Auto Insurance Fraud

At the end of 2004, the Coalition against Insurance Fraud said that auto insurance fraud amounts to $14 billion in false claims a year. A ground breaking study by the Insurance Research Council in 1996 found that one-third of all bodily injury claims for auto accidents contained some amount of fraud. Most of the 33 out of 100 bodily injury claims identified as fraudulent included "padding" or "build-up" - exaggeration of injuries based on actual accidents.

Flooded vehicles may appear in used car lots and auction sales following hurricanes and storms. Consumers unwittingly purchase these vehicles which may not seem damaged, but eventually will have expensive electrical and air bag problems. In some states, vehicles that have been flooded bear the words "salvage only" on their titles, usually indicating that damage to the vehicle has reached about 75 percent of its value. No mention of flood damage is included in the title. Unscrupulous sellers may switch or clone manufacturers' serial number plates and put them on a flooded vehicle that has been cleaned up. They may also resell a car that has a salvage title in a state that has more lax standards for salvage titles. This practice-called title washing-enables a vehicle to obtain a regular title.

Standardized state rules for titling vehicles are necessary to combat this type of fraud because strict rules in a number of states in a region make it attractive for unscrupulous sellers to dump cleaned-up flood vehicles in a nearby state that has lax rules. For instance, many states in the hurricane-prone section of the United States have adopted rules that mandate that the words "flood vehicle" must be included on the titles of vehicles that have been water damaged, totaled out by the insurer and then rebuilt. Before a salesman can sell such a vehicle, the buyer must be notified in writing of the vehicles past flood damage. If one state in the region does not have such strict laws it can become a dumping ground for undeclared flooded vehicles.