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Photo Inspection: First line, of defense against vehicle insurance
By Philip J. Crepeau
Senior Anti-Fraud Program Advisor
CARCO Group Inc.
St. James, NY
crime continues to be the most costly type of property crime,
representing more than
half of the $15 billion
in crimes reported for the most recent reporting period. “
Due in large measure to the relative simplicity of committing
vehicle-related insurance fraud in states without effective
deterrents, the creativity of clever criminals to reap dishonest
profits and the difficulty in detecting and preventing these
crimes, criminals have had relatively risk-free opportunities
for financial gain. For many years, and in many parts of the
country, vehicle-related insurance fraud has been viewed as
a relatively risk-free endeavor, which has had unfortunate
financial penalties for premium payers.
In financial terms, vehicle-related crime continues to be the
most costly category of property crime, which for many years
has represented more than half of the
yearly value of property crimes reported on a national basis. The battle against
insurance fraud has been fought with varying degrees of success because of the
difficulty in detecting and preventing vehicle related insurance fraud; it has
been a virtually risk-free crime with serious financial consequences for premium
payers. In the past, law enforcement, the insurance industry and others responsible
for dealing with vehicle-related crimes lacked meaningful legal deterrents and
effective investigative tools, allowing many schemes of criminals intent on reaping
illicit gains to go unchallenged. Until the late 1970s, with the enactment of
New York's pioneering mandatory vehicle inspection law, clever criminals had
clear sailing and virtually unchallenged profits of billions of dollars each
year. Before compulsory pre-insurance inspection there was little chance to routinely
detect or effectively discourage most insurance-related frauds. However, since
the enactment of the New York inspection law, routinely referred to as the “Photo
Inspection Law.” physical inspection has become one of the most effective
deterrents to this insidious type of property crime.
Because of New York's innovative legislation, a handful of progressive states
with high vehicle crime problems have enacted similar inspection laws, providing
law enforcement personnel and insurance claim investigators with better tools
than were available in the past. Arguably, mandatory inspection with photographic
documentation has provided tangible results in thwarting previously unchallenged
In the early 1990's, as an example of the significance of vehicle-related crimes,
of which a high percentage were insurance frauds, the amount of losses for vehicle
property crimes exceeded the total payout for all property crimes combined. In
2000, nearly a decade later, the statistics are remarkably similar. In 1992,
for example, the total property crime losses were reported in the FBIs Uniform
Crime Reports as $15.2 Billion, of which $7.6 Billion was attributable to reported
vehicle theft. In 2000, the total property crime losses were reported at $15.9
Billion, with vehicle theft at $7.8 Billion.
Major Property Crime Losses
Larceny-Theft & Burglary
from minor year-to-year swings in property crime losses, vehicle
crime continues to
be big business. Without the inspection
programs now in effect in New York, New Jersey, Massachusetts,
Rhode Island, and to a limited degree, Florida, it’s likely
that the total value of losses attributable to fraud would be
Despite the significant results produced by increased investigative
efforts and the accomplishments of mandatory inspection, real
auto theft continues to expand
in scope in many areas of the country. The dramatic increase in theft and "car
jacking" distorts the successful efforts of anti-fraud programs: in realistic
terms, insurance fraud has decreased, while real auto theft has increased. Although
estimated percentages of fraudulent claims vary, depending on the source of information,
it is substantial. Insurance industry estimates, which attempt to minimize the
problem, place vehicle-related fraud in the 10 to 15 percent range, which is
often contested by experienced claims investigators, law enforcement personnel
involved in motor vehicle crimes, fraud bureaus, insurance industry claims personnel
and Special Investigative Units [SIUs] feelthat fraudulent claims f o r represent
between 20 to 30 percent of all claims submitted.
RESULT ORIENTED PROCESS
One point on which there is general agreement: there will never be a perfect
solution to property crimes involving motor vehicles or guaranteed deterrents
to real theft, vandalism, staged accidents and other criminal activities. However,
as it relates to many types of insurance fraud that are now well known to investigative
professionals, mandatory inspection with photographic documentation has proven
its ability to deter a variety of otherwise costly schemes. In fact, it is one
of the most effective deterrents to this type of crime, which results in the
containment of insurance premium costs. As a requisite for obtaining an insurance
policy, photo inspection programs have produced dramatic results.
Requiring a vehicle owner to prove that the vehicle being insured actually exists,
and to have its condition verified before a policy is issued, prevents a host
of schemes from being attempted, much less carried out.
Mandatory inspection programs allow designated inspectors to examine a vehicle's
documentation, including the all-important vehicle identification number [VIN],
its physical condition, accessories and optional equipment. The findings are
recorded on an inspection report for review and processing. In photo inspection
programs the inspector’s report is supplemented by color “images” [digital
or photographic] of the vehicle and the Federal Motor Vehicle Safety Standard
Label, also referred to as the EPA Label or EPA Sticker, the report provides
a permanent record of the vehicle's documentation, manufacturing information,
appearance, and condition. As now performed in states with photo inspection laws,
the process involves hands-on inspection and visual records of designated "high
crime target" vehicles. These include newly purchased used vehicles and
in some cases, new “high end” or even expensive leased vehicles.
Unfortunately, each state has different laws covering vehicle ownership, registration
and insurance, which makes it difficult to track fraudulent claims on a national
scope. Compounding the problem is the lack of comprehensive federal standards.
There are, however, important exceptions. They include VIN standardization requirements,
which went into effect in 1981, and the Theft Law Enforcement Act of 1984, which
went into effect with the 1987 model year. The Enforcement Act requires the use
of standardized National Highway Traffic Safety Administration [NHTSA] labels
on specified new vehicles and replacement parts, which provide valuable information
for investigative use. Located on different parts of the vehicle, NHTSA labels
identify major component parts and replacement parts of designated "high
theft rate vehicles." Salvage and replacement parts are also included under
the labeling requirement.
PHOTO INSPECTION: POWERFUL DETERRENT
Photo Inspection programs serve as an effective preventative measure in states
with high vehicle crime problems. The experience gained through these pro-active
programs helps insurance investigators and law enforcement personnel throughout
the country, and in different parts of the world, where vehicle crime is a major
Included in the mix of simple and complex frauds that can be avoided by physical
inspection are many carefully orchestrated schemes including nonexistent or phantom
vehicle claims, fraudulent claims for vehicles abandoned by their owners and
reported stolen including those “dumped” into a lake, river or swamp
and then claimed stolen, vehicles with prior damage, and an intriguing assortment
of other frauds.
Photo-inspection deters a variety of costly schemes including:
for nonexistent or "phantom" vehicles using
Claims for damage that existed when the vehicle was purchased.
counterfeit title frauds using falsified documents.
Salvage schemes involving titles and VIN plates from salvaged
Multiple policy schemes: insuring a vehicle with a number of carriers.
Duplicate car frauds using the same VIN plate and documentation.
Duplicate title frauds to collect claims from the sale of a vehicle and false
Claims for equipment and accessories not in the vehicle.
Import-export frauds using documentation for vehicles residing in other countries.
Staging accidents or claiming accidents that never occurred.
... and many others.
THE INSPECTION PROCESS
The inspection process requires that the policy owner have
the vehicle physically examined as a requisite for obtaining
insurance coverage. The inspector must “see” the
vehicle’s condition and contents, a seemingly simple process which
virtually eliminates future claims for theft or repair of nonexistent vehicles
or repair of prior damage. It also helps policy holders obtain fair claim
vehicle identification number [VIN] is copied from the VIN
plate, which is visible through the windshield. The 17-digit
alphanumeric sequence identifies
the vehicle and establishes its origin.
make, model, year and odometer reading are recorded on the inspection report.
Also noted are expensive accessories, optional equipment and an evaluation
of the vehicle’s physical condition.
minimum of three color “images” are taken [digital images or
Polaroid photographs]: two oblique views showing the rear and side of the vehicle,
and the front and opposite side, plus a close-up of the EPA Label. The label
image provides a nearly full-size record of the Federal Motor Vehicle Safety
Certification Standard Label, also known as the EPA Label, which is located on
the driver’s side door post or door jamb.
The physical appearance of certification labels may vary from one manufacturer
to another. Regardless of manufacturer, however, embodied in the specially
fabricated, tamper-resistant labels are distinct verification clues including
color and composition of the material on which it’s printed. A counterfeited
label can be easily detected by a knowledgeable inspector or investigator.
If the label is defaced or damaged in any way, the resulting changes are
telltale signs of tampering.
[Note: the majority of visual record are now obtained with digital cameras,
while only a small percentage are produced photographically.]
required, additional photos of physical damage [interior or exterior] are
completed report and digital images, or Polaroid photos, are promptly sent
to a central data processing facility such as the CARCO computer center
located in New York where the information is downloaded into a central
The computer checks the VINs authenticity to ensure that the vehicle and
VIN match. The inspection form is scanned and entered into the system along
the digital “photos”. In the case of Polaroid images, they
are also scanned and entered into the database as digital files. If there
the insurance company is alerted that further investigation may be needed.
primary benefits of the inspection process are realized after
is integrated into a central computer database.
Once the data from the inspection report and the certification
label are entered, information can be retrieved quickly for routine
claim checking or investigative purposes. After entry, a special
computer software program, decides the validity of the VIN in
seconds. If the calculations do not conform to the software's
validation parameters, a "Bad VIN" warning, or “Alert” appears
on the computer monitor, signaling an attempted fraud.
The alerts are indicators that action needs to be taken based
on the results of specific search parameters. On the lookout
for multiple policy schemes, for example, an important warning
is for vehicles that have been inspected more than once during
a three-month period, which might signify that a particular policy
or group of policies were purchased for other than legitimate
Alerts that the inspection database is programmed to generate
fall into two major categories: Underwriting, or Premium Generation/Risk
Evaluation Alerts and Vehicle
Identity/Integrity Alerts. These important indicators signal that something outside
of established “normal” parameters should be looked at. Included
in the various computer alerts that can be automatically generated are indicators
such as: additional operators, garaging location, inordinate mileage, counterfeit
VINS, and altered labels.
Other sophisticated computerized database tracking systems, such as VINassist™ software
developed by the National Insurance Crime Bureau [NICB], provide investigative
agencies with rapid access to vital information such as vehicle crime statistics,
patterns and trends. Because the computer can monitor, sort, match and locate
specific VINs, the system provides a valuable resource for investigating claims.
As an example, let's assume that a claim is made for a car or van that is subsequently
scrapped for salvage, or a VIN that appears on claims for different vehicles.
If these discrepancies occur later, the computer can determine if a salvage history
exists or if the same VIN is being used for more than one vehicle.
VINassist software narrows the area of search for label tampering, revealing
the only possible number sequences for a valid VIN. It provides a six-digit target
area on the label, which simplified the investigator's task. This allows the
investigator to carefully examine the label photo for signs of alterations within
the 17-digit alphanumeric sequence. When the correct digit was inserted for the
Nissan, the VIN passed the test.
BENEFITS OF THE SAFETY CERTIFICATION LABEL
The photo-inspection process provides accurate graphic records
of the vehicle’s
physical condition and appearance and a detailed close-up view of the all-important
certification label. With the information contained on the label, or even evidence
of data eliminated from the label by tampering, skilled investigators can acquire
important clues in suspected cases of fraud. Label photos provide a dynamic tracking
mechanism to detect salvaged and stolen vehicles, while also shedding light on
the method of operation of crime rings or individuals regularly involved in insurance
Besides permanently recording the all-important VIN, the label photo provides
the means to check the vehicle's authenticity and identify imported vehicles
that do not comply with U.S. safety standards. Because the label is virtually
tamper-proof and cannot be removed without being defaced, or visually altered
in appearance it provides a useful aid for determining whether a vehicle has
been in an accident or has been repainted.
If any attempt is made to remove or alter the label, it undergoes a detectable
physical change. Even a tiny irregularity in any of the numbers or characters
in the VIN suggests that a label may have been altered to disguise the vehicle's
identity. Any labels that have been altered or are missing from the vehicle,
will trigger an investigation before a policy is issued. In such cases there
is a good chance that the vehicle was in a prior accident, was salvaged, stolen,
or was a "gray market" car.
Counterfeit labels are frequently discovered
after close examination of the photographs attached to the inspection report.
The fraudulent label photo may display obvious physical or informational flaws
such as the wrong type of sticker for the model year, or a background color
shown through the data windows that does not match the vehicle's
color. To the investigator's
trained eye, the label can reveal a host of sins, the most flagrant being a
VIN that does not match the specifications of the car. Other
errors include label
designs that do not match the model year or incorrect alignment of data in
the upper window.
PRE-INSURANCE PHOTO INSPECTION WORKS
Physical inspection can produce dramatic results in preventing
large financial losses from being incurred and in helping
recover losses paid on fraudulent claims.
In this regard the importance of the information contained on the certification
label is invaluable. For example, in three typical cases of fraudulent claims
detected by CARCO involving a Nissan automobile, Lexus and Mercedes, in which
each policy owner had made claims against more than one insurance carrier,
the total savings was almost $270,000.
Insurance rates remain high because of increased vehicle crimes such as theft,
vandalism and accidents, and the dramatic escalation of fraudulent PIP bodily
injury claims. Results of the past few years show that the increase in the
percentage of vehicle crime related to insurance fraud is lower in states with
laws. The net result is a containment of costs by insurance companies, stabilization
of rates for the consumer and improved productivity for law enforcement agencies.
Pre-insurance photo inspection is a result-oriented pro-active process, which
allows insurance carriers to take action to prevent frauds from occurring,
rather than allowing criminal activities to go unchallenged. Inspection also
a dynamic investigative tool. Physical inspection reduces the possibility of
future claims for theft of nonexistent or phantom cars or the repair of vehicles
with prior damage.