Keep on the lookout for bogus auto insurance

Kathryn Hawkins

In 2010, a little-known company named Ethos Auto Insurance began posting flyers all over Detroit offering auto insurance policies for just $80 down and $64.95 a month — a rock-bottom rate in the insurance business. The offer seemed too good to be true.

Unfortunately, it was. In May 2011, the Michigan Office of Financial and Insurance Regulation discovered Texas-based Ethos had duped hundreds, if not thousands, of Michigan consumers by selling them fraudulent auto insurance policies. Authorities are investigating Ethos and the two unlicensed agents who sold the phony policies.

“We received a number of calls from consumers who purchased low-cost car insurance from Ethos Insurance,” says Jason Moon, a spokesman for the Michigan Office of Financial and Insurance Regulation. “They received certificates of coverage, but they never received the policies themselves, so they got worried.”

Hundreds of motorists in the Detroit area bought auto insurance policies that turned out to be bogus.

The regulatory agency examined the certificates of coverage and found that some mentioned the names of legitimate insurance companies, while others referred to non-existent insurance companies. In all cases, though, the auto insurance policies were bogus.

“The policies didn’t have any backing,” Moon says. “The drivers were not paying for legitimate coverage.”

Instead of passing along policyholders’ premiums to legitimate insurance providers, Ethos had pocketed its customers’ money, Michigan officials say.

A serious problem

Ethos’ insurance scam wasn’t the first of its kind, but it was one of the largest.

“It’s unusual to have a scam that appears so brazen, and targets thousands of people with a well-orchestrated and well-executed fraud game plan,” says James Quiggle, a spokesman for the Coalition Against Insurance Fraud.

Small-scale insurance scams are more common. In most cases, Quiggle says, an insurance agent will run into financial trouble and begin stealing clients’ premiums instead of paying the insurance provider for customers’ coverage.

Customers who are duped by fake insurance policies aren’t just paying money without receiving coverage — they’re also liable for penalties for lack of insurance coverage, and they’ll be financially responsible for any damages resulting from an auto accident.

“You could have your licensed suspended, be fined and go to court,” Quiggle says. “It could be tremendously expensive and disruptive.”

Making sure you’re properly insured

Here are three tips to help you avoid dealing with a bogus auto insurance policy:

1. If an agent’s quotes are substantially lower than competitors’ or the agent is pressing you for immediate payment, there’s a chance that the policy isn’t legitimate. No matter what the circumstances are, it’s always a good idea to verify the agent’s credibility.

Before signing any paperwork or writing a check for a policy, contact your state’s insurance regulatory agency to make sure the agent is registered to do business in your state.

“The regulatory agency can also tell you if agent has had a suspension or revocation, or a history of complaints,” Moon says. “If so, that should serve as an alarm bell to make you think carefully about whether to do business with that producer.”

2. When making an insurance premium payment by check, write the check to the insurance agency or company rather than the individual agent. That will prevent an unethical person from stealing your money.

3. Once you’ve signed up for the policy, check your mail for the insurance policy binder, which should arrive within 60 days. A binder is temporary proof of insurance until your permanent policy arrives. “Don’t assume from the deafening silence that you’re automatically insured,” Quiggle says.

If you don’t receive the binder within the allotted timeframe, call the insurance company listed on your certificate of coverage and provide your policy number. If the insurance company tells you the policy number is invalid, you’ve almost certainly been scammed.

How to deal with a scam

If you suspect that your auto insurance policy is fraudulent, call your state’s insurance regulator. “Get it on the record so that the insurance department can start immediately investigating to ensure that others aren’t bilked,” Quiggle says.

Depending on the circumstances, the insurance provider represented by your agent may agree to provide the coverage you thought you’d paid for. If the insurance provider is illegitimate, the fraudster may be forced to compensate you for your losses. In some situations, though, you may not get any financial remedy.

In any case, as soon as you know that your policy is invalid, buy a new auto insurance policy from a legitimate company before hopping into your car again.

“Don’t wait to get into a car crash or run a red light before you get coverage,” Quiggle says. “Otherwise, you could end up in a very bad situation the next time you get behind the wheel.”