How can insurers guard against fraud?

With car theft on the rise across Ontario, it’s more important than ever to take preventative theft measures when dealing with used cars.

One way to do this is by using vehicle history reporting services, which provide detailed information about a car’s past. These reports offer insights that help catch and prevent the sale and insurance of stolen vehicles.

The surge in theft-related insurance claims, which hit $1.5 billion in 2023 according to a recent report from the Insurance Bureau of Canada, underscores just how crucial these services have become.

Mike Foster (pictured), vice president of sales at CARFAX Canada, highlighted that vehicle history reports benefit everyone involved - from potential buyers to insurance companies. “There’s a lot of things these reports can provide that help fight against fraud,” he explained.

Key components of vehicle history reports

According to Foster, a reliable vehicle history report includes several critical elements:

1. VIN decoding: The Vehicle Identification Number (VIN) helps identify a car’s year, make, model, and other key details. Accurate VIN decoding can reveal if a vehicle’s appearance has been altered or if it has been stolen, providing early warnings of potential fraud.
2. Vehicle color: Thieves frequently repaint stolen cars to avoid detection. Vehicle history reports document the color reported at the point of registration, helping to identify discrepancies.
3. Odometer readings: Consistent, sequential odometer readings are crucial to verify a car’s mileage. Sudden drops or irregularities can indicate tampering, a common fraud tactic.
4. Service history locations: Car repair and records should generally cluster geographically. Wide variations in service locations can indicate an attempt to obscure a vehicle’s history and its previous issues.

Foster also stressed the importance of watching for gaps in vehicle information.

“Having vehicle history is generally a positive indicator,” he noted. “Some people might think that a lack of history, especially no accident records, is a good thing, but significant gaps of information can be a warning sign.”

Understanding VIN cloning

Vehicle history reports play a vital role in the risk management process for insurers during the underwriting phase.

“A big problem we are seeing now is VIN cloning,” said Foster.

It occurs when a fraudster duplicates the VIN from a legitimate vehicle and uses it on a stolen one. This cloned vehicle is then used to apply for insurance policies from multiple insurance companies.

“In these cases, the loser is the unsuspecting insurer,” added Foster.

“By detecting this risk before issuing a policy, insurers can prevent the risk of paying out on duplicated VINs,” Foster stated.

Risks of ignoring vehicle history reports

Vehicle history reporting is also a crucial tool for consumers to avoid unnecessary financial loss.

Foster shared two significant risks of not obtaining thorough vehicle history reports before purchasing a vehicle.

Firstly, buyers might end up overpaying if a vehicle has undisclosed damage, as the value of a vehicle decreases significantly with increased damage.

Even more concerning is the risk of purchasing a stolen vehicle, which, regardless of its condition, could be seized by authorities in the future. Foster summarized the complications of VIN cloning: “There are now two vehicles with the same VIN, circulating as if they are legitimate.”

 “It gets even worse when these vehicles cross borders,” he added.

Foster emphasized the importance of looking at where a car has been registered and serviced when checking a vehicle history report. “When those places are far apart, it’s a sign something might not be right,” he said.