Spotting the Signs of Auto Insurance Fraud

GEICO Senior Special Investigations Unit Investigator Matt Killam, CFE, MBA, examined the scope of auto insurance fraud, common schemes used by perpetrators and the investigative techniques insurers use to identify and prevent fraudulent claims during his session at the 37th Annual ACFE Global Fraud Conference. He emphasized that as fraud schemes continue to evolve, insurers are increasingly combining data analytics, technology and traditional investigative techniques to protect policyholders and reduce the rising costs associated with fraudulent claims.

Common Fraud Schemes

Killam began by outlining the distinction between “hard” and “soft” fraud. Hard fraud involves the deliberate staging or fabrication of a loss, such as intentionally causing an accident or reporting a theft that never occurred. Soft fraud, by contrast, occurs when a legitimate claim is exaggerated to increase the payout. He said that soft fraud accounts for roughly 60% of insurance fraud cases, and hard fraud represents approximately 40% but often results in substantially greater financial losses per incident. The presentation noted that motor insurance fraud costs billions of dollars annually and is considered one of the nation’s leading economic crimes.

He highlighted several frequently encountered fraud schemes, including exaggerated injury claims, inflated repair estimates, concealment of excluded drivers, misrepresentation of vehicle usage, phantom passengers, duplicate medical billing, inflated storage and rental charges and damage that’s inconsistent with the reported loss. These schemes often rely on small misrepresentations that can significantly increase claim values when left undetected.

Medical claims present their own set of warning signs. Killam said investigators frequently look for “high frequency” treatment patterns, repeated use of the same clinics or attorneys, and medical billing that appears disproportionate to the severity of vehicle damage. He said one common red flag occurs when “there's no damage to the vehicle at all” yet claimants submit extensive chiropractic treatment bills. In some cases, he said, “Medical bills exceed the damage severity of the accident itself.”

Effective Investigative Tools

Killam focused on the importance of identifying fraud indicators and investigative best practices. Investigators look for inconsistencies in statements, unusual claim timing, discrepancies between reported damage and injuries, suspicious medical treatment patterns and documentation that conflicts with physical evidence. Killam stressed the importance of effective interviewing techniques, including open-ended questions, active listening and careful observation of responses.

Killam argued that successful investigations begin long before an interview takes place. “You're not going on a fishing trip,” he said, explaining that investigators review claim files, vehicle histories, police reports and other records before speaking with claimants. He added that investigators should rely on “actively listening” and asking open-ended questions, allowing claimants to provide detailed accounts that can later be verified against available evidence. According to Killam, investigators often know many of the key facts before an interview and use the conversation to confirm or challenge those facts.

He also discussed the growing role of event data recorders (EDR), which capture information such as vehicle speed, braking activity, throttle position, impact severity and airbag deployment before and during a collision. He added that these data sources can provide critical evidence when assessing the validity of a claim.

Beyond traditional claims analysis, insurers also use cross-carrier databases, prior claim histories, maintenance records, social media reviews and license plate recognition tools to identify inconsistencies. Investigators can sometimes identify vehicle damage that existed before a loss was reported, helping determine whether a claim involves preexisting damage.

Strengthening Fraud Prevention

Killam noted that claims reported immediately after a policy is purchased receive additional scrutiny. He described a specific case in which a driver struck a deer and then enrolled for insurance coverage shortly afterward before reporting the loss. In such cases, investigators compare statements, policy records and police reports to establish whether the accident occurred before coverage became effective. “That's a highly suspicious situation,” Killam said of losses reported within minutes of policy inception.

He described another case involving a minor impact loss with exaggerated injury claims. Relying on EDRs and vehicle damage analysis when evaluating low-speed collision claims, investigators assess impact severity, interview drivers and review police reports to determine whether claimed injuries are consistent with the physical evidence. Claimants with extensive prior injury claims may also receive additional scrutiny as investigators look for potential patterns of abuse.

Killam provided a case study that involved an insured driver who sold a vehicle at a heavily discounted price and later reported it as stolen. Investigators uncovered the fraud after locating and interviewing the purchaser, who was unaware of the theft allegation. The investigation identified multiple red flags, including the unusually low sale price, urgency of the transaction, questionable title documentation and the multi-state nature of the sale. The claim was ultimately denied and referred for further investigation.

Killam stressed that partnerships play a critical role in combating insurance fraud, noting that fraud investigations often depend on information gathered from multiple sources. Insurers routinely collaborate with law enforcement, medical providers, other carriers and the National Insurance Crime Bureau (NICB) to identify patterns and investigate suspicious activity. The NICB provides intelligence regarding organized fraud rings, vehicle theft trends and other emerging threats.

Killam said that early intervention is one of the industry’s most effective anti-fraud tools. “Getting these cases early instead of paying them out is a big thing,” he said. He added that insurance fraud prevention depends on training, prompt escalation of suspicious claims, robust investigative practices and a strong fraud awareness culture throughout an organization.