Farmers Insurance: Right Tools, Research Can Catch Auto-Shop Schemes

Revised: 09/22/2006

BALTIMORE 04/01/2003 (BestWire)-Although fraudulent medical-provider claims are a huge problem for insurance companies, auto-repair fraud is eating up a significant amount of money, according to an insurer that's planning to expand its program to fight such schemes.

The bulk of the fraud Farmers Insurance Group sees isn't auto repair, but the problem is big enough that the company started a specific program in California to fight it, according to Doug Ashbridge, director of Farmers' special investigation unit. Although Ashbridge didn't know how much of Farmers' claims dollars go to auto-repair fraud, he cited industry numbers that say 10% to 15% of property/casualty claims are fraudulent. The company also is planning to roll out the successful program in three states soon, but the selection of states hasn't been finalized, he said.

In many cases, about 30% to 40% of an auto-repair shop's estimates are fraudulent, said Sean Zavala, senior investigator at Farmers.

Zavala and Ashbridge outlined their fraud program to SIU managers, fraud investigators and attorneys at the 2003 Insurance Fraud Management Conference in Baltimore, which is running March 31 through April 2. The conference is hosted by the National Insurance Crime Bureau and Insurance Services Office Inc.

Part of Farmers' strategy is to randomly conduct file reviews to look for themes, such as a specific claim by an auto-repair shop that's done over and over again, or for a claim that seems out of character, such as a claim for glass repair when the accident shouldn't have caused glass damage, he said.

And about 90% of the time, Farmers' fraud cases come from tips from informants, ex-employees of the auto repair shop, claims personnel, state regulatory agencies and law-enforcement officials, Zavala said.

When the company suspects fraud, the SIU department collects all documents needed, including the auto-repair shop's written estimate and a signed declaration from the vehicle owner, he said.

The company then sends out a team of one investigator and one auto expert who look for common schemes, such as those involving aftermarket vs. factory parts, charging for repairs never made and enhancing damage to inflate repair costs, Zavala said.

When they examine the car, the team notes every discrepancy and photographs the car with a 35 mm camera rather than a digital one to avoid accusations of doctoring the photos, he said.

Often, the team can tell whether parts are replaced or just repaired by looking at them. For one, aftermarket parts come with a vehicle identification number. If the part's VIN number matches the vehicle's VIN number, the company knows the shop didn't replace the part, he said. A photo provides the proof.

The company also uses a $700 electronic thickness coating gauge to determine whether or not a door, hood, fender or other part was replaced or simply repaired. After placing the gauge on the part they're measuring, the device tells them how many layers of paint are present, and the team compares different parts on the car. For instance, in a case where an auto shop says it replaced a fender, Farmers will use the gauge on both the fender and the hood of the car to see whether they produce the same reading. If the fender's reading is higher, it means it has more layers of paint and probably was repaired instead of replaced, Zavala said.

Farmers doesn't investigate quality of repairs and labor times billed, because it's subjective and too risky. "We're about straight, hard, provable fraud," he said.

(By Marie Suszynski, associate editor, BestWeek: Marie.Suszynski@ambest.com)

An online information service of the United Farmers Agents Association, Inc.