How to avoid being ripped off by fake car insurance

Chris Kissell

Imagine buying car insurance, only to find out later that your policy is worthless. That’s what recently happened to some drivers in the Detroit area who bought fraudulent car insurance policies from a dishonest agent.

The problem of scammers selling phony car insurance is real, but its effect is difficult to measure, says Frank Scafidi, a spokesman for the nonprofit National Insurance Crime Bureau.

“These cases only come to light after an event causes someone to file a claim, only to learn that a policy does not exist,” Scafidi says. “We hear of cases like this from time to time, but fortunately, they are not all the common.”

However, that does not mean drivers should let down their guard, according to James Quiggle, a spokesman for the nonprofit Coalition Against Insurance Fraud.

“Fake auto insurance is a well-known part of the insurance fraudscape,” he says. “The scams rear up often enough that drivers should be careful.”

2 types of scams

Quiggle says scams come in two primary forms: 

• An agent or company representative sells fake coverage from a phony car insurance company.

• An agent sells fake coverage using a legitimate company’s name by forging a policy or proof of insurance. In other cases, the scammer may sell coverage under a company name that is quite close to – but not exactly the same as – a well-known legitimate insurer.

Anyone can be a victim. Crooks often prey on vulnerable people, such as lower-income immigrants or the elderly. Scammers may work under the umbrella of a so-called “faith-based group” – a religion-oriented organization that sounds legitimate – so they can earn a consumer’s trust before selling bogus auto coverage to him or her.

Fooling drivers can be easier than it sounds. It’s not difficult to print out a phony policy that looks real and professional, Quiggle says.

Worst-case scenario

In a worst-case scenario, you may not discover your insurance is fake until after you need to make a claim. In such situations, your legal protections will vary, Quiggle says.

“That’s a complex legal issue that you’ll need to resolve with the varied insurers involved in covering the crash,” he says.

Quiggle says the outcome is likely to be a series of headaches for you. “You could end up with fines, court appearances, lawsuits and much more,” he says.

Amy Bach, executive director of United Policyholders, a nonprofit that provides insurance information to consumers, says your options after discovering you bought a phony policy depend on how and where you bought the coverage. “If there was a third-party middleman involved in the sale, you will have recourse from them,” she says.

But Scafidi warns that if you have a fake policy, odds are good that you’ll be on the hook for many or all costs related to damages in a car crash. Still, he urges you to pick up the phone if a shady agent sold you phony coverage tied to a legitimate insurance company.

“It’s worth a call to the company you thought you were insured by to see if there is any middle ground where they might meet you in resolving the problem,” he says.

Reporting a phony policy

If you suspect you’ve been duped by a phony car insurance policy, contact the proper authorities, such as your local police department and your state insurance department, Quiggle says.

When you report the alleged fraud, have your policy and other related documents handy as supporting evidence. You’ll help your cause if you’ve kept notes of all conversations and transactions related to the insurance purchase, Quiggle says.

Also, contact the company or agent that sold you the insurance, Bach says. “Send a written request for a full premium refund in writing ASAP,” she says. “But don’t expect to get it.”

In addition to contacting authorities, she suggests going to the media to get the word out about the scammers. “If there’s a TV station in your area that offers a consumer complaint hotline, report the situation to them,” she says.

Avoiding a scam

Of course, the best way to avoid the pitfalls of phony car insurance is to avoid them altogether. United Policyholders website has a link to resources in every state that can help you do research.

“Look up the company’s name to make sure they’re licensed and legitimate,” she says. “Check their consumer complaint statistics if that info is available in your state. Check whether they’re a member of the Better Business Bureau.”

Quiggle suggests several other steps you can take to spot a potential scammer. They include: 

• Check competing policies. If the price on one insurer’s coverage is especially low, you could be dealing with a fake or stripped-down policy.

• Promptly call the insurance company listed on your policy. In some cases, a phony agent will print fake certificates that are supposed to be from a legitimate insurer. Call the insurer to make sure you’re actually covered. 

• Avoid agents who make fishy requests. Does the agent request cash only? Does he want the check made out directly to him instead of the insurance company? Those are big red flags.

• Look for sloppiness in the paperwork. Misspellings, typos and obvious grammatical errors are signs of a potentially phony policy.

• Examine the website closely. If you’re buying online, compare the website with those of other insurers. Make sure there’s no drastic difference in features or professional appearance.

• Call a company representative. Chat with him or her to see whether the representative understands the car insurance business. “If they’re vague or evasive, back off,” Quiggle says.

After you buy a policy, continue to be vigilant. Contact your insurer directly and ask for a regular review of your coverage, Scafidi says. “The best protection is for consumers to take the time to verify their coverage,” he says.

Ask to have a copy of your coverage be mailed to you separately, Scafidi says, and keep that in your records.

“Consumers should just follow their instincts,” he says. “If something doesn’t seem legitimate, check it out. You just might save yourself a lot of grief and even more money.”