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Although measures have been taken to tackle the problem, such as the introduction of Continuous Insurance Enforcement and the Motor Insurance Database, it’s estimated car insurance fraud costs the industry more than £1 billion a year.
And, ultimately, it’s honest motorists who pick up the bill because fraudulent claims push up the price of annual premiums by about £50.
What is insurance fraud?
Insurance fraud is anything that tries to cheat the insurance process – from giving inaccurate information on a quotation, to making a false claim for whiplash.
On the flip side, an insurer knowingly denying a customer a benefit that is due is also considered insurance fraud.
Car insurance fraud is the most common and most costly type of fraud, and it’s on the increase.
The latest figures from the Association of British Insurers (ABI) show that the 67,000 recorded cases in 2014 represented a 12% year-on-year increase.
The cost of these fraudulent claims was £835 million, a 3% increase on the 2013 figure.
Types of motor insurance fraud
Application fraud – If you fail to disclose or misrepresent information at the application stage (say you leave out the details of an accident or claim, don’t report any points on your licence, or fail to mention any car modifications), this is considered insurance fraud.
It this comes to light when you make a claim, you might find the pay-out is restricted or even that your policy is declared void. That could cost you thousands of pounds if you’re deemed liable for an accident.
Even just making a few ‘tweaks’ at the quotation stage, such as saying your car is kept on a driveway when it’s actually kept on the road, could be enough to invalidate your policy.
And it doesn’t matter if your non-disclosure was a genuine mistake, you’ll still have your insurance called into question by the insurer.
Fronting – Adding what’s called a ‘named’ driver is an effective way to cut the cost of cover. But if you declare the named driver to be the main driver in a bid to bring the premium down (because they’re a lower risk driver than you), you’ll be guilty of a type of fraud known as ‘fronting’.
Fabricated or exaggerated claims – This is a type of opportunistic fraud whereby someone who is involved in an accident will submit a claim for personal injury, usually whiplash, even though they have not been hurt in the crash. Alternatively, they might exaggerate their symptoms in the hope of receiving a greater amount in compensation.
Crash-for-cash – This is when a driver deliberately causes an accident in order to generate a claim. This can involve two motorists contriving to crash their cars and splitting the compensation claim between them, or one motorist causing an accident with an unsuspecting motorist. Commercial vehicles are often targeted in crash-for-cash scams.
Phantom passenger claims – This is when an accident has occurred and injury claims are submitted for a number of passengers who weren’t actually present at the scene. This can be as part of a pre-planned crash-for-cash scam or an opportunistic crime at the scene of a genuine accident.
Contrived accidents – This involves making a claim for damage as part of a collision that never actually occurred. A popular way of doing this is to move an already damaged car to an accident black-spot to create the impression an accident has occurred so the insurer foots the repair bill.