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Are we headed back to the future?

Recent reports of inflated vehicle market values, exorbitant loan-to-value ratios, and a soaring vehicle repossession trend have some believing history is on the verge of repeating itself. If these trends continue, buckle up because they may be a sign of escalating auto insurance fraud.

Vehicle theft and fire scenarios increased in response to the worsening financial crisis of late 2007 and the ensuing recession. The NICB released a study in 2008 that reported owner give-ups skyrocketed across major metro areas, including Los Angeles, Houston, Las Vegas, Phoenix, and Chicago1. With the recession hitting home, consumers across the United States resorted to discarding their unwanted vehicles as a last-ditch effort to avoid personal financial collapse.

Why Data Is The Key Differentiator In Fraud Detection

Potential trouble on the horizon

Fast forward to the present, we see a similar situation brewing as subprime repossessions double2 – often an early sign of a troubling economic forecast. Add to that inflated market values on vehicles, which have hit record numbers in the past 12 months as new and used cars are selling well above the sticker value. And if that’s not enough, we’ve also observed inflated loan-to-value ratios and are beginning to see used vehicle values return to “normal” on a downward trend3.

This trifecta suggests the potential for an increase in defaulted loans. Will we begin to see an uptick in owner give-up fraud, including accidental fires? Are we headed back to the future, and will it worsen this time? 

Now, more than ever, insurance companies will see their detection, investigation, and resolution capabilities tested. 

Three areas of focus

In preparation for potentially tumultuous times ahead, insurers should be asking themselves three things – and taking measures to sure up their operations.

  1. Detection: Do you have the right tools to detect fraud risk across a broad spectrum of indicators and lines of business?

Tips for success:

    • Feed your anti-fraud systems with large volumes of essential data.
    • Check that you can leverage your detection tools in concert with lien status.
    • Ensure you have processes in place to rapidly triage and assign cases to the right resources.
  1. Investigation: Are your front-line staff, appraisers, and third-party resource teams attuned to potential owner give-up or accidental fire indicators?

Tips for success:

    • Train your online or First Notice of Loss (FNOL) staff to ask the right questions.
    • Arm your investigators and third-party staff with essential technology and investigative tools.
  1. Resolution: Are your workflows optimized to meet modern expectations for fast claim processing?

Tips for success:

    • Explore claims automation for fast-tracking meritorious claims and optimizing customer satisfaction.
    • Ask your legal and adjunct staff to provide training in good faith claim handling.

While all three areas represent critical elements in the fight against insurance fraud, focusing on detection with the right tools and data is crucial to ward against challenges at resolution. Combining the right tools and enriched data can effectively aid the fight against insurance fraud and help identify fraud trends. If you’d like to read more on this subject, check out a blog from my colleague John Trovinger, Why data is the key differentiator in fraud detection.

Reference:

1https://abcnews.go.com/Business/Economy/story?id=7271765&page=1

2https://www.barrons.com/articles/recession-cars-bank-repos-51657316562

3https://www.coxautoinc.com/market-insights/the-used-vehicle-market-is-beginning-to-feel-normal-again-and-that-is-good-news-for-the-industry/


Shay Gause, CFE

Shay Gause is a part of the Claims Anti-Fraud Solutions Group and formerly served as a member of the board of directors for the Texas Motor Vehicle Crime Prevention Authority.


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