance fraud.

While someone might get away with this one for a while—especially if no emergencies or other insurance claims occur—the risks are high and any unforeseen event is likely to ruin your scheme. An attorney writing for Jalopnik says the possible consequences of this scheme are: auditing by the IRS resulting in fines for tax dodging (or worse), and auto insurance claim denial in the event of a crash, weather event, or theft (any whiff of insurance fraud is grounds for a cancelled policy or denied claim).

Schemes (or scams, if you will) like the Montana license plate change-up aren’t the only types of insurance fraud that exist in an area some people might be able to convince themselves is gray. With the right spin, some people could find themselves giving into the temptation of committing similar types of fraud, like phantom garaging and unreported vehicle modifications. But don’t kid yourself: while you might get away with these practices for a while, if you need to make an auto insurance claim, you are likely to end up with a denied claim at best, and perhaps even criminal prosecution.

black Porsche toy car

Just Plain Weird: Auto Insurance Fraud We Can’t Believe People Dreamed Up

From career-criminal scams to ones that might be easy for the average person to fall into, we end with the weirdest auto insurance scams fraudsters have ever dreamed up:

  • Lord Brocket’s Failed Exotic Car Butcher: Facing mounting debt, a man known as Lord Brocket broke down $4.5 million worth of classic and exotic cars into pieces and buried them in his backyard. He then said the cars had been stolen, and made an insurance claim. His ruse was discovered, and he spent a few years in prison.
  • The Hot Wheels Ruse: An agent from Progressive told of one customer who made a claim for parts stolen from his vehicle—everything looked up to snuff at first, but when investigators looked more closely they realized the photos were actually extreme close-ups of a toy car. The toy car was, in this enterprising fraudster’s defense, the same make and model as his actual vehicle. Still, talk about a moon shot.

Have you heard any stories of auto insurance fraud you just can’t believe people thought they’d get away with? Tell us in the comments.