Consumer Alert: Hurricanes Katrina and Rita Precipitate Insurance Fraud Risk for Pennsylvanians

In recent disasters' wake, the Insurance Fraud Prevention Authority warns Commonwealth residents to avoid a costly mistake by steering clear of flood-damaged vehicles with altered titles and non-functioning airbag systems

HARRISBURG, Pa., Sept. 28 -- Don't be a victim! In the wake of Hurricanes Katrina and Rita, The Pennsylvania Insurance Fraud Prevention Authority (IFPA) is urging Pennsylvanians to look out for vehicles damaged by flooding along the Gulf Coast. These cars may have titles that have been altered, or "laundered," to remove evidence of flood or reconstructed title status, which could cost unsuspecting consumers millions. In addition, IFPA is warning consumers about the potential for these flood-damaged vehicles to have non-functioning airbags, which can pose a very serious safety risk to drivers and passengers.

According to the Coalition Against Insurance Fraud, an early industry estimate shows at least several hundred thousand vehicles were destroyed in Hurricane Katrina alone. Historically, vehicles from flood-damaged regions migrate to other parts of the country, where consumers may not expect to find flood-damaged vehicles. Unfortunately, these cases are usually not identified until the new owner has spent hundreds or even thousands of dollars on repairs for their flood-damaged vehicle.

Typically, this type of fraud occurs when an insurance company processes a vehicle damage claim and declares the vehicle a total loss. The vehicle is then given a flood title, and many of these cars then show up in salvage auctions. There, an unscrupulous auto salvager or reconditioner purchases the car below its original value and makes whatever repairs are necessary to operate the car, which may be a simple as replacing the fluids in the engine. The vehicle's title is then laundered - often by registering it in a different state. Next, the car is assigned a clean title in place of the correct "branded," or flood, title. The vehicle can then be sold at market price to an unsuspecting buyer. Also, sellers without insurance to cover damages or who don't want their cars labeled as damaged may make repairs and sell their vehicles without informing potential buyers about the vehicle's history.

"Consumers need to be educated about the risks associated with altered- title vehicles," said Roy Miller, executive director, IFPA. "Even though the storm damage occurred in the South, many of these vehicles will be dispersed across a broad area, including Pennsylvania, in an effort to swindle unsuspecting consumers. Pennsylvania saw cases of flood title fraud after Hurricane Andrew in 1992, and we have to believe, given the severity of damage caused by these current disasters, that we will see similar instances in the coming months."

As the Gulf Coast region rebuilds, insurance claims continue to pour in. In this time when there is a high volume of claims, the likelihood of instances of vehicle fraud spikes, making consumer vigilance imperative. Prospective car buyers can take steps to safeguard themselves. One way is to obtain a vehicle history report, using the car's VIN number, which is stamped or etched on every vehicle in several locations. Many companies offer this service to consumers, auto dealers and other parties. Although the IFPA does not endorse any one product or service, it believes these services can be an excellent resource for consumers.

Other ways buyers can protect themselves from becoming victims of this type of fraud include:

      -- Only purchase a vehicle from a reputable dealer
      -- Ask for a documented history of the vehicle before purchase
      -- If purchasing a vehicle from a private seller, ask for references,
         a previous owner, or some type of proof that the person is
         representing the vehicle accurately and truthfully
      -- Hire a certified mechanic to check the airbag system before you buy
         any used or salvaged vehicle

If consumers suspect fraudulent activity, or believe they are a victim of this type of vehicle title fraud, they should contact their local police department or visit http://www.helpstopfraud.org/ for the nearest IFPA grantee. Additional tips to help consumers detect and protect themselves from becoming a victim of fraud are also available at http://www.helpstopfraud.org/.

About the Insurance Fraud Prevention Authority (IFPA)

The IFPA was created by the General Assembly (Act 166 of 1994) to encourage anti-insurance-fraud initiatives in Pennsylvania. The IFPA uses no tax dollars. Its funds, raised through annual assessments of insurance companies doing business in Pennsylvania, provide grant support to 17 law enforcement agencies and for public awareness initiatives. In 2004, the grantees arrested 398 individuals for insurance fraud, with 264 convictions.