Property/Casualty Focus: Fraud in the Fast Lane

By James Quiggle

It’s expensive to engage in the growing, and illegal, hobby of street racing. Most racers are young adults still in school or with entry-level jobs, and thus have limited disposable income.

So the folks who make this high-testosterone pastime a passion have found a creative way to finance their souped-up cars, fancy accessories and mach-speed lifestyle: insurance fraud.

Street racing has grown steadily over the last several years, says Joe Jackson, an investigator with Geico Insurance. Now it’s an integral part of the late-night scene for legions of 16- to 25-year-olds from San Diego to Chicago to the suburbs of Washington, D.C.

Anywhere from just a few people to more than a thousand gather in the wee hours to watch the cars roar down city and suburban streets.

Fraud Stats Elusive, but Deaths are High

No one knows exactly how much money street racing steals from insurance companies in bogus claims every year.

“It’s costing the general insured public a fortune. It’s got to be,” says Austin, a detective in San Diego’s Drag-Net unit, which investigates street racing and related crimes.

Street-racing deaths nationwide also have increased dramatically since the National Transportation Safety Administration began tracking fatalities in 1999.

There were 86 recorded deaths in 2000. Fatalities then climbed to more than 140 during each of the next two years. They dropped to 114 in 2003 – still well above the 2000 figure.

But those figures don’t reflect the injuries kids and young adults also suffer – and the fact that insurance is fixing broken bodies and crashed cars.

So along with their supposed guts and glory, many racers also win an extra ride: to the hospital. Or worse, the morgue.

Winners get spoils

Under the street racer’s code, winners often get the spoils of war. They can pocket the losers’ engine, pricey stereo, custom seats or other expensive parts. The loser then may dump his stripped car by the roadside, say that someone stole it, then illegally collect insurance money to buy new parts or a whole new car.

Or if a car is banged up in the rough-and-tumble race, the owner might claim another vehicle hit his car while it was parked and then sped away without stopping – a bogus hit-and-run that insurance money pays for.

Or if his racing tires are burned out, the racer might simply toss them and tell his insurer that crooks heisted the expensive wheels.

Racers teach scams

Along with shop talk about nitrous oxide tanks to boost horsepower, young racers also are teaching each other how to fleece auto insurers.

Racers also get help from “speed shops,” auto parts stores that cater to the modified-car crowd, Jackson says. They’ll help racers bilk insurers by scratching up a car’s paint job so the racer can get a fancy new coating. Or they might provide fake invoices for expensive equipment the racer can pretend was stolen. Often they’ll tell customers how to scam insurers themselves.

“The local speed shops are the new generation of chop shops,” says Jackson.

Street racing has enjoyed considerable staying power. It’s fueled in part by “The Fast and the Furious,” a 2001 action movie about the pastime, says Mike Bender, a former auto-theft detective who now trains investigators about street racing – and the insurance fraud that supports it.

How much insurance money is stolen nationally remains unknown because there’s no central clearinghouse of claims data covering the impact and cost of street racing, Bender says.

For this reason, most information is anecdotal or purely local. But the information that does exist suggests a large market in auto-racing parts that insurers often end up paying for: sales of after-market parts for sports compacts topped $3 billion in 2003. That’s a 35 percent increase over the previous year, and well above the $295 million in sales for 1997, says the Specialty Equipment Market Association.

Evidence premature?

Even so, it’s premature to say street racing is a national fraud epidemic, says Frank Scafidi of the National Insurance Crime Bureau. But the bureau’s information does suggest, however, that the West and Midwest are two of the largest pockets of street racing around the U.S.

Still, the warning signals are strong enough that insurers are paying closer attention to suspicious street-racing losses. Some insurers are beginning to deploy more resources to investigate suspected fraud. Last May, Geico’s Jackson shifted his investigative focus to street racing.

Many investigators are still learning to spot the red flags of dirty insurance claims, some experts say.

Racers love to brag, so some investigators troll around chat rooms to find out information about recent races. “You’ve just got to open your eyes,” investigator Bender says.

Bender also frequents car events around the U.S., researching the claim histories of the racers and comparing them to the general public. At least half of the cars he checks have multiple claims, and 50-75 percent of those are funded by fraud, he says.

States regulating cars

Many states and localities across the U.S. also are starting to regulate the heavily modified cars both for safety and environmental issues, restricting the use of certain after-market parts, and requiring tougher safety inspections.

Penalties are stiff in San Diego, which may be the only city with a full-time investigative unit dedicated to street-racing crimes: get caught street racing and the city can impound your car for 30 days. Get snagged again and the city can sell it, says John Austin, an investigator with the city’s street-racing unit Drag-Net.

Even spectators can be arrested. Remove the cheering throngs and the racers don’t get the attention that fuels their desire to race. That get-tough stance, says Austin, has helped San Diego nearly eradicate street racing.

While legislation and arrests are important, convincing young people not to street-race from the get-go may have a bigger impact. Teaching parents where their children are getting the money for tricked-out cars is a good start.

“Legislation would help, but you start from the ground, you start with the parents,” Bender says.

James Quiggle is the director of communications for the Coalition Against Insurance Fraud (CIAB). A 20-year veteran of public relations and journalism, Jim joined the coalition staff in March 2000. He has headed public relations for two major national trade associations – the National Association of Professional Insurance Agents and the American Society of Civil Engineers. For more information about the CIAB, visit insurancefraud.org.

Posted: Wednesday, June 01, 2005 12:00:00 AM. Modified: Wednesday, September 07, 2005 2:00:30 PM.

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