How insurers investigate fraud

Most car insurance claims are paid without anyone suspecting fraud. When a claim shows warning signs, the claims adjuster refers it to the insurer's special investigations unit (SIU), whose investigators check claims databases, inspect the car, interview the people involved and, if the evidence holds up, refer the case to a state fraud bureau or prosecutors. An investigation is not an accusation, but your policy obliges you to cooperate with it.

Who does the investigating

The insurer's SIU. Many states require insurers to keep one. California requires every admitted insurer to run "a unit or division to investigate possible fraudulent claims" (Cal. Ins. Code 1875.20). Florida requires an anti-fraud unit (or a contractor), a written anti-fraud plan, staff training and filings with the Division of Criminal Investigations of its Department of Financial Services (Fla. Stat. 626.9891).

The National Insurance Crime Bureau. The NICB is a not-for-profit funded by its members, which it says number more than 1,200 property-casualty insurers and related companies. Its agents work across eight regional field offices on "multi-claim, multi-carrier" cases that one insurer could not see on its own, and they take electronic referrals from member SIUs.

State fraud bureaus and prosecutors. According to the NAIC, 42 states and the District of Columbia operate insurance fraud bureaus. They receive referrals from insurers and the public and build criminal cases; see state insurance fraud bureaus: who investigates and how to reach them.

What triggers a closer look

A single red flag rarely means fraud. Investigators look for patterns, such as:

• A claim filed soon after a policy started or coverage was raised.
• Accounts from drivers, passengers and witnesses that don't match each other or the damage.
• A crash with no police report, often described as happening on private property. The NICB calls accidents that exist only in a report or claim "paper accidents."
• A "witness" who appears from nowhere to back the other driver, which the NICB flags as a staged-crash hallmark.
• Several passengers treated at the same clinic, represented by the same lawyer, with similar soft-tissue complaints.
• Damage that looks older than the claimed date, or that doesn't fit the described impact.
• A vehicle theft reported while the owner was behind on payments or the car needed expensive repairs.
• Pressure to settle fast, or reluctance to provide documents.

Insurers increasingly let software do the first sort. The NAIC notes that the industry is moving from fixed red-flag rules toward predictive modeling, link analysis and artificial intelligence to flag claims for human review.

The tools investigators use

• Claims databases. Insurers that subscribe to Verisk's ISO ClaimSearch contribute claims to it and search it; Verisk says the database holds more than 1.8 billion claims. A search can show your prior claims with other companies, the same injured person in several crashes, or the same car claimed twice. NICB analysts work from industry data as well.
• Vehicle and scene evidence. Inspections, photos and their metadata, repair estimates, the car's event data or telematics where available, traffic cameras and canvassing for witnesses.
• Records. Police reports, repair invoices, medical bills and records, towing and storage bills, prior applications and the garaging address on the policy.
• Recorded statements. Interviews, usually by phone, with you and others involved.
• Examination under oath. Many auto policies list, among your duties after a loss, submitting to an examination under oath: formal, transcribed questioning, often by a lawyer for the insurer.
• Medical review. Independent medical exams and bill reviews on injury claims.
• Public information. Social media, court records and business filings. Subpoenas for phone or bank records generally come later, from law enforcement or in a lawsuit.

If your claim is being investigated

An SIU referral usually means a slower claim; it does not mean you are suspected of a crime. Here is how to handle it:

1. Ask what is needed, in writing. Request a list of the documents and statements the insurer wants and the reason for any delay.
2. Be accurate rather than fast. If you don't know or remember something, say so. Guessing creates inconsistencies that look worse than a gap.
3. Provide what the policy requires. Refusing reasonable requests can be grounds to deny a claim for non-cooperation.
4. Prepare for an examination under oath. You may bring a lawyer. Ask for a copy of the transcript and correct errors before you sign it. For a large or disputed claim, this is a good point to consult one (when to hire a lawyer after a car accident).
5. Keep copies and a log of every call, request and document you send.
6. Hold the insurer to its deadlines. An investigation does not suspend claim-handling rules. The NAIC's model claims regulation, which many states have adopted in some form, calls for acknowledging a claim within 15 days, accepting or denying within 21 days of proof of loss with written notice if more time is needed, and written denials that cite the policy provision. California gives insurers 40 days to accept or deny.
7. Escalate if it stalls. If a claim is delayed without explanation or denied without evidence, complain to your state insurance department or appeal (how to appeal a denied car insurance claim). An unreasonable investigation can support a bad faith claim in some states.

When the insurer concludes it is fraud

The insurer can deny the claim, and it can cancel the policy: in California, fraud or material misrepresentation is one of only three reasons an auto policy can be cancelled (Ins. Code 1861.03). Many states also require a report to the state. California insurers must send the Fraud Division a report within 60 days after their SIU concludes fraud may have occurred, and the Fraud Division can pass the case to the district attorney (Ins. Code 1872.4). Criminal penalties are covered in penalties for auto insurance fraud.

The investigation process also distinguishes hard fraud (staging a crash, faking a theft) from soft fraud (padding a real claim, lying on an application). Both can be prosecuted; soft fraud is far more common.

When you are the target

Investigations protect honest drivers too. If someone stages a crash with you, such as a sudden-stop or swoop-and-squat collision, the SIU is your ally. Tell your adjuster why you are suspicious, share any dash cam footage, and give the names of witnesses you trust. California's statute adds a safeguard: when an insurer reports a fraudulent claim and has no evidence that its own insured was involved, it must make sure the insured's premium is not surcharged because of that claim. More on spotting these schemes is in staged car accident scams.

Key takeaways

• Flagged claims go to the insurer's special investigations unit; many states, including California and Florida, require insurers to have one.
• Red flags start an investigation; they are not proof, and an SIU referral is not an accusation.
• Investigators rely on shared claims databases, vehicle and medical evidence, recorded statements and examinations under oath.
• Cooperate accurately, keep copies and hold the insurer to claim-handling deadlines; get a lawyer for an examination under oath on a large claim.
• Confirmed fraud can mean denial, cancellation and a referral to the state fraud bureau or prosecutors.