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Tougher times, auto insurance fraud uptick: a correlation?

All insurance fraud is a serious thing. It may be true that cases of automobile insurance fraud are on the rise. With bad publicity surrounding gas-guzzling automobiles, industry investigators say there is some evidence that indicators suggesting fraud is increasing.

Lee Harrell with the Mississippi Department of Insurance says this type of fraud comes in cycles. “When the economy is tight, it increases,” he said. “Why were there a lot of cars parked at the beach during recent storms? You don’t drive your car somewhere you don’t live and leave it where it can be damaged.”

However, there are exceptions, and the assistant insurance commissioner almost became one before Hurricane Katrina struck the Gulf Coast in 2005. He was in Biloxi on official business and his car was parked in a local casino garage.

“When I got ready to leave, my car wouldn’t start. I couldn’t move it,” he recalls. “I live in Brandon so why would my car be left in Biloxi with a storm coming? I had to get a locksmith to come and break the ignition.”

The insurance department received calls about suspiciously abandoned automobiles after Katrina and Hurricane Gustav. “Why was your car parked on Highway 90 and you live miles away? We hope no Mississippian will do that, and there could be a legitimate reason. There will be questions that adjustors will have,” he said. “I’ve been with the department 16 years and what we’re seeing is consistent with National Insurance Crime Bureau (NICB) statistics.”

Frank Scafidi works with NICB and says people will do pretty much anything to get rid of an auto they no longer want, with or without a natural disaster.

“We call it an owner give up — they’ve fallen from favor with that car so they make arrangements to make that car disappear,” he said. “Maybe it’s too expensive to operate so they drive it into a lake or burn it. It’s been happening for years.”

The NICB has a name for the frequent car disappearances near the Mexican border. They call it the Spanish Immersion Program. The national organization, headquartered in Des Plains, Ill., works on independent agent and insurance company referrals and also assists companies’ fraud investigation units.

“We look for indicators — things that don’t ring true,” Scafidi said. “We are also a repository for data. We did an analysis back to 2002 showing the ebb and flow of owner give-ups. We took the monthly costs of gas and put them over our give-up graph. It showed an interesting, clear connection and the disappearance of certain vehicles in months when the price of gasoline went up.”

Nancy Stevens, team manager with State Farm’s Special Investigative Unit in Jackson, points out key indicators that bring about a fraud investigation.

“Some indicators we find include automobiles with excessive mechanical problems, an owner with a prior history of vehicle theft, a brand new policy, an owner who is unemployed or behind on the note, attempts to sell the car, a gas-guzzler or excessive high mileage on a leased car,” she said. “Even with the car destroyed or lost, these car owners still have an obligation to lien holders.”

Her unit also looks for a vehicle identification number (VIN) that’s been altered and auto cloning, which has become very sophisticated. “We have to explore these sophisticated theft systems. We also look suspiciously at a recovered burned auto that has not been stripped. Air bag theft is high because they’re so expensive, so it’s a strong indicator if a burned car still has its air bags.”

Stevens, who moved to Mississippi 13 years ago, says the state’s top three stolen vehicles are trucks, which is not consistent with the top three nationally, but is consistent for a rural state.

“I haven’t seen a pattern or increase of fraud for gas-guzzlers here,” she said. “The majority of claims we get are legitimate, but they do come to me if they have indicators; things that cause concern.”

Those concerns lead to an investigation and financial questions. “People get irritated when those questions are asked. We get calls from irate policy holders,” Harrell said. “If an auto owner is upside down with their note, it may not help them to abandon the auto. They will get the Blue Book value and that may not be enough to pay off the note.”

The Insurance Information Institute hears a lot about problems with automobiles, too. “People have different reasons for committing fraud,” says the institute’s Loretta Waters. “It might not be worth it if the car is five years old. They’ll still be in the hole. They don’t think it through. If it’s two or three years old, they still have to pay the loan on the car and still have the deductibles.”

In addition to other tell-tale signs of fraud, she notes that high credit card bills throw up a red flag to investigators.
Scafidi says consumers can access the NICB’s data by visiting its website, www.NICB.org, and looking under hot topics. The organization also has a new VIN check on the website that is free. This feature searches a database to determine if a vehicle has been declared an un-recovered, stolen or total loss vehicle.

Contact MBJ contributing writer Lynn Lofton at llofton656@aol.com.

About Lynn Lofton

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