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Along with fluctuations in the overall economy, comes the spawning of new forms of insurance fraud. Take, for instance, Gap Insurance Fraud, a new scam perpetrated on companies that emerged to fill a “gap” in the (primarily) auto insurance marketplace.
Years ago auto loans were extended for 36 months. As vehicle prices rose, however, 48 month contracts joined the fold, then 60 and 72 months. Larger tag vehicles, especially secondary recreational types (think motor homes) are marketed by “you can handle this” payments stretched over a 15 year payback period. In fact, loans are often tailored to appeal to the general population, where there is far more concern with the answer to “How much will my monthly payment be?” than with any of the other contract terms.
Every new marketing tactic that gives a deal on the front end … has a back end. The back end of the “No money down, 60-month contracts” on a $20,000 vehicle is that the purchaser is behind from the moment that s/he drives it off the lot. When the papers were signed, the car was worth $20,000. Ten minutes later it is valued at $17,000 because it has become a “used” vehicle. If the automobile is stolen in a car-jacking that first day, the insurance company is only going to pay the value of a used car, so not only is the owner traumatized by the criminal aspects of the carjacking, s/he has a shortage of $3,000 to eat.
And so was born Gap Insurance. For a small additional premium, the difference between the value of the vehicle and the amount owed on the loan is covered. Just another layer of coverage.
Now think about the economic affect of rising gas prices. The owner of a $40,000 SUV that eats $3.50 gallons of gasoline at a rate of one gallon to every 8 miles is not only paying out the nose for his monthly payment, but his Shell card monthly balance is almost equal to his SUV payment. What’s a guy to DO when he adds up the value of having a car that he wanted when he bought it, but by the time reality set in the used car lots were packed full of similar gas-guzzling mistakes? Unfortunately, far too many of these cash-strapped individuals try to easy way out. Fraud.And industry, fully aware of this emerging trend, is catching them — and convicting them — left and right.
Where’s the proof of this theory? Ask the Southern California arson task force that responded to a vehicle fire report at the Los Angeles River Bend. It was during the summer of 2005 and gas prices were high; so high that they found TWO new SUVs burning in the same place and at the same time. Quite the red flag that something fishy was going on. Hot fried fish, in fact.
The first solid clue was that both car owners had dealings with the same new-car dealership in Cerritos, California. The owners, both upside-down, contacted the finance manager in the hope of getting out of the low mpg vehicle and in to a high mpg vehicle. The option they were offered, however, was hardly a trade in. “Just leave your keys in the glove box along with $300 cash and then just sit back and wait for the insurance to pay off your car.” They were then to report their cars stolen … and wait.
Unfortunately for them, all they got was a fraud investigation.
During the investigation of the dealership, an undercover officer came in with an “upside-down” SUV, looking for some relief. He received the same instructions and did exactly as he was told. But investigators made their case by installing a dash cam so they could videotape the arsonist. As soon as the would-be thief removed the money and keys and started to drive away, the other little surprise was sprung. The kill switch stopped the car and triggered the door locks. And there he sat, trapped inside, like single sardine in a can. Sardines don’t like being alone, however, so he soon had company. Seven others involved in the arson ring were simultaneously served with warrants.
Selling a car to the insurance company is hardly new. Cycles have been carefully tracked for more than 20 years. When the ecomony is good, auto fire and theft claims are low. When the economy is bad, they skyrocket. In Massachusetts, the Burned Motor Vehicle Reporting Law was passed in 1987. This law made it mandatory for the vehicle owner to fill out a special report and have it signed by a fire official from the department where the fire took place. Surprise, surprise. Vehicle fires dropped 95 percent, from a high of 5,116 in 1987 to 217 in 2004.
One of the blazing red flags that investigators look for is a recent purchase of Gap Insurance by an individual who is seriously upside down on his loan Actually, it’s perfectly legal to set your car on fire. Just like it’s perfectly legal to spray paint it with pink daisies or drive it off the end of a pier. What is not legal, however, is to report such an intentional act to an insurance company under the guise of it being an “accident.”
It’s certainly not just Los Angeles that has a problem. The incidents are nationwide. If you are an investigator, pay special attention to the following red flags:
- Recent coverage changes.
- A vehicle fire occurring along with a theft report — especially of a newer car. (Most serious thieves steal high-priced SUVs for the purpose of container export, chop-shopping or stripping. What sense does it make to steal a car and immediately burn it?)
- A vehicle fire that is set in such a way to assure a total burn.
- A vehicle fire where the owner is not within shouting distance.
- Inconsistencies in the insured’s statement.
- An unaccounted for second key if the key-lock system was not defeated.
- A recently uninstalled anti-theft device.
- Some startling stats:
- Twenty percent of all arsons occur in vehicles
- Arson is the second-highest cause of automobile fires.
(source: U.S. Fire Administration.)
© Copyright 2007 The John Cooke Fraud Report