Hostile time ahead for fraud-fighters?

There are subtle signs on the horizon that the fraud-fighting community may have a tougher time over the next few years in getting laws passed and encouraging consumers to have sympathy for our mission. We have seen some bills scuttled in states where newly empowered Democrats don’t seem to eager to do insurers any favors. That shouldn’t surprise anyone since Democrats gained 232 seats in state legislatures and took control of a dozen chambers. Insurers have been on the defensive in fighting off bad-faith bills in a half-dozen states, and in least one state, they have spent $1 million on lobbying to kill a bill.

Cover page of Fraud Focus

Add to this the talk on Capitol Hill about ending the industry’s antitrust exemption, racor over Katrina claims and record profit levels, and it soon becomes apparent that insurers could easily become more preoccupied with defending their flanks than combating fraud.

While fraud is obviously larger than the insurance industry, combating it often is seen as primarily helping insurers.

Other signs we are watching include the apparent falloff of anti-fraud efforts on the federal level with the FBI and U.S. attorneys and the nasty mood Americans seem to be stuck in. An incredible 71 percent recently surveyed say the country is headed in the wrong direction. There’s growing distrust of government and business, and that’s just not a conducive environment to combat a crime many Americans already tolerate.

New strategies may be in order for the next few years. An article exploring this issue is published in the current Fraud Focus newsletter.

Are “upside down” car loans encouraging insurance fraud?

upside down car
People on the financial edge with subprime mortgages are losing their homes because of rising interest rates. Is the same thing happening with auto loans? Apparently, according to a recent column by financial writer Michelle Singletary:

In the first quarter of 2007, 29 percent of consumers were upside down on their vehicles, Kelley Blue Book reports. Additionally, on average, people traded in cars on which they still owed more than $3,600.

And what do these buyers do with that loan balance when they want another car? They roll that negative equity – the $3,600 and often much more – into yet another vehicle loan.

“It is a pandemic,” says Jack Nerad, executive market analyst for Kelley Blue Book.

It is also financial lunacy. And making matters worse are risky lending practices similar to what we’ve been seeing in the mortgage industry.

Rolling the negative equity into a new car loan isn’t the only things these people do. They ditch the cars — they hide them, burn them and drive them into rivers, canals and lakes, in essence, transfer the upside-down loan to the insurance company.

With more than a quarter of car loans currently upside down, it’s no wonder false thefts of automobiles are on the rise. With rising interest rates and the high cost of automobiles, the problem for fraud fighters likely will get worse before it gets better.