Auto Insurance Cos. Have Difficulty Tracking Fraud, Experts Say

Whether it’s underestimating mileage, registering vehicles out of state or claiming a sports car as farm equipment, motorists are always finding creative ways to get lower premiums by fibbing to—or just plain defrauding—insurers, industry experts say.

“We see the entire spectrum,” said Pete Moraga, a spokesman for the Insurance Information Network of California (IINC). “What makes it so difficult to track is it can be something as outrageous as someone claiming their Porsche as a farm vehicle in order to save money on their auto insurance or as simple as getting in a car accident and claiming the whole car was messed up, instead of just (getting) a dent.”

Thousands of drivers in cities nationwide falsely claimed their sports and luxury cars as farming vehicles in 2010 in order to cash in on insurer discounts of as much as 20 percent, according to a recent report from Quality Planning.

The San Francisco company, which verifies policyholder data for insurers, reported that about 8 percent of a sample of 80,000 vehicles whose owners were getting a farm-use discount were garaged in urban areas where little if any farming is done.

The National Insurance Crime Bureau (NICB) estimates that, across all categories of coverage, insurance fraud totals about $30 billion a year nationwide. And according to Los Angeles County District Attorney’s office, auto policy fraud accounts for more than $8 billion of that.

Insurance Fraud quoteBut beyond that, experts say it is difficult to put a dollar figure on more specific types of fraud or who the culprits are.

Some so-called “hard fraud” is carried out by organized rings that stage accidents and report crashes that never happened. Other cases involve policyholders exaggerating or lying about how many miles they typically drive.

“There’s so many different types of fraud, it’s hard to say what’s the most common,” Moraga said.

NICB spokesman Frank Scafidi said one common auto coverage scam is rate evasion, which involves motorists in one state registering their vehicle in another state where policy rates are lower.

Insurers in New York saw a 20 percent to 50 percent increase in cases of rate evasion in 2009, according to a February report by state legislative leaders.

Officials said rate evasion costs that state at least $1 million a year in licensing and other fees and drives up premiums for law-abiding drivers.

Consumers who give false information to insurers may get away with it for years, but if they are reported by a neighbor or get in an accident, they could see their claim denied or their coverage cut off. More serious fraud carries penalties including fines and incarceration.

And lying to or otherwise defrauding insurers drives up costs for other motorists, making it difficult to find low down payment auto insurance, experts said.

“The bottom line is fraud costs us all,” Moraga said.

Last year, the NICB received nearly 92,000 “questionable claims” referred by insurers for review and investigation of possible fraud. The majority of those cases—62,500—were for personal auto coverage.

But those cases made up less than 1 percent of the more than 56 million policy claims for all coverage types processed nationwide, Scafidi pointed out.

He said there is a simple test to help consumers who are worried that their exaggerations may be straying into outright fraud.

“If you have to stop and think as a policyholder, ‘How can I get my insurance company to pay for this?’” Scafidi said, “That’s kind of a red flag.”

About Gregor McGavin
Gregor McGavin is an award-winning journalist who has reported across the country for such publications as The Associated Press, the Arizona Republic, the Pittsburgh Tribune-Review and the Press-Enterprise.

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