Is Auto Insurance Fraud Illegal? The Answer May Surprise You

Most people would assume it’s against the law to commit insurance fraud. And most of the time, they’d be right. But in the world of auto insurance? Not always.

Fraud not illegal – come again?

Let’s be clear, some kinds of insurance fraud are quite assuredly illegal, in all 50 states. For example, it’s always against the law to trick an insurer into paying out money to which the policyholder is not entitled.

But other kinds of fraud – such as auto insurance rate evasion – aren’t necessarily prohibited in print. As a result, there’s little accountability for policyholders who are willing to lie in order to dodge the rules. For example, there’s no legal barrier to prevent a driver living in New York to put it down on paper that their vehicle is garaged in Idaho.

At least, not yet.

The legal landscape is changing

According to Property Casualty 360, drivers who lie about their garaging address have become enough of a problem in New Jersey that the State is “considering a bill that will impose stiff penalties for fraudsters who participate in ‘phantom garaging'” – such as Shareem Taylor, a New Jersey resident recently charged with using Craigslist to help other drivers get lower rates by registering their vehicles out of State.

By establishing this type of activity as a violation of the New Jersey Insurance Fraud Prevention Act, the law would make it a crime of the fourth degree, Insurance Journal said.

New Jersey isn’t the only State taking steps to crack down on fraud. In Michigan, where staged-crash rings are driving up premiums, a new State agency is being proposed to fight them. In California, transnational groups who’ve engaged in a pattern of fraud stand to forfeit their assets if caught.

At the same time, a New York bill similar to New Jersey’s just “skidded to a halt.” While efforts to make fraud a bit less appealing can be found brewing across the nation, the battle to protect insurers (and society) by introducing anti-fraud legislation is not what you’d call a smooth or simple journey.

Clearly, there’s a long way to go

The courts aren’t the only place where fraud can be ferreted out and stopped. Smartphone UBI can alert insurers to fraud long before it would have been detected otherwise. In some cases, it can even prevent it in the first place. We’ve mentioned it before: the well-aggregated, easy-to-visualize data that usage based insurance provides is a powerful weapon in the fight against fraud.

• Built-in mile-tracking makes it impossible for drivers to fudge annual mileage counts
• GPS data can detect a policyholder’s real garaging address
• Analytics on driver behavior could suggest the presence of an unreported driver
• Mobile telematics data can be leveraged to corroborate a policyholder’s claim

If you think about it, there’s another anti-fraud incentive wrapped up in the usage based insurance package. Why do drivers fudge the numbers in the first place? Because they want lower rates, of course. While unethical behavior is never okay, there’s nothing wrong with looking for the best possible deal you can get. That’s just what usage based insurance offers. Which, in our opinion, makes it a bit of a win/win.

Learn more about smartphone UBI by downloading our free report, “10 Reasons to UnPlug and Unburden UBI.”