REDUCING CAR THEFT: HOW LOW CAN WE GO? Presentation Title: The Insurance Role in Vehicle Theft Prevention

Transcription

1 REDUCING CAR THEFT: HOW LOW CAN WE GO? Speaker: Organisation: Jennifer Davidson NRMA Presentation Title: The Insurance Role in Vehicle Theft Prevention When we talk about the cost of car theft on the Australian community, we talk about it being over $1billion. That figure includes the cost of police time, courts administration, the juvenile justice system and of course the cost associated with the more tragic aspects of car theft. But when it comes to the direct financial impact of car theft, it is the insurance industry that bears the most cost. So, it goes without saying, the insurance industry is always interested in limiting the level of vehicle theft and insurance fraud. In the following, I will firstly give an overview of how NRMA categorises car theft. I will be using NSW data, as our market size in that state means that our experience closely reflects the nature of theft for the whole of state. This overview will discuss how the insurance industry has played an active role in trying to reduce and prevent car theft in the past, and go on to explore more recent trends that provide even greater opportunity for the industry to contribute. In the last financial year, car theft cost NRMA Insurance $130million. This cost has increased by 130% since 1995, while in the same period of time, our frequency has increased by just 30%. This cost can be broken down into the various categories of theft. opportunistic theft; generally represented by cars recovered relatively intact, or with impact damage; non-genuine, or fraudulent theft claims; represented by those cars recovered burnt out, submerged, certain impact damage and some unrecovered vehicles accompanied by other factors professional theft; represented by cars recovered stripped or not recovered at all For the insurance industry to have any effect on the vehicle theft rate, or its vulnerability to fraud, it must first have an understanding of the nature of theft and what strategies work best on what type of theft. The industry has been very active for many years in participating in, and some times leading the way with theft prevention initiatives. These have been broadly targeted, and include: Media releases promoting public awareness of theft prevention tips Car park rating schemes 1

2 Lobbying manufacturers to improve security Sponsoring youth programs, such as Handbrake Turn Sponsoring police operations such as the deployment of gotcha cars, lock it or lose it campaigns etc These type of strategies generally impact opportunistic theft, and as we have seen by NRMA s NSW claims costs, theft recovered repairable has remained relatively stable for the past five years. So, having been quite successful in maintaining opportunistic theft costs for many years, is there anything else the industry can do with opportunistic car theft? It is often put to me that insurers should do more to encourage the voluntary installation of immobilisers by providing discounts on premiums. However, many factors determine comprehensive car insurance premium, including the cost of collision repairs for a particular make and model, owner s driving record, the size of a car s engine, the age of the driver etc. Across the business, motor vehicle theft accounts for just about 13% of actual claims costs, so that s the general amount of premium paid for the theft risk. Obviously, some cars are at greater risk of being stolen than others, so in fact, insurers do give discounts for immobilisation and fitting other anti-theft devices but only when they are fitted to a make and model of vehicle that has a high premium loading for theft. Some examples are: Vehicle make/model Holden Commodore VN Holden Calais VN Toyota Lexcen ( VN) HSV VR and VS (series 1 only) Hyundai Excel X3 Security device 2-point Engine Immobiliser Ignition Lock Protector (Full Metal Jacket) 2-point Engine Immobiliser Ignition Lock Protector (Full Metal Jacket) 2-point Engine Immobiliser Ignition Lock Protector (Full Metal Jacket) 3-point Engine Immobiliser Vehicle Monitoring and Tracking device 2-point Engine Immobiliser (NSW/ACT only) These make and models of vehicle contribute about 14% to our total car theft claims costs, and when we discuss their theft frequency with police, we generally find the same situation - particularly with VN Commodores. So we are keen to have this part of the fleet immobilised, but with other makes and models, there is not a high enough premium for car theft in the first instance to be offering a discount. As more of these high risk vehicles are immobilised, it is possible we will see a shift to other makes and models. We would then, of course, examine the relevance of discounts with those vehicles. 2

3 Another way of encouraging the installation of immobilisers is to impose a theft excess for certain vehicles that are not immobilised. We are now examining high risk vehicles and will be looking to introduce targeted excessing in the new year. Eventually, immobilisation will reach critical mass, as has been the case in some overseas countries. Recently, the former head of Research & Development of the United State s largest general insurer, State Farm, told me that increasingly sophisticated security devices fitted to cars have virtually put the opportunist out of business in that country. The reduction in opportunistic theft should also have a positive effect on the incidence of non-genuine, or fraudulent theft claims. After all, the most common type of refused claim is the one where the insured has attempted to replicate the genuine opportunistic theft scenario. It is this type of theft report which is currently of most concern to the insurance industry, and in a practical sense, it really is the only industry that has a heavy commitment to eliminating this type of criminal activity. The estimation of fraudulent theft claims ranges from 3% to 15%. In the past ten years, there has been an increase in the prevalence of special claims or investigation units within insurance companies. NRMAI employs 80 personnel in its investigations department. But this privitisation of insurance investigation and increase in dedicated resources, does not appear to have encouraged people to not commit fraud. So why is this? Most insurers have a predominantly re-active response to fraud, rather than a preventative approach. They rely on either automated fraud profiling within their claim lodgment systems, or claims officers using fraud indicator sheets to identify suspicious claims and refer them for investigation on a case by case basis. While a necessary deterrent and an essential component of the total risk management framework, investigation is an expensive treatment option if it is the only fraud risk mitigation strategy an organisation has. Further, many insurance investigators find their job becoming increasingly difficult as their company looks for more ways to reduce customer handling time and in doing so, don t just reduce their administrative overheads, but also collect less information, or less leads. Less leads, less likelihood of refusing a claim, and no where near enough evidence to refer a matter to police for criminal prosecution. And there is little likelihood of police initiating an investigation into insurance fraud. Our investigations assistant manager tells me anecdotally, that in the last twelve months, police have come to us on about six occasions with a car theft report they believed to be non-genuine. So if we extrapolate that across the insurance industry for NSW, that would be about 12 reports 12 reports of stolen vehicles out of nearly 59,000 are nongenuine not likely. From the perpetrator s perspective, the only risk taken when staging the theft of your vehicle, is having a claim refused no criminal history, no gaol. But why would a police officer see that one recovered burnt out car is any different from another. As a general duties police officer, I recovered numerous stolen vehicles. Back then, I certainly couldn t tell you much about the condition they were recovered in, only that they appeared to have all their bits and pieces or they didn t, or they had been burnt out. But what do insurance companies do when they recover a stolen vehicle they make a detailed assessment of the condition of the car, the value of the car, the nature of stripping.and determine whether the 3

4 claim is likely to be fraudulent, whether it is the result of a professional strip or whether it s just one of many found abandoned in a popular dumping ground. A decision whether to repair the vehicle or write it off has to be made, hence a very thorough assessment of condition. The detailed analysis of car theft claims and assessing reports, coupled with an understanding of what the key motivators for car theft are, provides a fairly clear picture of the genuine theft landscape. Claims occurring outside that landscape soon become obvious. It is not uncommon to see a pattern of fraud and suspicious claims move throughout a community, a geographic location or an ethnic group. Like most methods of opportunistic car theft, knowledge of a fraud scam is spread by word of mouth. I speak to many police across the nation, mainly as the contact point for sponsorship provided by the NRMA group of companies. They rarely want to discuss fraud patterns, but we often raise it anyway. Recently, a police officer in a state where we have less coverage than NSW, called to ask if a stolen car was insured with us. The officer was surprised we could immediately advise it was not, without even looking at our records. It was explained that we look at every theft claim on a daily basis to identify the outliers, and a car of that make and model, stolen and recovered at those locations, would not be genuine. We then ran through a few fraud indicators with the officer, and they all came up positive. That matter was criminally investigated. The insurance industry needs to be more active in providing police with the unique knowledge we have about the business, and what it is that distinguishes the dishonest from the honest client. Car theft claims officers also need this level of knowledge. An understanding of genuine car theft, as well as the routine fraud awareness training given to most claims officers within the industry, provides a context for fraud. Not only is the claims officer more cautious with the non-genuine claimant, they are also better able to identify the genuine victim of car theft and provide the best customer service. Unlike most insurers, NRMA Insurance uses an intelligence based risk assessment approach to defining the car theft problem. Our detailed analysis of car theft claims has uncovered fraud trends not previously detected by using a traditional investigative approach. And it is unlikely that a traditional investigative approach will act as much of a deterrent with some of these scams. In more recent times, it is not actually fraud contributing to the alarming increases in theft claims cost, it is professional car theft. So what is meant by the term professional theft? A simplistic answer might be, re-birthing and major stripping. Or we can elaborate, and say it is carried out in an organised way, with a number of people involved. With the volume and value of cars now being stolen, and the detail in stripping or re-identifying cars, I would go on to say that professional car theft is a very sophisticated activity. It involves highly skilled trades people with intimate knowledge of the construction and markings of cars. These people have access to significant storage space, as well state of the art equipment and technology. Many have established a significant production, transport and retail distribution infra-structure for the illicit used car market. 4

5 Investigation of professional theft is, of course, a matter for law enforcement agencies. However, while police motor squad personnel and scientific examiners have enormous technical and investigative skill, it is not their job to know in detail the commercial operations of the motor trade industry that is exploited by the rebirther. Yet knowing both the commercial and criminal aspects of professional car theft can provide a better understanding of how the professional stolen vehicle operation might be dismantled. As with most organised crime, applying the criminal law alone will not close down a criminal enterprise. Insurers need to know enough about professional car theft to know how their own processes are exploited. They need to share that knowledge with police investigators, and together develop a range of options to close down the professional, using whatever legislation, or commercial intervention necessary. Detailed analysis of insurance data, which the ex-police on my team will tell you is far different from police holdings, provides greater insight into the illicit car re-cycling industry. It provides a unique perspective on professional car theft that can contribute to the development of operational strategies employed by police to investigate this well organised criminal activity. So what is the pay back for investing in such a detailed degree of car theft analysis? Well apart from generating more options for underwriting, claims management, public awareness campaigns and the like, we have also found that many people involved in professional car theft, are also involved in broader car crime effecting the industry. A number of matters we have assisted police with have not only resulted in previously outstanding stolen cars being returned to us, but also identified individuals who have been involved in numerous claims against NRMAI. Their involvement extends from being a party to many motor vehicle accidents, including driver, passenger, independent witness, or the third party. They have had theft claims, or have been the last person in charge of a stolen car where the claim has been refused. People involved in professional car theft know cars they know the industries that make cars, transport cars, sell cars, repair cars and insure cars. They know how to exploit those industries, and unless those industries know how they do that, they will remain vulnerable. Insurers need to examine their process and procedures to determine how they can more pro-actively disrupt professional activity. During 1998, we saw the proliferation of the major strip and buy back m.o. NRMA insurance commenced withdrawing those wrecks from general auction even before the implementation of the wrecks register. This had a dramatic effect on the number of major strips being recovered, going from per month to. That action, along with a major police investigation, contributed to a $10milion dollar reduction in our theft claims cost for financial year 99/00. Now, with major strips being a compulsory category on the wrecks register in NSW, this m.o. for re-birthing has decreased significantly. However, it has emerged in other states where the wrecks register legislation is still being developed. A variation using luxury vehicles and internal stripping has also emerged in NSW. As an industry, we have seen the value of removing major strip vehicles from general auction. In most states, the industry is supporting the development of 5

6 business rules for the various wrecks registers. At the same time, we need to be thinking about what we can do off our own bat - one solution is to have major strip vehicles sold only on contract, with compliance plates destroyed and the car s firewall returned for destruction. While there may not be a register of these destroyed compliance plates in states other than NSW, preventing a straight re-build makes life a little less easy for the would be buy-back operator. In NSW, in the last twelve months or so, we have started to see more expensive cars being targeted for internal stripping. Stripping cars of their more expensive trims, such as leather seats, momo steering wheels, mag wheels, doors or even the dash assembly, renders them an economic write off for many insurers. Buying these strips back at auction, while not delivering quite the profit of the major strip buy back, can still reap a substantial profit and avoids VIN cancellation. We are currently conducting a cost benefit analysis of increasing the repair cost before we declare a write off, so that these vehicles are repaired and returned to the owner, leaving the thief with the prospect of on-selling stolen property within the prestige vehicle market. The smaller market makes this a higher risk activity then rebuilding and re-selling the vehicle themselves. By conducting more thorough analysis of our theft claims, we also know a lot more about professional theft and obviously the insurance risk. We know: Much more about the cost of professional theft Which suburbs are targeted for professional theft The year, make model of cars likely to be targeted for re-birthing and for professional stripping The condition a stolen car is likely to be recovered in The location a car is likely to be recovered Armed with this information, the insurer can more pro-actively guard against the threat of professional car crime. They can: 1. Provide their clients with advice on avoiding purchasing a re-birthed car 2. Conduct targeted inspection of cars likely to be re-birthed prior to taking them on risk. This re-enforces the message buyer beware and also avoids: brand harm when vehicles are seized at a later date by police the risk of a fraudulent claim if the owner becomes aware it is stolen the car being re-stolen or fire bombed by original vendor if they become aware of a police investigation. We have seen all these risks realised in the past. 3. Include premium discounts for the installation of sophisticated anti-theft devices, such as satellite tracking, for vehicles at risk of being stolen and not recovered, particularly in high risk suburbs. 4. Keep adequate records to ensure your own prior write-offs are not re-insured without inspection. 5. Use all available information when taking on a risk, or processing a claim, for example IRS, and ensure all refused claim information is forwarded to the Insurance Reference Service. 6. Use knowledge of cost of professional car theft and fraud to conduct cost benefit analysis of collecting information against not collecting it. 6

7 7. Provide adequate training for assessors to determine whether a recovered car will be a buy-back and determine best option for adjustment. 8. While assessing collision claims, inspect all receipts for parts, and ensure new parts are fitted when quoted. Be aware of activity within the shop we are doing business with and report suspicious behaviour. 9. Maintain thorough and complete information concerning salvage sales. Salvage records can be a valuable information source for police 7