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By Ed McArdle
Fraud against car rental companies is both easy and profitable. A person does not need the investment of a vehicle or the cost of the binder on an insurance policy. All he has to do is go into the car rental office and rent a vehicle. (The bigger the better; after all, the renter doesn’t want to get hurt staging the accident.) And he buys all the insurance they sell. In some cases this is over $1,000,000 worth of coverage. There is no problem with “packing” the vehicles with all of his family and friends and not having enough insurance coverage!
Fraud against car rental companies occurs in the same ways it does against a standard insurance company and also in some hybrid forms. One of the easiest types, the straight property damage fraud, has a number of variations on a theme. In one variation, the rental car is struck by a “beater”—an old, beat-up car that is close to being a rolling total—that usually carries only liability coverage. The rental car (with all the decals or other identifying information removed) is presented to the beater’s carrier as belonging to the claimant. The claimant takes the car to the drive-through claims service and collects as if the car was his own. The rental car is then returned to the car rental company. The renter claims that the car was parked at the mall while he was shopping and when he returned he found the car had been damaged. Since the renter took all of the available insurance on the rental vehicle, he just walks away from the damage to the rental vehicle.
Another variation is to use the rental vehicle as the vehicle that is shown to the insurance agent to get the binder. The insurance agent is fast-talked into not inspecting the VIN number of the car. Why? Because the matching wreck has already been purchased and the VIN number the customer is providing belongs to the already-wrecked vehicle. If the VIN number the agent was insuring were compared with the actual VIN number for the car he was shown, there would be a discrepancy. Then, several months later, the insured’s vehicle is totaled (probably by a hit and run vehicle). It doesn’t matter how many pictures the agent has in his file of the car he was shown, if the VIN number was not checked, he has set himself up for fraud.
Car rental companies are notorious for not cooperating with one another.
How can this kind of fraud be prevented? First, the adjuster should always run the registration on the car being brought in for the estimate or inspect the registration and compare the VIN number shown with the vehicle. Secondly, he should check the registration or title and be sure to include the names of anyone else listed on these documents when a draft is prepared.
Bodily injury fraud takes place in the same way. But it is cheaper and there is less chance of getting caught. Car rental companies are notorious for not cooperating with one another. Some car rental companies do not Index. Some do not think they have a fraud problem and make a practice of paying anything that walks (or even slithers) through the door. Some car rental companies re-insure their $1,000,000 exposure and are liable only for the state minimums. The variety of permutations is practically endless; so potential claimants know that they have a company that is only too willing to pay for their claim.
The typical bodily injury claim includes at least three people in the claimant vehicle. More greedy claimants will have two or three passengers in the rental vehicle as well. The really greedy will have at least three passengers in another car that is part of the chain of vehicles the driver of the rental car has managed to hit. Why so many people? The renter has purchased as much as $1,000,000 worth of coverage and he is very quick to admit liability—in some cases waiting hours in order to get a traffic ticket. The claimants know that they are not going to get the full $1,000,000, but they know that they have gotten past the state minimums and that they have a claim with a per claimant settlement value of $7,000 to $9,000 (since each passenger will have a minimum of $3,500 to $4,000 in medicals). Therefore, if they have only the state minimum, they can collect on several claimants, and they know how adjusters hate to pay policy limits. Now the renter has a situation where the adjuster is willing to settle a claim with eight or nine claimants for $60,000 to $80,000. Not bad for an investment of a one or two day car rental and all the insurance that the car rental company sells— maybe $150 to $200 for a 4000% profit!
In addition to taking the extra insurance (called ALI, SLI, EP, APP, etc.) and admitting liability, the rental is usually short term (only one or two days—no point in spending any more money than necessary). The rental car is usually at least an intermediate size vehicle. The renter is usually either a local resident or is from out of the country. (It is much easier to keep the car rental company from getting in touch with the renter if he is overseas.) It is also common for the renter not to be driving the car or not even to be in it at all.
The damage to the rental vehicle can be minuscule or major compared to the claimant vehicles. Alamo has one case in Texas in which the renter, driving a Corsica, allegedly turned in front of a Mercedes. The Corsica was, “allegedly” broadsided by the Mercedes. The property damage? $20,000 to the Mercedes and $1,200 to the Corsica! Now, the dollar has taken a beating in comparison to the German Mark but this is crazy!! Besides, who ever heard of a Corsica taking on a Mercedes and winning? Needless to say, the claims of the three people in the Mercedes and two guest passengers in the Corsica are being denied.
In these cases, many times the plaintiff attorney will play a game of “Hide the ball.” The attorney will not give the adjuster the Index information on the “injured” parties. He will not provide the information on where, with whom, or how frequently the injured parties are treating; and he will not allow the adjuster to take statements. He will frequently say, “It is not our policy to allow statements.” But Alamo’s policy is not to settle claims where the ability to investigate is limited by the attorney’s lack of cooperation.
Often, the adjuster can play hardball with an attorney. The attorney says that there is nothing to investigate since liability has been admitted; the renter/insured has been issued a citation; the attorney’s client is an “innocent” passenger who has been harmed by someone else’s negligence and he doesn’t care whether it is the insured or the other party. In such cases, the adjuster’s reaction should be “that may be true, but we have some concerns about the claim and we can’t resolve the claims until we resolve our concerns.” The adjuster can compare the property damage of the vehicle that was allegedly hit against the damage (or lack thereof) on the rental vehicle. Although the attorney can frequently “coach” the claimants so that they are all telling the same story, the property damage is what it is—they can’t make a “T-Bone” on the passenger side into a rear-ender.
There are many ways to help fight insurance fraud. Alamo uses a variety of techniques: clinic inspections, attorney visits, private investigators, checks of public records. But most important is the philosophy that Alamo is in the car rental business. That is what Alamo knows and does best. A car rental firm should not be in the litigation business. All legitimate claims should be settled as fairly and as quickly as possible. However, on questionable claims, the car rental company should draw a line in the sand and take the claim all the way. It is preferable to spend the money on defense attorneys rather than on the plaintiffs in a questionable claim.
Ed McArdle is in charge of SIU Fraud operations for the Alamo Rental Company. He is a well-known speaker on the convention circuit, sharing his expertise on scams particular to the rental car industry.
** Editor’s confession: The “It Really Hertz the Dollar Budget of Thrifty Companies” was the brainchild of the John Cooke Fraud Report—not Mr. McArdle. Ed is far too nice of a guy to indulge in such a shameless pun. We, on the other hand, just couldn’t resist.
Copyright 1995 The John Cooke Fraud Report