State will ask insurers to view customers' cars New rule intended to combat fraud

October 01, 1993|By Patricia Meisol | Patricia Meisol,Staff Writer

Drivers will have to bring their cars in for inspection when they buy auto insurance, change insurers or expand their coverage under a new rule the Maryland Insurance Administration will issue this month.

The visual inspection will be required so that insurers can verify the existence of new customers' cars and catalog any bumps and scrapes before issuing coverage. New cars with titles from car dealers would be exempted.

The required inspection, which could affect tens of thousands of people, is designed to cut down on false claims for stolen cars and repairs for damage that occurred in the past.

Several states already have such programs, and in Maryland at least two large companies already require visual checks.

Maryland Insurance Commissioner Dwight K. Bartlett III announced the impending rule at a news conference yesterday. He also said he will not approve new rate increases for life, health and auto insurance companies unless each can demonstrate it has effective anti-fraud programs.

"Together these two steps are just the opening shots in the war on fraud," Mr. Bartlett said.

The commissioner estimated life, health and auto insurance fraud costs $1.35 billion in Maryland annually. The estimate was derived from national studies showing that between 10 percent and 25 percent of claims for property and casualty insurance are fraudulent.

Little of the fraud apparently is caught, and ultimately it is passed on to the consumer in the form of higher insurance rates. The two steps announced yesterday are just the start of a series of initiatives Mr. Bartlett said he will take in coming months to combat fraud.

Insurance companies were required to set up anti-fraud units several years ago, and some have extensive programs. But until now, insurance regulators never checked to see if the units resulted in savings.

Details of the insurance inspection program, such as whether it would be run by the state or the commercial insurers, are still being worked out, Mr. Bartlett said, adding that he will study programs already in place in New York and Florida before issuing the regulation.

There are more than 3.5 million registered vehicles in Maryland.

Several large Maryland insurers, including the Bethesda-based GEICO Insurance Co., already have an inspection program. An estimated 30,000 Marylanders had their cars viewed by GEICO representatives at hundreds of sites around the state last year.

David Schindler, regional vice president for GEICO, said the policy began in 1986 to stop the practice of insuring "paper cars." These were cars that were damaged beyond repair and sent to junkyards, where their identification numbers would be recorded and used to purchase insurance. The "paper car" would then be reported stolen, and the owner would collect the insurance.

The Maryland Automobile Insurance Fund (MAIF), which insures Marylanders who are rejected by commercial companies, began an inspection program in 1992. It refuses to sell collision coverage to drivers who fail to bring in their cars.

MAIF contracts with inspection stations, Kmart and other private businesses to examine cars. Drivers who want to buy insurance pay nothing for the inspection, which is available at 15 locations around the state.

Hugh D. Williams, director of underwriting for MAIF, said the agency saves $2.20 for every dollar it spends on the program. So far in 1993, 20,000 cars have been inspected at a cost to the agency of $10 each.

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