Every driver’s dream is to find cheap car insurance companies that offer solid protection. However, some car owners take things a few steps too far. Car insurance fraud is widespread and covers much more ground than most people think. Unfortunately, some auto shops also participate in it. Because of this, insurance fraud happens fairly often and impacts everyone on the road.

Here’s a look into car insurance fraud.

Two main ways fraud happens to car insurance companies

There are several ways bad actors might fraud insurance companies. However, they fall into two main types of fraud. The first is hard fraud, which Progressive says is when a vehicle owner fabricates the loss to receive a substantial payout. This type of car insurance fraud usually happens when a person either stages a car accident or plans for their vehicle to be stolen and then files a claim.

However, soft fraud is more common. This involves the person making the claim changing the details of an actual incident. It can also include instances of a vehicle owner reporting false information to the insurance car company for cheap rates. This fraud mostly happens when a person lives in an area with high insurance rates but gives a false address.

People should also note that policyholders aren’t the only ones who might commit car insurance fraud. For example, some less-than-reputable body shops may participate in repair scams where they replace an intact airbag with a previously deployed one to inflate the cost of the fix. Additionally, shops have been known to install previously used airbags despite telling the customer it was new.

States such as California have stiff penalties for auto shops who do this.

Fraud results in harsh penalties

Many people don’t know that defrauding car insurance companies does more than potentially secure a payout for a claim. In many instances, this causes insurance premiums to go up for other drivers. Other drivers’ rates go up because car insurance companies lose money each year due to fraud. According to Value Penguin, people pay an average of $400 to $700 more each year thanks to fraud.

Of course, as anyone can guess, being caught for car insurance fraud has drastic consequences. The level of punishment depends on the state, but people who commit insurance fraud don’t typically get off easy. Punishment can come in the forms of probation, restitution, jail time, or even prison, as this can be a felony. Typically, a person intentionally defrauding an insurance company under $1,000 is a misdemeanor, whereas more than that results in a felony.

Finding cheap car insurance is more difficult than ever, thanks to rising rates. However, car insurance fraud is a significant factor in why prices continue to rise for drivers who only want coverage in the case of a car accident.