(Claims Magazine) A woman parked her late-model car just feet from the stormy Gulf Coast waters by Gulfport, Miss. as Hurricane Gustav closed in. She jumped into a waiting vehicle and zoomed off, leaving her car to the mercy of the raging wind and surging ocean.
Paula Parent allegedly sunk her 2005 Chevy Trailblazer in Lake Erie for insurance money in June 2008. According to investigators, the keys were still in the ignition, and a rock was tied to the gas pedal. The Buffalo-area woman later admitted that she wanted to buy a vehicle with better mileage.
Helen Marler, a Yuba County, Calif. resident, torched her Jeep Liberty to escape the $ 600 monthly payments, while her husband plunked his Nissan Titan into a river to collect a $ 29,000 insurance policy, prosecutors say.
As America’s economy sinks deeper into a trough, growing numbers of anxious drivers are illegally dumping unwanted vehicles in the hope that insurance payouts will help relieve the financial misery. Gas prices have surged, and credit has been perhaps all too readily extended. The nation’s sudden financial downturn has created a perfect storm of economic stress. People cannot afford vehicles that have suddenly grown too expensive, and their personal finances take a beating. Other economy-driven problems, such as untenable mortgages, may lead some to seek insurance money to ease the pinch.
Parting Is Sweet Sorrow
So-called vehicle give-ups have long been a common insurance crime. When a vehicle becomes too expensive or burdensome, a driver may torch it, drown it in a lake or a river, or simply abandon it in a remote location. The driver then tells the insurer that someone stole the doomed vehicle, demanding an insurance payout. Unfortunately, rapidly spreading warning signals suggest that this scheme may be spreading.
“Spikes in people dumping their vehicles are the norm in an economic downturn,” said Douglas Ashbridge, director of special investigations for Farmers Insurance Group. “The vehicles are easy to report stolen, and the fraud is more difficult to verify. It’s a way out, a way to get out from under vehicle payments and let the insurance company pay off the loan.”
The Coalition Against Insurance Fraud (CAIF) investigated nearly a dozen locales around the U.S. in the late summer and early fall of 2008. The data gathered are usually anecdotal and suggestive but do reveal warning signals. As Ashbridge put it, “We’re seeing more give-ups pretty much across the board.”
In New York, arrests for owner give-ups have soared 25 percent in 2008 compared to the previous year, according to the state’s insurance department. The department logged 101 busts for all of 2007, but had recorded 93 cases by August 2008. Most of the busts happened in New York City, including nearly two dozen that involved gas-gobbling SUVs.
“Owners are giving up their vehicles due to high leases, the economy, and prices of gasoline,” says Frank Orlando, head of the New York Fraud Bureau. “Some are high-end vehicles that are costly to maintain.” This problem persists in other states as well. For instance, in New Jersey, suspected vehicle arsons have risen steadily. The state fire marshal recorded 59 possible torchings in 2004; 76 in 2005; and 94 in 2007. “Fraud investigators noticed a spike in suspected auto give-ups this past summer, though firm statistics still are being compiled,” says John Butchko, special assistant with the state attorney general’s office. “We’re seeing the troubling signs of an increase in suspicious claims, which have especially been trending toward the larger, low-mileage vehicles.”
In Ohio, the state fire marshal recorded 3,168 vehicle arsons last year, which represented a 10 percent increase from the 2,872 reported in 2006. According to Columbus’ arson division, vehicle fires rose from 140 in 2005 to 202 in 2006, the year the subprime mortgage crisis first began exploding.
“I’m sure more give-ups are coming,” says Michelle Brugh, head of Ohio’s Insurance Fraud Bureau. “I wouldn’t be surprised, so we’re taking a proactive approach.”
In Mississippi, police have unearthed dozens of vehicles suspiciously abandoned on piers, beaches, and other places near seashores, where surging waters and high winds from Hurricane Gustav could easily wreck them. In California, the state fraud bureau reported that insurers referred 40 percent more suspected give-ups to the state’s insurance department during the 2008 fiscal year — which ended June 30, 2008 — than the previous year. California also had a jarring 5.4 percent unemployment rate in 2007, according to federal figures. In addition, RealtyTrac reports that the state ranked second in the nation for foreclosures through August 2008.
Cases in San Bernardino County and San Joaquin Valley also have increased in recent months, according to news reports. In Fresno County, prosecutors charge that 12 people ran an insurance fraud ring that burned vehicles for clients.
Actual arrests, however, have remained fairly steady statewide, though investigations often are lengthy and could yield more arrests later, said Dale Banda, former head of the state fraud bureau, who retired this fall.
Meanwhile, mixed messages are flowing from Florida. Recorded vehicle fires have dropped, according to the state fire marshal. Vehicle give-ups also have decreased slightly, according to the state fraud division’s Maj. Jack Kelley. However, local police in Miami also recently told reporters that give-ups were rising in their city. State Farm said it has noticed a statewide uptick.
“We’ve seen a substantial increase in vehicle fires in Florida and New York,” said Dennis Schulkins, claim consultant with State Farm’s investigative unit. “How much you can attribute to arsons based on the economy is unclear. Clearly, when there’s an economic downturn, you’ll see an increase in opportunistic fraud. I think that’s the situation we’re in now.”
Utah’s Fraud Bureau, which normally has a caseload of one or two suspected give-ups, is now investigating 30 cases, said Joe Christensen, head of the state fraud bureau. The troubled economy, along with a new state rule requiring insurers to report cases, may account for the spike, he said.
The Arkansas Fraud Bureau is seeing similar trends. It normally investigates a few suspected give-ups each year but logged 18 cases in July and August this past year, including three arsons, according to Cory Cox, director of the unit.
In Nevada, about one in every four cases investigated by an auto-theft task force covering the Las Vegas metro region involved suspected owner give-ups.
“Those are picking up,” said Las Vegas Police Lt. Robert DuVall, who is on the city’s task force. “The national average is about 18 to 20 percent. In my professional opinion, we’re a little higher than the national average. We’re seeing more of it as a result of the economy.”
Coincidentally or not, the unemployment rate in the Las Vegas area stood at 7.1 percent through August 2008, which was among the worst rates for metro areas in the U.S.
Lastly, in South Carolina, a survey of insurers conducted by the South Carolina News Service indicated that suspected arson schemes of all kinds — including vehicle torchings — rose as much as 200 percent from 2006 to 2007. Many dumped vehicles around the United States are gas-inhaling SUVs, investigators say. Overall, SUV resale values have plunged 50 percent in the last year, which is triple the normal depreciation, according to Kelley Blue Book prices. Lured by easy credit, drivers often owe more on their loans than their SUVs are worth in trade-in value.
In fact, the environment for a yet another SUV give-up spike may already be emerging. SUV sales are firming up, thanks to recent drops in gas prices as well as sales incentives averaging around $ 6,000 as of August 2008. Are yet more overeager drivers buying more vehicle than they can afford? How many will want to unload their SUVs if the economy keeps tanking or gas prices skyrocket again? Only time will tell, but preparation and vigilance can help mitigate the problem.
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