Rise in auto insurance fraud in California

California has experienced one of its worst economic recessions with unemployment rate of about 12%, which can rise even more. This financial desperation is compelling the Californians to commit auto insurance frauds. They are destroying their cars or setting them fire in order to get an insurance payout and utilizing the money to sustain themselves in economic downturn (2007-2009).

Auto insurance fraud statistics (2007-2008)

According to California Department of Insurance (CDI), there has been about 31% increase in fraud cases in 2008 in comparison to that of 2007. Poizner, the California Commissioner, has stated that the insurance department has received about 300 more suspected vehicle theft and arson cases in 2008 than in the year 2007. In addition, CDI has received about 200 more referrals on suspected vehicle theft fraud in 2008 than in 2007. It shows that there has been significant increase in auto insurance fraud in past 1 year.

Reasons behind the increase in fraudulent acts

Davis Simon, the Deputy District Attorney with the organized auto insurance fraud unit, has stated that most of the people committing such crime are first time offenders without any criminal record. Therefore, it can be said that dire financial conditions have compelled them to engage in such fraudulent acts. However, Poizner has reminded people that fraudulent acts would increase their financial problems even more.

Increase in fraudulent acts – The Effects

According to Pete Moraga, spokesman for the Insurance Information Network of California, auto insurance fraud is not a victimless crime and everyone has to pay for it. As an effect of the fraudulent acts, auto insurance companies are increasing the premium rate, due to which, each California resident is paying about $500 more for the required coverage. This is because the insurance companies need to cover up the costs required for carrying out investigations.

Auto Insurance Fraud – Punishments

As per California Auto Insurance Fraud Law, people convicted of insurance fraud need to face a punishment of 3-5 years in prison along with paying a fine up to $50,000 or double the amount (of the fraud), whichever is more.

As a consequence of the fraudulent acts, there’s a chance that the auto insurance premium rates may increase in near future. However, the Department of Insurance needs to approve it before the increased rates come into effect.