Consumer Alert: A Frighteningly Popular Form of Insurance Fraud

In a deepening recession, many of us are breaking into our savings. But some of us are going so far as to break the law.

In an alarming – and increasingly popular – form of insurance fraud, more and more average people are turning into arsonists by torching their cars when they can’t afford their monthly payments. Light up a car, report it stolen, then file an insurance claim.

This desperation is being seen now more than ever. Laurence Burzynski, a special agent with the National Insurance Crime Bureau, used to get three or four calls a year to investigate car torching cases. Now he gets that many each week.

So how does this affect you, the law-abiding consumer? As insurance companies shell out anywhere from $60 to $80 billion a year on bogus claims, they aren’t eating the loss. As per usual, they pass it on to you by jacking up everyone’s rates.

Burzynsky says the only way to stop the car torching epidemic is simply stronger enforcement. But for many towns and cities across the country, cops are already stretched dealing with homicide and other violent crime, so few insurance fraud cases ever see the light of day.

Don’t expect it to stop on its own, says fraud attorney Jeff Sonn. As the economic downturn continues, and worsens, desperate behavior by otherwise normal people is going to increase. From torching cars to torching failing businesses to domestic abuse, an increase in crime almost always goes hand-in-hand with a decrease in economic activity, explains CNBC managing editor Tyler Mathisen.

If you feel even a tinge of desperation because you’re behind on your auto payments, credit expert John Ulzheimer has this advice: relax. When you finance a car you’re generally upside down the minute you drive it off the lot anyway. And even if you torched your car and got away with it, you still will have a residual balance on the payments even if the insurance company accepts the claim.

The best thing to do if you can no longer pay is to simply drive it back to the dealership, hand in the keys and walk away. This is known as redeemed repossession, and while it will ding your credit, it’s a whole lot better than going to jail, Ulzheimer says.