How To Spot Red Flags That Could Point to Auto Fraud

Adjusters and SIU Teams need to be alert for red flags that could signal a fraudulent claim. 

Take for instance a minor crash with minimal physical damage to the vehicle, but the claimant reports severe injuries. Or a claimant who’s been treated by a chiropractor for several months for a minor, subjective injury they reported was the result of a vehicle collision.  

While red flags are never solely confirmation for suspected auto insurance fraud, they do help claims adjusters spot questionable information that should be verified by an experienced investigator. 

Learn where signs can emerge—and how to spot them—during an auto claim investigation that could suggest the need for further inquiry from licensed investigators. 

Auto Insurance Misrepresentation 

Auto insurance misrepresentation is when an individual “knowingly lies to obtain a benefit they are not otherwise entitled to receive,” according to the Sonoma County, California, District Attorney’s office. 

In a 2021 study of more than 1,000 consumers between the ages of 18 and 75, more than 20% of consumers said they have deceived their auto insurance provider, with most “claiming damage to their vehicle but then pocketing the money intended for repairs.” Others reported lying about their address or the number of drivers in a household to lower premiums. 

One form of possible auto insurance fraud that investigators might suspect is a staged crash. 

Types of misrepresentation that originate with the claimant can include: 

• Past-posting: obtaining insurance after a crash and making it look like they were insured when the crash occurred 
• Switching Vehicle Identification Number (VIN) tags 
• Vehicle smuggling: buying a new vehicle with maximum financing, insuring it to the maximum with minimum deductible theft coverage, then shipping it to a foreign port and reporting it stolen 
• Crash or collision fraud: when one or more persons intentionally put their vehicle in harm’s way with the goal of collecting a settlement 

Manufactured collisions annually cost the property and casualty insurance industry “billions of dollars” in claims payouts, according to the National Insurance Crime Bureau (NICB). These schemes are more likely to occur in urban areas, late at night, or on private property. A person attempting to misrepresent the facts in this way likely has familiarity with the claims process.  

Auto Theft and Fire Claims 

In auto theft and fire claims, the claimant’s vehicle could have been falsely reported as stolen or intentionally set ablaze.  

Indicators that a trained investigator might discover during the verification process of questionable claims include mechanical damage to the vehicle, prior theft losses (combined with other indicators), the vehicle being a prior salvage, or that the vehicle reported stolen was at the end of its lease. 

Some states, like Nebraska, require that the salvage status of a vehicle be disclosed on the title. If an individual or dealership knowingly sells a salvage vehicle without the disclosure, they could face up to two years in prison, a $10,000 fine, or both, according to the state’s Consumer Protection Division. 

Auto dealerships that sell salvage vehicles without notifying potential buyers of the vehicle’s status could face legal consequences in some states.

If the insured is unable to share vehicle details or opts not to notify their insurance carrier or law enforcement for several days or weeks after the theft, this could also suggest to investigators that additional verification is needed.  

An insured’s demeanor or personal history might raise red flags as well. Background research could reveal an unstable financial situation, such as several medical bills or a recent loss of employment. If they appear pushy or threaten to retain an attorney if a claim isn’t settled fast enough, this could suggest to an experienced investigator that misrepresentation might have occurred. 

Mechanics & Medical Providers 

Sometimes, the claimant is not even aware there are attempts at deception in connection with their crash or injuries. 

An auto body shop could bill for new parts when they replaced equipment with used ones, while a “bandit” tow truck may conveniently show up at the scene of a crash without being called. NICB reports that these tow truck services often charge high fees and take vehicles to unscrupulous body shops. Once at the facility, a vehicle “can easily be held hostage with demands for an insurance company.” 

Some instances of suspected auto fraud could occur with a mechanic or auto body shop that charges a customer for new parts when they installed used parts in the customer’s vehicle. 

A chiropractor who provided services or consultations that led to malingering (claiming that an injury is taking longer to heal than it actually is) would also constitute an auto fraud scam. The same goes for a pharmacist who “upcoded” medicine, meaning they dispensed generic medication to a patient or client but charged the insurance carrier for the more expensive brand name. 

Writing for Medpage Today, a Texas-based medical doctor noted a “pattern of creative use of Current Procedural Terminology (CPT) codes, inappropriate frequency of office visits, and unjustifiable up-charges for medical procedures.” 

Investigators who conduct in-depth reviews of medical treatments and vehicle inspections help adjusters verify the facts of a claim and review questionable information. If these searches cannot substantiate claims of certain injuries, extent of medical care, or the facts of a vehicle collision, there might be concerns regarding potential fraud by one or more parties. 

Because the auto insurance industry is one of the most susceptible to fraud, partnering with a leading investigative partner in the insurance defense investigation industry is vital to claims inquiries. VRC Investigations has experts who deliver comprehensive reports that include in-person interviews, field investigations, social media surveillance, and more to help clients confidently make decisions on their claims.  

Submit an assignment today to let VRC Investigations perform the fact-finding stage of an auto claim investigation. 

Alpine Intel’s content is meant to inform and educate readers using general terms and descriptions. They do not replace expert evaluations that determine facts and details related to each unique claim.