If policy holders are OK with committing Garaging Fraud, what else are they OK with?
How useful is it to identify garaging fraud in personal auto? This question comes up often in my conversations with carriers. If you find garaging fraud, is it worth chasing the premium if it chases the premium away?
I think so, and here’s why. The carrier’s business model dictates whether garaging fraud is an issue from a premium leakage point of view:
- A model that says to get the premium on the books and even with the loss, a carrier turns a profit, then garaging fraud will not be a concern no matter how much premium leakage goes on.
- Another carrier model may find that chasing the premium, does in fact does chase some, but not the majority of the premium away.
And some carriers count premium chased away as a loss avoided, in so much as the premium leakage was indicative of a risk of loss down the road with no premium to cover the risk. Think of it this way, garaging fraud can be looked at as an indicator of future loss as the rating tables are designed and priced based on expected loss. So if you take on a policy with garaging fraud you are getting a higher risk policy based on those rating tables.
But here’s my concern around garaging fraud: liars lie. If someone is willing to lie about where they live, use a PO Box or second home address, or a friends or relatives address to avoid the paying the correct premium for the risk, they will lie about other things as well. Lies like: existing damage was the result of the recent accident, the car was stolen even though it was recovered at my boyfriend’s apartment, the vehicle is used for commercial purposes, my injury is very severe (soft tissue of course), and of course I was only visiting New York from Florida when my car was stolen.
Despite the fact that attitudes about fraud are changing, too many people still have a Robin Hood complex when it comes to insurance carriers. A recent Insurance Research Council Survey found that 18 percent of respondents believe it is acceptable to pad a claim to make up for premiums paid in the past. Back to my theory: liars lie.
I have spoken to carriers that take the position that liars lie and these liars are inherently higher risk. These carriers don’t want these people on their books. Whichever way you look at, identifying and dealing with garaging fraud and liars is sound risk management. Anything else is hope!