Garaging Fraud Drives Out of State Losses
I know from speaking with SIUs across the country that unless they are tipped to a garaging issue, they will typically not look for a garaging fraud in the normal course of their duties. The only exception is when there is an out of state claim. Then, they will investigate potential garaging fraud issues. These SIUs could not tell me the rate of garaging fraud in out of state claims because they simply do not track those attributes.
One of the first insurance studies DRN did was around garaging fraud for out of state claims. What an eye opener! We looked at approximately 100 thefts in Brooklyn and ran DRN’s Garaging Score against the claims. The result was 45% of the claims indicated fraud! Yet the industry says garaging fraud is only a 1% problem. This was considerably more.
After I thought about it, I concluded that New York is well known for these issues due to the large premium differential between New York and almost any other area of the country. So we did another analysis and scored a different set of out of state claims.
The next test looked at approximately 100 out of state claims, but this time we looked at New Jersey up the coast to Massachusetts and all of the intervening states. The results were equally eye popping – 35% of claims indicated garaging fraud! My first thought was this is crazy. However, in both tests, we were able to validate each claim’s garaging issue.
I know it is only two tests, but as I used to tell my chief actuary, just because the sample is not large enough to make a statistically valid statement about the entire book of business, it does not mean you should not take any action.
Recently I was made aware of an unpublished study done looking at garaging issues vs loss ratios. A study of over 5 Million policies from standard and non-standard carriers showed a strong correlation of loss ratios to garaging issues. When looking at state errors in the garaging address, the loss ratio for standard carriers was six times the average and for non-standard carriers four times the average!
The upshot is, If you are experiencing any level of out of state claims you should be validating the garaging address.
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