According to estimates from the National Insurance Crime Bureau (NICB), auto insurance fraud adds $200-$300 a year to your individual insurance premium. A rather insignificant sum compared to its overall impact because every business has to pay for insurance as well.

Businesses must charge you more for goods and services when fraud raises their insurance rates, . That means that not only consumer goods and insurance premiums, but taxes and anything else with a dollar sign in front of it are affected by insurance fraud.

Forms of Fraud
Auto insurance fraud is generally classified as “hard” or “soft.” Hard fraud, which involves staging or inventing an event that would be covered by insurance, includes:

• 1. Staged accidents, such as an intentional rear-end collision
• 2. Phony injury claims, where criminals lie about trauma sustained in an accident
• 3. “All-ins” — inventing injuries to people who were not in the vehicle at the time of the accident
• 4. Claiming a one-car accident was a hit-and-run

Staged accidents are the most harmful type of insurance fraud for the average driver, as a victim of a staged accident could be injured or killed. Even if the victim was not at fault, their premiums may rise or their policy could be cancelled. They can also lose wages and be bogged down in an endless chain of claims paperwork and vehicle repairs.

Soft fraud, also known as “build up,” is more opportunistic, involving policy holders who pad an otherwise legitimate claim. They may:

• 1. Add previous damage to a current claim
• 2. Conspire with a body shop and/or claims adjuster to boost a repair estimate
• 3. Devise a plan with doctors to obtain unnecessary medical treatments

Hard to believe that it’s not just the policy holders who participate in auto insurance fraud. Organized fraud rings have become a major problem nationally and can include dishonest doctors and lawyers, auto mechanics, even insurance salespeople.

Funding the Fight
The nation’s property/casualty insurers have created special investigative units to fight insurance fraud, and many states have dedicated bureaus and specific laws and regulations to combat fraud. Though these sophisticated systems designed to protect insurance companies (and their customers) from fraud can also take a toll on the policy holder who’s filing a claim.

“A claim flagged as potentially fraudulent takes longer to settle because it has to be investigated. Meanwhile the policy holder who could be facing expensive medical and vehicle repair bills, waits for the insurer to reimburse him or his doctors. If the policy holder gets fed up waiting or is wrongly denied he can file a suit or take legal action. That’s a heavy financial and emotional burden, if you happen to be wrongly accused.

Ironically, insurance companies can be so guarded concerning fraud that they occasionally victimize the victims. Stories abound of honest drivers whose cars were stolen, only to be accused by both insurers and police of dumping their car and filing a fraudulent claim.

Cost to Consumers
After tax evasion, fraud is the second most costly white-collar crime in America . And the specific problem of auto insurance fraud is so widespread that almost a quarter of bodily injury claims resulting from vehicle crashes, and at least a tenth of property/casualty insurance claims, are fraudulent, according to industry studies.

These costs adds up. The Insurance Research Council estimates that excess payments made by auto insurers due to fraud totaled as much as $6.8 billion in 2007. But any statistic involving auto fraud dramatically understates the problem, because it relates only to claims already paid, not to claims dropped by the filer or dismissed due to suspicion of fraud.

And none of these estimates incorporate the “soft” labor costs involved in dealing with fraud, including the drain on businesses, law enforcement, the civil justice system, regulatory agencies and local emergency services. While auto insurance fraud seems to most people like an “invisible” crime, its true cost to the consumer is far greater than we may ever know.

(If you suspect insurance fraud, call the NICB at 1-800-TEL-NICB. You can remain anonymous and may be eligible for a reward.)