Up to 100,000 people could be driving round with invalid motor insurance because they bought their policies through illegal insurance advisers known as 'ghost brokers', Moneywise can reveal.
Unscrupulous middlemen posing as insurance brokers are targeting vulnerable groups, such as younger drivers and people who have recently moved to the UK.
Advertising in local papers, on classified websites such as Gumtree, or even accosting shoppers with flyers outside supermarkets, ghost brokers promise cash-strapped drivers great savings on their policies. But often these savings are achieved by providing false information to insurance companies, or the policy certificates themselves are simple forgeries.
The average comprehensive insurance policy premium rose from £515 per quarter in 2009 to an eye-watering £971 by the end of 2011, according to the AA, so it's hardly surprising that many drivers are falling for scams as they desperately try to cut costs.
Steve Gaywood, head of counter fraud at AXA Insurance, says: "Motor insurance is compulsory so it's no wonder people try to get a better deal. But that means poor and vulnerable members of society are being targeted by fraudsters selling policies that contain falsified information or are fakes.
As a result, the number of drivers with invalid insurance could be 20,000 or it could be as high as a six-figure sum - we really don't know."
Joe Pattinson, spokesperson for BMW Financial Services, says: "Ghost broking is a serious problem for the insurance industry and unfortunately one that is growing. It can be very lucrative because it provides a method of pocketing large sums of cash quickly, making it an increasingly popular method of fraud for criminals."
How is the fraud committed?
Fraudulent brokers can engineer lower quotes from insurers by giving false information, such as increasing the age of the driver or failing to input previous claims and convictions.
They also sometimes accept a very high voluntary excess in return for a lower premium, without making the insured driver aware that they will have to pay a large sum if they claim. If any of this has been done, the driver could be in for a big shock if they try to make a claim on their policy.
At best, they might find themselves facing a very large excess, but at worst they may discover they've been driving illegally with invalid car insurance.
How easy is it to spot a ghost broker?
Moneywise searched for 'cheap car insurance' on the classified website Gumtree and found three ghost broker adverts on the first page of results.
Someone calling themselves 'Ali' in East London and quoting only a mobile number promised "all cars insured at up to 50% off insurance costs". We tried calling, then texting, Ali asking for a quote on a Jaguar X-Type estate. We eventually received a text back offering insurance at £800 a year or £150 a month.
But how could this 'Ali' possibly know what the premiums would be before finding out the postal address, annual mileage and claims history first? We texted the elusive Ali and asked for proof that he a registered broker registered with the Financial Services Authority (FSA).
We didn't get a reply and forwarded our findings to the police - where, no doubt, the case was forwarded to detective chief inspector Dave Wood. DCI Wood heads up the insurance fraud enforcement department (IFED), a new unit within the City of London police funded by the Association of British Insurers (ABI).
It tackles all kinds of insurance fraud - thought to cost the industry an estimated £3 billion a year. With a team of 35 investigators and support staff, IFED has already made 35 arrests since its launch in January 2012.
"The rise of illegal insurance advisers, or ghost brokers, is definitely an emerging trend," says Wood. "We've already broken one ring operating in Nottingham and Manchester and shut down another company calling itself Aston Midshires in Leicestershire.
"There could be more than 200 victims of this company alone holding motor insurance certificates than aren't worth the paper they're written on, but which may have cost more than £2,000 in some cases."
Malcolm Tarling, spokesperson for the ABI, says: "Our members are reporting more and more cases to us. We're urging consumers to be on their guard. If someone stops you outside a supermarket offering cheap car insurance it's likely to be a scam."
What can drivers do to protect themselves?
If you have any doubts about the legitimacy of your insurance go to the official Motor Insurance Database (askmid.com) and enter your car registration number. If your car is not listed you may not be insured.
If you are still suspicious even though your registration number is listed suggesting you are insured, talk to your insurer immediately and go through your policy certifi cate with it. If you suspect fraud, inform the police.
You can check the legitimacy of brokers and insurance companies by entering their details on the Motor Insurers' Bureau (mib.org.uk) and FSA (fsa.gov.uk) websites. Use your common sense too. If someone offers you an insurance quote much lower than you've managed to get anywhere else you should be suspicious.
Similarly, if a broker doesn't quote a physical address or landline number on websites or printed material and asks for cash-only payments, walk away.
No matter who you get your car insurance from always make sure you read your policy documents thoroughly to make check all the information is accurate.
Pay particular attention to details such as the make and model of your car, where the car is kept, any modifications the car has had, your own age, and any previous driving convictions you have. It's far cheaper and easier to correct a mistake on your policy before you try to make a claim on it.
Six legitimate ways to reduce your motor insurance premiums
If you are facing soaring car insurance premiums there are ways to reduce the cost without resorting to dodgy insurance brokers. When shopping for a new policy:
- Consider agreeing to pay a higher voluntary excess in return for lower premiums
- Be as accurate as possible when giving your annual mileage
- Consider downgrading your car to a smaller, cheaper model
- Keep your car in a garage or in an off-road parking space
- Fit a car alarm, immobiliser and tracker device if your car doesn't already have them
- Consider taking the Advanced Driving Test run by the Institute of Advanced Motorists.
If you think you've been scammed get in touch by leaving a comment below, or email us on email@example.com and let us know exactly what has happened.