Car insurance firms are rejecting a thousand claims a year as some parents and children lie to save money, says the Financial Ombudsman Service.
Peter Hinchliffe warns of the consequences of "fronting"
A fraud called "fronting" occurs when a young person has a car in their own name, but the insurer is falsely told that a parent is the main driver.
Premiums are cut by hundreds of pounds but claims are rejected as the driver is told they are not properly insured.
The young drivers can also find themselves in court.
Some insurance firms are being criticised for not doing more to stop the fraud during online application processes.
Why do people 'front'?
Insurance can often cost a young driver who owns a car more than a thousand pounds a year, because they have not built up any no-claims bonus and they are seen as a far greater risk than older drivers.
But if a parent is put down as the main driver on the insurance policy, it can significantly lower the price.
Daniel, a student at a university in South West London, told Radio 4's Money Box how his mother "fronted" for him when he passed his test at the age of 17.
"It was quite expensive to be the main driver and to actually be insured as the first driver.
"I had to get my mum to put me on her insurance in order to make it more affordable.
"It saved about £500.
"Everything was registered in her name but the car did actually belong to me."
If an insurance company believes "fronting" has taken place, it can refuse to pay any claim.
The young driver can then be treated as driving without insurance and face a fine with six points penalty points on their licence.
Adrian Webb from the insurers esure, says parents and their children should resist the temptation to "front".
"The truth is, any act of deception to try to get a lower insurance premium with your insurance company is tantamount to fraud."
The insurers' remit
But critics question whether the insurers themselves are doing enough to discourage fronting or giving adequate warnings to people that they might be committing insurance fraud.
During the online application process some, some firms - including esure, Churchill and the Post Office - allow a car owned by a young person to be insured by a parent who then puts their child down as an occasional driver.
Other companies insist that the owner of the car and the main driver must be the same on the insurance application, so there is less risk of "fronting".
The insurance industry itself will not reveal any figures on how many claims it is turning down, but the Financial Ombudsman Service says it is dealing with between 100 and 200 fronting disputes each year, and that indicates that firms will be dealing with around 1000 such cases annually.
Peter Hinchcliffe, the lead insurance ombudsman, says in many cases customers have a difficult task to show they have not been "fronting".
"This is a question of the evidence, so if you are the parent and you have said you are the main driver and the car has been in an accident, or stolen, at your son or daughter's university, you have got a lot of work to do to explain how that has come about."
BBC Radio 4's Money Box was broadcast on Saturday, 20 October 2007 at 1204 BST.