Total auto insurance fraud is estimated to be more than 20 trillion rials ($71 million) per year, the National Traffic Police chief said.
"We are planning to digitize the car accident reporting system. Electronic police reports can and should help solve the problem to a considerable extent," General Kamal Hadianfar was quoted as saying by IRIB. He did not provide details.
Third-party vehicle insurance is mandatory in Iran and car owners lacking this policy are penalized. It essentially is a form of liability insurance according to which, in the case of road mishap, the insurer is required to compensate the harmed party for physical or financial loss.
Third-party vehicle insurance tops the list alone generating one-third of the premium income of insurance firms. Insurers sold 24.7 million third-party auto insurance policies last year worth 274 trillion rials ($1.15 billion).
Their total payout was 436.7 trillion rials ($1.8b) last year, up 30% compared to the year before. Third party vehicle insurance accounted for 40% of the total claims at 175.2 trillion rials ($736m), up 27.7%.
Insurance officials had warned earlier that some organized gangs were planning fake crashes with witnesses acting as the main actors in the fraudulent claims. The problem is becoming a pattern with serious financial consequences for the insurance industry.
Car insurance fraud has been on the rise globally in the past decade with scammers in countries with well-developed insurance markets using the “Crash for Cash” method.
In markets like Russia and the CIS countries, dashboard cameras have taken the place of witnesses, reducing the rate or false claims considerably. Globally the market for dashcams has increased considerably in recent years with companies across the Americas and Europe offering them as a deterrent and backup in the case of crashes.
The insurance industry as a whole is struggling to keep up with the growing number of accidents and because of the situation being static on the whole. The industry is suffering.
Iran has one of the highest rates of road accidents in the world. Annually over 20,000 people are killed and 800,000 are injured in road crashes. Traffic police have long blamed domestic automakers, mostly state-owned, as the poor quality of cars and the strange indifference of the car company managers continues to take a heavy toll.
As per law, insurance companies pay 30% of their revenue from the sale of mandatory third-party auto insurance policies - the segment with the highest share in insurance companies' portfolio -- to state bodies and organizations.
Police, Emergency Medical Services and Iran Road Maintenance & Transportation Organization have a share of the tax paid by insurance companies. The money ostensibly is used for reducing road casualties.
Insurers are reluctant to pay this tax because they insist organizations receiving the money must regularly report on where and how they spend the money and how these mandatory payments benefit the insurance industry.
