Fraud was not evident when the loss was first reported to our insurance group. It appeared to be just another RLP (renter's liability protection) rear-end accident and claim involving a rental car. There was even a police report but something seemed amiss. The renter and driver lived very close to one of the occupants of the vehicle that was rear ended. A closer look revealed that the accident involved two rental cars, which were rented from different companies but within the same ZIP code.
The police report was quite thorough and listed five individuals in the car that was rear-ended and four individuals, not including the driver, in the insured rental. That made five potential claimants and 25/50 limits that were quickly disappearing in a morass of bodily injury claims. Liability was clear and somehow everyone had the same lawyer.
Upon further investigation, all nine potential claimants were guests of the state penitentiary system and had served prison sentences that overlapped. An educated guess was that they thought of this scheme in their spare time and executed their plan once they had finished paying their debt to society.
Thankfully, the "red flags" were identified and this claim was referred to our special investigation unit. The property damage was paid, but none of the nine potential injury claims were ever paid. If my staff had not been properly trained in fraud awareness and detection, $50,000 could have been paid out.
Insurance company claims departments are continually trained in fraud awareness and detection process. In California, every newly hired employee, regardless of function, has a one-hour mandatory fraud awareness and detection training.
Rental car agencies do not usually ask many detailed questions prior to renting a vehicle. Additionally, counter agents are always eager to sell extra liability insurance and any collision waiver coverage. Staged-accident rings like to use rental cars because they don't create paper trails tying particular vehicles to the claimants in the accident. Additionally, only some of the rental car insurers utilize the ISO ClaimSearch system - a master database of all property and casualty claims utilized by the majority of insurers - to track all accidents and claimants.
Hard vs. Soft Fraud
Insurance fraud can be classified as either hard fraud or soft fraud.
Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto theft, or fire, which is covered by his or her insurance policy in order to receive payment for damages. Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.
Soft fraud, which is far more common than hard fraud, is sometimes also referred to as opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise legitimate claims. For example, when involved in a collision an insured person might claim more damage than was really done to his or her car. Soft fraud can also occur when, while obtaining a new insurance policy, an individual misreports previous or existing conditions in order to obtain a lower premium on his or her insurance policy.
The main concern for rental car agencies is hard fraud. This usually takes the form of staged accidents or fake bodily injury claims. This also includes personal injury protection fraud, which not only includes the renter, passengers and claimants, but the treating doctors and lawyers representing these individuals.
The question then becomes, "How can the fraud be avoided?"
Identify Rental "Red Flags"
Through our experience in the rental industry, there are certain "red flags" common to many fraudulent rental claims.
Here are the "red flags" that a rental counter agent can look for to help identify a rental that may turn into a staged or fraudulent accident:
- The customer owns a vehicle, but it is not being serviced or repaired.
- The customer inquires about extra insurance before it is offered.
- The customer is a walk-in and does not own a vehicle.
- The customer has a local address and an out of state license.
- The customer only requests a one-day rental.
- The customer pays in cash.
- The customer pays for the rental with someone else's credit card.
- The customer presents a foreign driver's license with no passport.
So what can a counter agent do to protect against fraud? The easy answer is, if something seems amiss, do not rent the vehicle. The proper training of counter staff will help to identify potential situations that may lead to fraudulent or staged accidents. Identification of the "red flags" listed will help to eliminate some fraud. I also suggest communicating with local law enforcement to help identify specific fraudulent schemes that may be present in a particular locale. Your fleet and renter's liability protection insurance carrier is also an excellent resource for training.
While all fraud cannot be avoided, some simple steps can assist the insurer in combating suspected fraud.
- Obtain a detailed accident report from the renter and take photos of the rentalvehicle documenting all physical damage.
- Obtain police, fire department, paramedic and ambulance reports.
- Take photos of the renter when he or she returns the vehicle.
- Obtain a list of all passengers in the rental vehicle.
- Obtain e-mail addresses, cell phone numbers and complete contact information for the renter and all passengers.
- Provide as much information as possible to the insurance company.
While there is no feasible way to prevent all fraud, taking appropriate steps in identifying potential fraud, along with continual employee training will help to mitigate a rental agency's vehicles from being used in fraudulent or staged accidents. Reduction in fraud will help keep insurance rates low and lead to greater profitability.
Howard J. Hirsch is vice president of claims at Knight Insurance Group. Hirsch is a licensed California attorney with more than 21 years of experience in the insurance industry.
The American Institute for Chartered Property Casualty Underwriters has an online educational portal, http://www.aicpcu.org. A number of valuable courses can be taken online that help educate individuals in the area of fraud detection and awareness. There are also numerous online continuing education resources where employees can obtain detailed training in the area of fraud detection and prevention.
Examples of Insurance Fraud
- Phony injury claims: Criminals lie about the harm they or others have sustained in an accident.
- Inflated damage claims: Criminals falsify the extent of damage or the true cost of repairs to their vehicles. For example, an insurance cheat adds previous damage to a legitimate claim, or conspires with a body shop and/or claims adjuster to pad a repair estimate.
- Phony thefts: The owner simply abandons a vehicle and then claims it was stolen (known as an "owner give-up.")
- Staged accidents, such as the intentional rear-end collision.
- Falsely claiming a one-car accident was a "hit and run."
- Inventing injuries to people who were not even in the vehicle at the time of the accident (known as jump-ins.)