Ghost insurance brokers and fraud: How to help protect yourself from insurance scams and scares

It’s a common scenario: A person replies to an ad on social media offering exceptional auto insurance prices for a limited time. Enticed by this amazing deal, they put aside their doubts after making the first payment and receiving documents and proof of insurance where everything looks as it should. Some weeks pass and they call their insurer to file a claim after having an accident. That's when they get the unpleasant surprise that not only are they unable to file a claim, they also are not listed as an insured of that insurance company. So, what happened here?

It's very likely this person bought a fake insurance policy and fell victim to a ghost broker.

What is a ghost broker?

A ghost broker is a person or organization that's impersonating a real insurance broker but actually doesn't hold a license nor authorized to sell insurance.

Ghost brokers tend to use social media and made-up websites to offer their own policies with prices that are too good to be true.

What is the difference between an agent and a broker?

An insurance agent is someone who works on behalf of a specific insurance company or companies. An insurance broker works for the insured, understanding their insurance needs, the placing their client with an insurance company to meet those needs. Both the agent and the broker are required by law to be licensed. Ghost brokers can pose as either agents or brokers but lack the proper licenses to sell insurance and do not have authentic affiliations with insurance companies.

The only way someone can legally offer, sell, or negotiate insurance products in the United States is by holding an insurance license issued by the state where the person lives or works. This is an essential requirement that applies to both agents and brokers.

Some examples of ghost brokers scams

Some ghost brokers issue fake policy documents that look authentic, sometimes made with the help of artificial intelligence.

In other cases, ghost brokers apply for policies from real insurance companies by submitting fake information designed to get excellent prices. By manipulating information such as age, home address and driving history, they get fantastic prices that encourage unsuspecting customers to make payments to that auto policy (which are often requested to be paid in cash). However, a policy taken with fictitious information, is considered insurance fraud and will result in denial of coverage in the case of a claim. Even if a scammer pays the policy premium, the customer is left with a policy that is not valid and if a claim is filed it will be denied.

In other instances, ghost brokers file an application for a genuine policy using the victim's real information and, after receiving payment, cancel the policy with the insurance company without the customer knowing. In this case, the customer thinks they have an active policy, but the scammer had canceled it right away.

No matter what scam is utilized, the victim ends up without coverage and is subject to financial risks when an accident happens or when filing a claim. 

How to help avoid becoming a victim

It’s important to recognize that individuals who may be less familiar with insurance can be particularly vulnerable to these scams.

Some of the most common tips to prevent insurance scams include:

• Confirming that the person selling insurance has a license to do so.
• Verify the validity of the acquired policy by calling the insurance company named as the issuer.  

Remember, if it seems too good to be true, it probably is. 

No more ghosts

To verify an insurance license, you can turn to the Department of Insurance (DOI) in the state where you live. But even before that, ask the agent or broker their basic information: their full name, license number or National Producer Number (NPN), state or states where the license is valid, and authorized lines (types of insurance, such as auto, life, home insurance, etc.). There is never a reason for an insurance agent or broker to refuse to give out this information. If your agent or broker refuses to do so in any way, take that as a red flag.

To learn more about ghost brokers and how to spot them, we recommend that you consider this information by the National Insurance Crime Bureau (NIBC). This issue is becoming more widespread and affects both the public and insurers alike.

Consider contacting a State Farm agent to help with a policy that is right for you. State Farm has over 100 years of experience, we provide insurance and financial service products on more than 96 million policies and accounts and have over 19,000 licensed agents in the U.S.  

To stay informed of security risks and learn more about how to protect yourself, and how State Farm protects you, please visit the Security page on statefarm.com.

So, forget about ghosts!