Auto insurance fraud on the rise: Is the economy to blame?

As the nation's economy quickly fell into a recession, the number of auto insurance fraud incidents in the United States has risen dramatically, costing drivers over $6 billion each year in excess auto insurance payments. And according to The Coalition Against Insurance Fraud, the number of people that believe committing auto insurance fraud is an acceptable practice is also on the rise.

Auto Insurance Fraud by the Numbers
The statistics are astounding: In Hawaii, there was a 61 percent increase in convictions for auto insurance fraud from 2007 to 2008. Car give-ups -- abandoning a car and reporting it stolen -- rose by almost 33 percent in 2008 in New York, according to the state's fraud bureau.
In Pennsylvania, law enforcement saw insurance fraud and related crimes jump 30 percent in 2008 over 2007, with car insurance fraud accounting for 46 percent of total fraudulent claims. Two-hundred eighty-eight people were arrested for false car insurance claims, including staged accidents.
"Insurance fraud normally increases during a troubled economy. The credit crunch, subprime meltdown, higher gas prices and general economic distress have led more drivers to seek a bailout through insurance money," said Dennis Jay, executive director of the Coalition Against Insurance Fraud. "They're literally being driven to desperation."
It isn't just phony auto accidents or fake car thefts either. Two men in Idaho were sentenced in January for auto insurance fraud and arson. A car owner simply paid a man to torch his car.
"Arson and insurance fraud are becoming more prevalent with the current decline in the economy," said Idaho Department of Insurance Director Bill Deal. "These crimes will not be tolerated and can result in significant jail time for the individuals involved."

Auto Insurance Fraud: An Ethical Grey Area?
Over the past few years, public outrage over auto insurance fraud has become increasingly lax. According to a study by the Coalition Against Insurance Fraud, in 1997, 91 percent of people thought it unethical to misrepresent facts on an insurance application to get a lower premium. Today, only 82 percent believe the same.
The Coalition's study also shows that 4 out of 5 Americans think insurance fraud in general is unethical, but 1 out of 5 (approximately 45 million people) believe defrauding insurance companies is acceptable under certain circumstances.
Public opinion of the morality of other fraudulent acts such as tax and credit card fraud has changed as well, the Coalition points out. People are especially willing to turn a blind eye to fraud when the person committing it is a friend or relative.
Some of those who contemplate auto insurance fraud try to rationalize their decisions by looking at the circumstances of their plan. They will consider if a type of fraud is commonly committed by others, or if it hurts anyone. If they believe the only ones affected by their actions is a faceless insurance company, they are more likely to go through with the insurance fraud when they would normally never commit other crimes.

Insurance Fraud Hurts Us All
Insurance fraud doesn't just hurt insurance companies -- it hurts everyone buying insurance through the increased costs of premiums.
"Claim abuse continues to be a significant problem," said Elizabeth Sprinkel, Senior Vice President of The Insurance Research Council (IRC). The IRC estimates that claim fraud added between $4.8 billion and $6.8 billion in excess payments to auto injury insurance claims in 2007. "The excess payments attributable to fraud and buildup help drive up the costs of insurance for everyone," added Sprinkel.
The Coalition Against Insurance Fraud estimates that insurance fraud costs at least $80 billion each year, or almost $950 per family. The Hawaii State Department of Commerce and Consumer Affairs, which prosecutes and investigates car insurance fraud, estimates that car insurance fraud costs each Hawaiian household $200 to $300 more in premiums every year.
During these trying economic times, have Americans reached a point of desperation? Does the line between right and wrong blur when the stock market plunges? One thing is clear: As the country struggles economically, less people have a problem with crimes where the 'victim' is a faceless corporation. Even though consumers in general end up paying the price for their crimes, fraudsters don't seem to be bothered