Auto Body Shop Fraud Kicks Into Overdrive

Last summer saw the debut of “Gone in 60 Seconds,” an actionthriller movie about organized vehicle theft. This year's hot carmovie, “Fast and Furious,” portrays a world of truck thieves andillegal drag racers who vie with one another in vehicles hopped upwith pricey aftermarket parts.

While neither movie may have thrilled the critics or garneredmuch mention by film awards groups, the crimes they depictcertainly captured the attention of the National Insurance CrimeBureau and the property-casualty insurance industry.

The aftermarket auto product and service industry is booming,and as it expands the number of criminals seeking to exploit it forinsurance fraud opportunities is growing as well.

Parts and service is a big sector. A research study conducted byLang Marketing Resources Inc. of Wyckoff, N.J., a consulting andanalytical company specializing in the vehicle products industry,indicated that the industry achieved nearly $150 billion in salesin 1999. Among other factors, the industry's growth is fueledby:

Consumers who enjoy do-it-yourself repair projects.

The proliferation of large, nationwide automotive supply storesoffering convenient access to aftermarket parts.

The growth in performance shops that satisfy a seeminglyinsatiable demand for expensive accessories and aftermarketservices such as wheel rims, stereos, customized paint jobs andengine modifications.

Performance shops require especially close scrutiny by p-cinsurers. It's important to note that most shops are legitimateretail and repair businesses. Unfortunately, like any industry, afew bad apples can spoil the entire bunch and cast unfavorablelight on performance shop business practices.

NICB investigations and research indicate a plethora of theseshops that conspire with customers to defraud insurers. Theseperformance shops serve as major parts suppliers to illegal streetand drag racers. NICB investigators, working closely with lawenforcement agencies, attend these street race shows and regularlyfind stolen cars and parts, as well as evidence of performanceshop-based insurance fraud.

The insurance industry needs to address these problems andcommit resources toward detecting and stopping these crimes earlyin the claims process, rather than trying to recover restitutionthrough criminal and civil courts following a fraudulent claimspayment.

Many street racers commit insurance fraud to finance and obtainthe aftermarket parts and services needed to get their vehicles upto competitive speed. False auto theft reports, staged accidentsand bogus vandalism reports top the list of scams they use.

Performance shops can enter this crime picture in many ways. Oneis by installing stolen engines and transmissions, often with fullcustomer consent. The economic benefit to the shop is evident: Alegitimately obtained engine or transmission may cost theperformance shop $2,500, while a stolen or illegally gotten partcan cut their cost to a mere $300–a tantalizing profitopportunity.

NICB feels that the parts market may be so rife with stolenaftermarket engines that it can be difficult for even honestperformance shops to avoid purchasing them.

Unscrupulous shops have also been caught providing falsereceipts to settle customer insurance claims. In this scenario, themotorist uses the receipt as part of a false theft or vandalismreport, then shares the subsequent claim payment with performanceshop owners and employees.

Other scams unveiled by NICB investigators have involved shopemployees seeking to encourage business by distributing blankreceipts to street racers for use in false theft and vandalismreports.

Insurers can uncover these and other scams through carefulclaims scrutiny. Recognizing fraud indicators is a powerfulstarting point to stopping a potentially fraudulent claims payment.(What should you look for to spot fraud? See the accompanyingsidebar.)

To help prevent these crimes, we suggest that insurers:

Thoroughly examine suspected shops' licenses, workers'compensation policies and registrations.

Take pre-insurance photos of all target cars.

Require performance shops to submit a receipt and photo of alltarget accessories installed on the car.

Demand written guarantees from shops that all repairs and paintjobs be completed using only original stock items.

Verify submitted receipts with shop invoices.

Confirm the authenticity of claimed parts to ensure the shopactually stocks them.

Question insureds and performance shops to determine if illegalstreet or drag racing could have caused claimed engine damage.

Determine potential patterns between high estimates andestimator/shop relationships.

Education and training are also helpful aids for insuranceinvestigators and claims professionals. There are many publicationsand Internet sites that cover performance shop trends and products.In addition to their automotive content and color graphics, theirarticles offer suggestions for making vehicles faster, moreattractive and sleeker by installing aftermarket parts. Become moreknowledgeable about parts that are prone to fraudulent claims.

Automotive clubs throughout the nation are another informationand education source. Club members use meetings to parade theirvehicles and discuss ways to modify them. If illegal activities areoccurring among members, chances are they may talk about them atclub gatherings or provide leads on obtaining parts fromunscrupulous performance shops.

Performance shop fraud is growing at a pace that matches themovie title–fast and furious–but so is law enforcement andinsurance industry attention to these crimes. Together, we shouldcontinue to devote resources to put the brakes on them.

Robert M. Bryant is president and chief executive officer ofthe National Insurance Crime Bureau in Palos Hills, Ill.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 10,2001. Copyright 2001 by The National Underwriter Company in theserial publication. All rights reserved.Copyright in this articleas an independent work may be held by the author.

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