Delinquent Borrowers Resort to Arson to Dispose of Guzzlers

By Dawn Handschuh, Personal Finance Writer   

Elevated gas prices may be fueling a rising number of fraudulent car insurance claims, according to a new study by the National Insurance Crime Bureau (NICB).

As the economic meltdown continues, more auto loan borrowers may be stuck with payments they can no longer afford or find themselves owing more on a vehicle than it's worth. Rising gas prices ratchet up the costs of owning a vehicle, and insurance fraud has become one way to eliminate the financial burden, particularly for those who own gas-guzzlers.

NICB recently conducted a study of nearly 3,000 questionable car insurance claims made during the four-year period ending in December 2007 that were identified as "owner give-ups" (vehicles believed to have been falsely reported as stolen by the owner).

"There's a link between rising gas prices and the incidence of owner give-ups," said Frank Scafidi, NICB's Director of Public Affairs. "We plotted the national average cost of a gallon of gas for each month staring in January 2004 and compared that to the monthly incidence of give-ups reported to us by insurance companies."

NICB's study shows that while the number of industry-reported owner give-ups slowly increased from 511 cases in 2004 to 608 cases in 2005 and 619 cases in 2006, there was a much sharper jump in owner give-ups in 2007 (986 claims, or 37%), when gas prices began soaring. (Industry-reported owner give-ups represent just a fraction of the actual number.)

"While our data suggests a link," Scafidi said, "I'm not convinced that a deteriorating economy will significantly increase insurance fraud. From one year to the next, insurance fraud is a constant, and the economy may not have as much bearing on it as you might think." According to Scafidi, insurance fraud costs the property and casualty insurance industry roughly $30 billion in losses each year.

"People can be in over their heads for a lot of different reasons," said Scafidi. "If they look at the car they drive and all they see is a drain on their money, they might consider fraud as an option either to get money out of it or to at least stop from putting more money into it."

Owners most commonly resort to arson in out-of-the-way locations because it's quick and the insurance company usually declares the vehicle a total loss. But car owners bent on escaping their financial responsibilities will also flood the vehicle by driving it into a pond or lake or, in areas relatively close to the border, driving the vehicle into Mexico, abandoning it and then filing a false claim for theft. (Six of the 10 cities with the highest rates of questionable car theft claims are all located in the west or southwest ⎯ Houston, Las Vegas, Phoenix, Los Angeles, Dallas and San Diego.)

"Our data shows that seven of the ten vehicles most frequently reported stolen under suspicious circumstances involve fuel-inefficient models," Scafidi said. Those vehicles on the top-ten list include the Dodge Ram, Ford F-150, GMC Yukon, Chevy Silverado, Dodge Durango and Chevy Tahoe. Also on the list are the Honda Accord, Honda Civic and Toyota Camry, Scafidi said, noting that economic hardship can happen to anyone, regardless of the type of vehicle purchased.