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By Susan Clarke
As insurance companies attempt to reduce their expenses, more companies are turning to direct repair programs. These programs can streamline the claims process by creating a contract between a carrier and a body shop. While this may be cost efficient in some ways, it also can provide an opening for more auto damage fraud.
When a car is dropped off at the body shop, the owner knows very little about what is being done to the car. Insurance companies rely on appraisers to write the appraisal properly. If the appraiser and the body shop are in collusion, the insurance company has a very real exposure to fraud.
Most estimates of auto body fraud have been subjective until recently when the California Bureau of Automotive Repair investigated body shops in two California counties. Looking at random files from USAA and GEICO, the Bureau found that 40 percent appeared to include some element of fraud, adding an average of $866 to the bill. Twenty-nine percent of repairs were poor or incomplete and 2 percent were classed as terrible. The bureau reported the results showed both incompetence and blatant fraud.
CLAIMS INTEGRITY UNIT
USAA’s Claims Integrity Unit, headed by Terry Bradford, targets dishonest body shops, those that knowingly misrepresent the cost of repair or intentionally substitute used parts but charge for factory parts.
A second target is the dishonest appraiser. Bradford cited a New York Fraud Bureau study in which an undercover investigator posing as an appraiser went to body shops in the New York area. He found that every shop he went into solicited him, offering kickbacks to increase the cost of repairs. The study prompted one USAA manager to realize that no USAA appraiser had ever reported being the target of an attempted bribe. USAA was either very lucky or attempted bribes were not being reported.
While the number of dishonest appraisers may be small, the exposure is significant. At companies where appraisers have draft authority, the average appraiser may issue $1 million in payments every year. The amount of money involved in each fraud case may be as little as $800 or $900 per average car, or it may be much more. Bradford tells of one undercover car with $400 worth of damage. When the car was sent to a repair shop the bill came in at a staggering $9,200.
But even if the amount for each car is only $800, remember that the appraiser sees twenty or more cars per week. Each body shop may fix fifty cars a week. The amount of money involved adds up rapidly. Bradford tells of one repairer, Blake’s Body Shop in Tacoma, that defrauded USAA of $2.3 million in a seven-year period.
According to Bradford, the Claims Integrity Unit has a very proactive program, actively seeking out instances of fraud while creating a perception of high risk. USAA wants appraisers to know that it sends undercover cars through body shops to deter the appraisers from getting involved in auto damage fraud schemes.
The plan must be working because word has gotten around. One white Cherokee used in an undercover operation has become so well-known to appraisers that they have reported spotting the car all over the country. The car is so famous appraisers automatically back off on any Cherokee they appraise.
Honest appraisers have no problem with this program. They know which shops are cheating when they see unused parts sitting in the corner of the body shop. Until now, appraisers didn’t know where to turn. The Claims Integrity Unit has found that honest appraisers are very willing to report dishonest shops when they know where to call.
Honest shops are also big supporters of the program, according to Bradford, because it’s hard to compete with dishonest shops. After all, a shop that doesn’t pay for all the parts it charges for will have a lower overhead.
FORENSIC REINSPECTORS
In conjunction with the use of undercover cars, USAA has hired several people to work as “forensic reinspectors.” These employees inspect repaired cars and document whether all work that was billed was actually performed.
A forensic reinspector is not an appraiser; the skills needed are somewhat different. Once a car has been fixed and painted, it takes a lot of expertise to determine exactly what was done. USAA looks for specific qualifications when hiring forensic reinspectors.
Forensic reinspectors are called upon to testify about their cases. Therefore, the inspector must have a professional appearance. He must be a credible witness. In court, the defense attorney may ask if the inspector has any experience in repairing cars; so USAA requires that the applicant have at least five years of experience, repairing all types of auto damage. Experience as a shop owner is an added bonus. Owners are familiar with the day-to-day operation of a body shop and may have a better insight into where to look for certain records. Also, the reinspector should be a trained, experienced appraiser,
preferably certified.
SEARCHING OUT FRAUD
Several methods used by USAA’s Claims Integrity Unit can be implemented to search out auto damage fraud.
Use trend analysis reports. What is the average cost of repair for all insured vehicles? What is the average cost for each appraiser or each repair shop? If a carrier’s average appraisal is for $1,200, and one appraiser routinely writes appraisals for $6,000, it raises a red flag.
Scrutinize supplemental appraisals. Missing routine items (e.g., windshields or wheel covers) on a regular basis could be a sign of trouble.
Contact the insured. On a random basis, contact customers after their vehicles are repaired. Ask if the customer was satisfied with the service. Did the appraiser give him a reasonable choice of body shops or did he give one choice just around the corner and two others 75 miles away? Did the insured get a copy of the appraisal and the final bill? Does it match what was actually done to the car?
Run occasional undercover cars through your local body shop. Mark the parts prior to repair, then do a close reinspection to see what the repair shop actually did.
Compare appraisals with the photographic documentation. Does the appraisal list damage to the left side of the car while the photos are all of the right side? Make sure adjustors pay attention to such things.
Keep an eye on drive-in claims services. While these may be easier for the client, an appraiser who spends large parts of his day at the claims service and goes to lunch with the body shop personnel may start to identify more with them than with the carrier.
Keep an eye on direct-bill services. Watch for the direct bill repair service that obtains all of the necessary information for a claim, then uses the same information later to submit a fraudulent claim.
Compare the estimate, the bill and the parts invoices. Verify with vendors if parts were actually ordered and if they were used. Although the suppliers are sometimes reluctant to turn in their best customers, they can verify if a body shop is ordering and then returning a lot of parts.
DOCUMENTING EVIDENCE
Forensic reinspections involve a lot of disassembly work. They are best done at a body shop. When the reinspection is performed, it is important to properly document the findings. Bradford offers several tips to help the reinspector.
The forensic reinspector must stay focused on the issue. The question to be answered is not whether the shop performed the repair properly but whether the repair was done at all. Don’t let the reinspectors get hung up on quality of the repair job.
Use videotape or film to document the findings. Videotape is best because the camera can zoom in on any numbers or stickers on the parts in question. Photos may be an acceptable substitute if taken from several angles. There is usually only one chance to document the findings, so make sure the documentation will stand up in court.
Provide identifying information. Include the name of the appraiser, the body shop, the vehicle owner, and who was present at the reinspection. Document the VIN, the mileage, the date of the repair, and the period of time between the date of repair and the date of the inspection.
According to Bradford, these techniques do make a difference. Since the USAA team went to New York to perform random reinspections on repaired vehicles, the company has noticed a decrease in the average severity of the appraised damage in the area. Either cars are getting stronger and damage from accidents is decreasing or somebody got the message.
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