Insurance No Claims Bonus Fraud
The insurance industry is a conglomeration of more than 7,000 companies that collect over $1 trillion in premiums each year. Because of the enormity of money involved, insurance companies are prime targets for all kinds of scams and get-rich-quick schemes. The total cost of insurance fraud (not related to health insurance) is estimated to cost more than $40 billion per year. That cost is passed on to consumers in the form of increased premiums, which is estimated to cost the average family in the U.S. between $400 and $700 per year. There are a wide variety of players involved in insurance fraud including insurance agents themselves in some cases. One type of insurance fraud that is on the rise is known as insurance no claims bonus fraud. Here is an overview of insurance no claims bonus fraud; what it is, how it works and what can be done about it.
What is No Claims Bonus Fraud?
Insurance companies need to bring in more in premiums than they pay out in claims. They also want to reward safe drivers with lowered rates, which helps encourage them to keep driving safely, which results in fewer claims. When drivers go an entire year without making a claim, they are awarded something called a "no claims bonus." This is generally a lowered rate, but can also include other bonuses, perks or discounts. These bonuses tend to stack up for five years before capping.
If you do happen to make a claim, whether or not you lose your bonus or how much of your bonus you may lose depends on several factors. For instance, if you go three years without making a claim and then make a small claim of a few thousand dollars for a fender bender, you might lose none of your bonus or just a single year of your bonus. Some insurance companies actually allow you to purchase a premium addition which allows you one claim per year without losing your bonus. After that, however, how much of your bonus you lose generally depends on the size of the claim.
For instance, your first year's bonus might be a 30% discount on your rate and then a 10% increase each year until year 5 when you might only get a 5% discount. In total, however, over the course of 5 years, you might receive up to a 65% discount on your initial premiums. If you were to get in a small accident, they might bump you back to a 50% or even 40% discount on your initial rate. If you make a large claim, however, they might wipe out your no claims bonus entirely and even hike up your initial premium.
If you need to change insurers for any reason, you can request a certificate from your previous insurance company showing how many years you have gone without an accident. This is called a no claims certificate or no claims letter. This can help you keep the same discount with your new insurance company that you did with your old one. If your initial premium is also lower, you can save even more with a no claims bonus.
How is No Claims Bonus Fraud Committed?
In some cases, such as when an individual is responsible for a major accident, it can shoot their insurance premiums so high they can no longer afford auto insurance. This is particularly true when there are extenuating factors such as driving under the influence or the accident being proven to be a result of texting and driving. When individuals have let a policy lapse for any reason, they also lose any bonuses or discounts they might have previously had.
Whatever the reason may be, auto insurance is significantly cheaper for safe drivers that make few if any insurance claims. There are fraudulent companies and even individuals that will sell fake no claims bonus certificates or letters. In some cases, these may even be legitimate letters or certificates signed by a legitimate agent who was paid to sign them or they can also be forged. Some are or may appear to be more legitimate than others and some are just outright phony and look it.
Who Gets Hurts by No Claims Bonus Abuse?
No claims bonus fraud has a number of different victims. Some victims may be individuals who purchase fraudulent no claims bonus certificates that are very evidently fraudulent or are later discovered to be fraudulent. Insurance companies can also be victimized if the driver presenting the no claims bonus certificate is a legitimately bad or careless driver with a string of accidents behind them. If the driver in question is an otherwise good and careful driver that just had one really bad accident, but can't afford the higher premiums as a result, then there is likely to be little damage.
In the case of the former, however, a truly bad or unsafe driver is most likely going to simply continue getting in accidents at an increasingly high cost to insurance companies. Those insurance companies, in turn, will have to raise the premiums of all other drivers to cover the costs of the accidents incurred by the unsafe driver. High premiums are meant to be a discouragement to unsafe driving habits. The theory being that if their premiums climb high enough they can no longer afford to drive. If drivers with unsafe driving habits are allowed to pay the same premiums as safe drivers, it not only places a higher financial burden on other drivers, but it also makes the roadways less safe for everyone as well.
No Claims Bonus Abuse Prevention
There is little that the average individual, citizen or even business can do about no claims bonus fraud. Insurance companies and their agents need to be aware of the potential for no claims bonus fraud and institute policies and procedures to protect against it.
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