Car Insurance Fraud and Penalties for Falsifying Documents

Man and woman inspecting car after an accident hoping each person has insurance coverage.
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You may consider insurance fraud a victimless crime. But filing fraudulent claims or lying to get lower insurance rates hurts those who follow the rules. A 2016 study by data analytics firm Verisk pegged the annual cost of car insurance fraud at $29 billion. That cost eventually gets passed along as higher insurance rates for all drivers.

How Insurers Detect Car Insurance Fraud

Insurers are fighting back. An increase in location-based technology and sophisticated tools for analyzing data are making it easier for insurance companies to track inconsistencies between what drivers report and what they do. That increases the likelihood of getting caught.

What may seem like a way to save money in the short term could be a crime.

There are some common ways policyholders lie to keep their costs down.

Hidden Drivers

The 2016 study by Verisk identified the intentional failure to list drivers on the policy as the leading type of fraud, costing the industry $16.5 billion a year. Up to 15% of special policies were found to have hidden drivers of the insured vehicle. These can be new high-risk teenage drivers who could add thousands to the cost of a family's insurance.

In other instances, these unlisted drivers are those with moving violations such as speeding, driving recklessly, or disregarding a red light. Because an insurance company must check state motor vehicle records to uncover surchargeable offenses, many drivers are willing to take the chance to keep quiet about it.

Lying or forgetting can cost you in the long run. It is possible for your car insurance carrier to deny coverage for a claim and cancel your policy if you have misrepresented yourself. Therefore, you would have been paying for a policy that will do you no good at all at the time of a claim. It is definitely better to be straightforward and upfront with your insurer.


Coverage is still possible. Some carriers will make certain your policy is rated properly from here on out. It is certainly not recommended to take the risk—it is a major gamble.

Other Types of Misrepresentation

Besides unlisted drivers, there are other ways that car insurance policyholders aren't always upfront about their driving habits or their car. For example, by listing the wrong garaging address, the price of a premium could vary significantly. In other cases, a driver may not disclose the true amount their vehicle is used—like if they are driving extra miles for business purposes.

Verisk revealed that 10% of auto policies had substituted different addresses, resulting in $3 billion in lost premiums for the industry. Insurers are fighting back with the use of vehicle identification and other forms of location tracking, so the risk of losing coverage for the sake of saving money on an insurance policy may be an increasing risk.

Falsifying Documents

Forging insurance documentation can bring about stiff penalties. People who do want or cannot afford insurance might be tempted to create their own proof of car insurance to provide to law enforcement or the Secretary of State. Computers make it fairly easy to accomplish; however, it is easy to get caught.

Lots of states use pin numbers to verify car insurance. Or, a simple call to the insurance carrier provided will tell if the policy is valid or not. Each state has its own set of penalties for fake insurance documents. Most penalties include a large fine and possible imprisonment.

Criminal Rings

An insurance criminal ring includes an organized group of people in on insurance scams and files multiple fraudulent claims earning themselves huge paydays. Insurance criminal rings often include unethical doctors and body shops, the biggest being false medical claims filed for non-existent injuries.


No-fault states get the brunt of fraudulent medical claims because claims are paid without going through the courts.

Car Insurance Fraud Affects All Drivers

Everyone always wonders why car insurance is so expensive. Insurance fraud accounts for a large part of everyone's overall expense. It is certainly frustrating that we all have to pay for other people's actions.

Insurance carriers can only take so many preventative measures. As long as you want your claims to be paid, it is the insurance carrier's responsibility to make sure they have enough money to cover you. Raising premiums is often the only way to ensure they will have enough money on hand to cover life's unpredictability.