Parts and service is a big sector. A research study conducted by Lang Marketing Resources Inc. of Wyckoff, N.J., a consulting and analytical company specializing in the vehicle products industry, indicated that the industry achieved nearly $150 billion in sales in 1999. Among other factors, the industry's growth is fueled by:

Consumers who enjoy do-it-yourself repair projects.

The proliferation of large, nationwide automotive supply stores offering convenient access to aftermarket parts.

The growth in performance shops that satisfy a seemingly insatiable demand for expensive accessories and aftermarket services such as wheel rims, stereos, customized paint jobs and engine modifications.

Performance shops require especially close scrutiny by p-c insurers. It's important to note that most shops are legitimate retail and repair businesses. Unfortunately, like any industry, a few bad apples can spoil the entire bunch and cast unfavorable light on performance shop business practices.

NICB investigations and research indicate a plethora of these shops that conspire with customers to defraud insurers. These performance shops serve as major parts suppliers to illegal street and drag racers. NICB investigators, working closely with law enforcement agencies, attend these street race shows and regularly find stolen cars and parts, as well as evidence of performance shop-based insurance fraud.

The insurance industry needs to address these problems and commit resources toward detecting and stopping these crimes early in the claims process, rather than trying to recover restitution through criminal and civil courts following a fraudulent claims payment.

Many street racers commit insurance fraud to finance and obtain the aftermarket parts and services needed to get their vehicles up to competitive speed. False auto theft reports, staged accidents and bogus vandalism reports top the list of scams they use.

Performance shops can enter this crime picture in many ways. One is by installing stolen engines and transmissions, often with full customer consent. The economic benefit to the shop is evident: A legitimately obtained engine or transmission may cost the performance shop $2,500, while a stolen or illegally gotten part can cut their cost to a mere $300–a tantalizing profit opportunity.

NICB feels that the parts market may be so rife with stolen aftermarket engines that it can be difficult for even honest performance shops to avoid purchasing them.

Unscrupulous shops have also been caught providing false receipts to settle customer insurance claims. In this scenario, the motorist uses the receipt as part of a false theft or vandalism report, then shares the subsequent claim payment with performance shop owners and employees.

Other scams unveiled by NICB investigators have involved shop employees seeking to encourage business by distributing blank receipts to street racers for use in false theft and vandalism reports.

Insurers can uncover these and other scams through careful claims scrutiny. Recognizing fraud indicators is a powerful starting point to stopping a potentially fraudulent claims payment. (What should you look for to spot fraud? See the accompanying sidebar.)

To help prevent these crimes, we suggest that insurers:

Thoroughly examine suspected shops' licenses, workers' compensation policies and registrations.

Take pre-insurance photos of all target cars.

Require performance shops to submit a receipt and photo of all target accessories installed on the car.

Demand written guarantees from shops that all repairs and paint jobs be completed using only original stock items.

Verify submitted receipts with shop invoices.

Confirm the authenticity of claimed parts to ensure the shop actually stocks them.

Question insureds and performance shops to determine if illegal street or drag racing could have caused claimed engine damage.

Determine potential patterns between high estimates and estimator/shop relationships.

Education and training are also helpful aids for insurance investigators and claims professionals. There are many publications and Internet sites that cover performance shop trends and products. In addition to their automotive content and color graphics, their articles offer suggestions for making vehicles faster, more attractive and sleeker by installing aftermarket parts. Become more knowledgeable about parts that are prone to fraudulent claims.

Automotive clubs throughout the nation are another information and education source. Club members use meetings to parade their vehicles and discuss ways to modify them. If illegal activities are occurring among members, chances are they may talk about them at club gatherings or provide leads on obtaining parts from unscrupulous performance shops.

Performance shop fraud is growing at a pace that matches the movie title–fast and furious–but so is law enforcement and insurance industry attention to these crimes. Together, we should continue to devote resources to put the brakes on them.

Robert M. Bryant is president and chief executive officer of the National Insurance Crime Bureau in Palos Hills, Ill.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

Contact Webmaster