Automotive Insurance Fraud

Automotive Insurance Fraud

Accidents are inevitable. Therefore, insurance pays an essential role in ensuring safety, security, and reinstatement to original financial position. However, some occur intentionally and out of negligence. According to insurance policies, such accidents are not prone to compensation because it violates the principal of utmost good faith. People may orchestrate accidents in order to receive claims from insurance companies. Insurance laws prohibit these illegal practices and perpetrators are liable to law if proven guilty. Automotive insurance is an example of an insurance policy affected by high levels of fraud that makes it ineffective. For this reason, the paper defines automotive insurance, explores examples of fraud, discusses the impacts of these frauds, and provides way to curb automotive insurance fraud in order to facilitate effective claims.

Automotive insurance frauds are violations of the insurance laws that entail deception by individuals in order to obtain false claims for their motor vehicles (Dionne & Laberge-Nadeau, 1999). The acts of availing false documents and misleading information to receive claims also constitute automotive insurance fraud. The frauds concerning this type of insurance occur in several forms. First, fraudulent insurance schemes exist that swindle individual large amounts of money. Majority of individuals fall victims to illegal insurance arrangements that fail to advance claims despite paying frequent premiums. Second, the staged accidents are the most prevalent form. People engage in accidents voluntarily so they can warrant claims from insurance companies (Crews, 2003). Financial reasons prompt the perpetration of this fraud. Third, agent frauds may hoax individuals to subscribe to an illegal insurance scheme. Such agents are deceptive and possess witty persuasion skills that influence the perception and loyalty of the customers. The sole aim of these fraud agents is to benefit from the premiums of individuals because they become reluctant to process claims in case of accidents. Hence, individual need to be alert to avoid deception.

Frauds committed concerning automotive insurance have several implications to the clients. It compromises their financial status because they lose large amounts of money in premiums to dishonest agents and unlawful insurance schemes (Dionne & Laberge-Nadeau, 1999). These frauds contravene the indemnity principle of insurance, which seeks to reinstate individual to their previous financial position. However, these frauds complicate their financial position as it leaves them with huge losses. Dire financial implications also arise from the increase in the premiums paid as insurance companies transfer the cost of risk to the clients (Zweifel & Eisen, 2012). Staged accidents endanger the lives of people involved when they are maneuvered. It compromises their health, safety, and security of their property. According to Zweifel and Eisen, auto insurance frauds limit the saving capability of an individual. They pay inflated premiums that avails a meager proportion of savings. Finally, cases such as, dishonest agents and illegal automotive insurance schemes, increase the personal costs of an individual (Crews, 2003). The rates of taxes as well as the costs incurred by motorists in attaining these policies such as, premiums and underwriting fee, adds to their financial implications. The inability to receive claims in case of an accident further complicates their misery. Therefore, it is upon the motorists to be vigilant.