Auto fraud can occur in many different forms, whether it involves vehicle cloning, owner give-up schemes, or inflated claims. But when partners of insurance companies get in on the act, it proves that the crime has no boundaries. Farmers Insurance recently busted several auto body shops in Texas for over-billing on vehicle repairs and parts, so Claims' Eric Gilkey spoke with him to find out more about how insurance companies are fighting the problem of fraud.
Can you explain how the auto shops were committing fraud?
Auto repair schemes typically include repairing parts while charging for new, replacing parts with used or aftermarket parts when charging for original manufacturers' parts, or charging for damage that was never repaired, either because it was never damaged or was left in a damaged condition. This is not a new trend. Farmers has been investigating and reporting or taking legal action in these cases for several years in a number of states. Not only is this scheme unfair to insurance consumers — it makes it difficult for honest repair facilities to compete.
How important is it for special investigation units to have a good working relationship with law enforcement officials?
SIUs and law enforcement have completely separate responsibilities. That said, it is important that law enforcement and prosecutors have a good understanding of white collar (insurance) fraud schemes, and SIUs play an integral role in educating and assisting them toward that end.
As a company, what is Farmers doing to help mitigate insurance fraud?
Fraud mitigation is grounded in good underwriting practices and training of agents, claim representatives, and others in the identification of suspected fraud. Development of special investigation units with robust technology also is critical. Farmers incorporates all of these components in our effort. Affiliations with organizations such as the Coalition Against Insurance Fraud and the National Insurance Crime Bureau also support our effort.
What kinds of fraud schemes should SIUs expect after catastrophes, specifically like the wildfires in Southern California?
While the vast majority of claims filed in the aftermath of catastrophic losses are legitimate, there are always those who attempt to capitalize on the event. Incidents such as our recent California wildfires are no exception. The two primary categories of fraud that we see following these events are opportunistic claim fraud and repair/contractor fraud.
Claim professionals should look for typical property fraud indicators, such as extensive loss with no physical evidence to support it and property claimed that doesn't match the insured's lifestyle. Evidence issues are compounded when you have total fire losses, but some evidence usually exists. Smoke damage and other property claims filed by insureds who are not in a burn or evacuation area should always be cause for extra scrutiny and investigation.
Unlicensed/illicit contractors present potential problems for insureds and insurers alike. Following large fire losses in the 2004 fires in Southern California, Farmers — along with other insurers and the California Department of Insurance — successfully prosecuted a significant smoke remediation scam, where insureds were asked to cooperate in filing phony smoke-damage claims.
Insureds and claim professionals should verify licensing of all contractors post catastrophe and immediately report suspicious activity to law enforcement.
You've been working in SIUs for nearly 25 years. You've seen a lot. What's the most unique fraud situation you've ever encountered?
There are many, but probably a case where a burned vehicle was located with a deceased driver. The driver was actually "borrowed" from a local cemetery to stage a phony death claim for life insurance. Unfortunately, the body was of the wrong gender and the investigation took a different path.
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