The “Cyclicisity” of Fraud

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(YES, WE MADE UP THAT WORD; WHO CARES WHAT WEBSTER THINKS?)

As Hurricane Sandy took her toll on the eastern seaboard, she repeated the behavior of Katrina by “drowning” as estimated 250,500 insured automobiles. Industry can only track those with insurance; plenty more that did not have coverage met the same fate. An estimated 210,000 insured cars met their fate in New York and New Jersey, however there were also reported losses in Connecticut, Maryland, Massachusetts, Virginia, Ohio, Pennsylvania, Delaware, New Hampshire, North Carolina, DC, Rhode Island, West Virginia, Maine and Vermont.

Caveat Emptor!

Events of this nature run a cycle. First the storm itself, then the claims storm. So far, so good. Claims storms are not bad things — there’s nothing fraudulent about a Hurricane. Nobody, at least on the large scale, can “set” one or “stage” one, and such catastrophic loss scenarios are built into the premium rating equation from the start.

Next the human buzzards swoop in, buy the salvage, and process the totaled vehicles and their titles through a clean-up process. That leads to a new flood that runs off straight into the victim pool. A Craigslist ad posted under Auto Sales in a western or southern state might offer a fairly new car at a better than usual price and some yahoo will do his or her own swooping. The smart ones use tools like the NICB VINCheck, which will identify a flood car only if (1) it is insured and the claim was recorded and (2) if the insuring company is a member of NICB — which 88% are. It’s not a foolproof answer, but it certainly narrows the fraud field. If the buyer fails to do that and the seller was an individual rather than a business, the buyer is stuck.

Which is where the final loop comes into play. Lemon-owning insureds (too much mileage, payments too high, bad engine, flood caused electrical problems, etc.) are at a high risk of committing a fraudulent act that results in the insurance company owning the problem instead of the insured. Coming soon to a computer screen near you!