Many have asked the question – “Why are car insurance premiums so expensive?” This question has multiple answers including theft, road conditions, escalating costs of vehicle repairs etc. Unfortunately many insurers have to increase car insurance premiums due to the substantial rate of fraud in the car insurance industry. Industry experts have estimated that from 25% to 33% of all car insurance claims have elements of fraud to them.
But how innovative are these vehicle owners when making their fraudulent claims? How can we identify them? We can differentiate insurance fraud in hard fraud and soft fraud and provide a few examples from actual incidents.
Hard Fraud / Fabricated Car Insurance Claims
This is a carefully premeditated act with the purpose of benefitting from a false claim. The loss of property, in this case a motor vehicle is planned or spun out of thin air in the hope that the insurer will pay out the value of the policy.
There is a growing tendency for insurers to submit fraudulent claims where the entire loss is fictitious. Recent reports revealed that some vehicle owners in South Africa were taking their own cars across the borders of neighbouring countries, only to claim they were stolen so that they could claim insurance money. The objective is to benefit from both the sale of the vehicle across the border and the payment of the insurance claim!
Another simple example of a fabricated claim is where the owner of a vehicle parks his already damaged car in the path of a storm so branches and hail damage the car, and then files a claim to have the car repaired.
Soft Fraud / Exaggerated Car Insurance Claims
This is the white –lie equivalent of insurance fraud where claims are usually exaggerated following a loss. The insured does have a valid claim but instead of just claiming for their actual loss they increase the amount of the claim by either claiming for goods of a far superior value than the actual goods lost or stolen, or by claiming goods that were not lost or stolen at all. A vehicle might be stolen and the insured might claim that other expensive items were in the boot of the vehicle or that the vehicle had a very expensive sound system installed etc.
In this example the insured claims more from the insurance company than he is entitled to. This is the most common type of fraudulent insurance claim and the most difficult to prove. The risk to the vehicle owner is that if such vehicle is recovered and it is found that the claims to the expensive material are indeed false – the insurer might reject the entire claim!
A lesser known case of insurance fraud is where the insured provides false information to prevent the insurance company from taking a technical point or delaying payment of the claim. The insurer may gather false statements from fictitious witnesses of have a signature forged to have the claim paid.
Insurance fraud forces the insurers to appoint more claims investigators and to scrutinize claims very carefully. Unfortunately this increases the car insurance premiums payable by you and me…
We would like to urge all vehicle owners to be alert to these fraudsters and to blow the whistle on those who dare to benefit from fraud to the detriment of other innocent vehicle owners!