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Mind the GAP: GAP Insurance and COVID-19 fraud

Looking at how fraudsters are targeting insurers in claims involving Guaranteed Asset Protection (GAP) insurance.

Not since the Great Frost of 1709, have we seen economic disaster on the scale of the catastrophe which has accompanied the COVID-19 pandemic.

And sadly, economic crash usually leads to an upturn in fraud as some people, suffering from financial hardship, become increasingly desperate to make ends meet. This trend was observed as a result of the 2008 recession and now, the insurance industry is reporting a similar trend as a result of the fallout from COVID-19.

One area in 2020-21 in which insurers have seen an up-tick in fraud is in claims involving Guaranteed Asset Protection (GAP) insurance.

What is GAP Insurance?

Anybody who has bought a new or nearly new vehicles on finance is likely to have been encouraged by an enthusiastic salesperson also to purchase a GAP (Guaranteed Asset Protection) insurance policy to cover that vehicle.

Most vehicles are depreciating assets meaning that, in the event a vehicle which is funded by finance is written-off in an accident or stolen, its owner may find themselves out of pocket, even when the motor insurer pays out.

That is where GAP insurance, which is designed to minimise or prevent loss to a customer, comes in.

There are various types, as follows: -

  • Return to Invoice: which pays the difference between vehicle value and the original invoice price
  • Finance and Contract Hire Gap: which makes up the difference between a vehicle value and any outstanding finance settlement
  • Vehicle Replacement Insurance: which covers the disparity between vehicle value and the cost of replacing the vehicle with a like-for-like vehicle
  • Agreed Value Gap: which pays the difference between the value of the vehicle and its value when the policy was bought.

How are fraudsters targeting insurers?

As millions have been made redundant or have otherwise been hit financially by the pandemic, resourceful types have been thinking about ways in which they might make money and significantly reduce their monthly overheads at the same time. It is easy in those circumstances to see how vehicle owners with GAP insurance, have been tempted to stage thefts, fault damage or accidents, with their vehicles.

Staged thefts

Sometimes a fraudster will engage the services of an associate to ‘steal’ their vehicle and make it disappear; an exercise made more straight-forward in the modern age of key-less entry. The fraudster will then report the theft to the police and obtain a crime reference number, before submitting a claim to the motor insurer and the GAP insurer. If that person has RTI cover from the GAP insurer, then they are set to receive payments from both insurers which will total the original invoice value of the vehicle. They will therefore effectively recoup all finance payment and the deposit and be released from future payments on the vehicle.      

Fault staged damage

A close relative of the staged theft is the staged damage claim. The fraudster will contrive a significant fault incident with their vehicle and make a claim under the fully comprehensive terms of their motor insurance and the GAP insurance. If the vehicle is written off, then, as before, the fraudster is set for a significant financial windfall. But there could be an added benefit for this fraudster; if they retain the salvage of the vehicle, they might have it repaired at a ‘back-street’ garage before selling the vehicle on at further profit.      

Staged accidents

Staged accidents involving two or more vehicles are anything but new. Whether those accidents are staged by mates from the local Sunday league football team or organised fraudsters behind dodgy claims management companies, there are various opportunities for revenue; including personal injuries, vehicle damage, recovery and storage, credit hire and so on. Historically, staged accidents tend to involve lower value vehicles but fraudsters now – buoyed by the presence of GAP insurance – are prepared to attempt to stage accidents with higher value vehicles.  

Identifying the fraud

One of the historical challenges for motor insurers in identifying fraud where GAP insurance is involved is that there so no database, like the Motor Insurance Database (MID), to enable insurers quickly to identify the existence of a GAP insurance policy. Similarly, GAP insurers often do not have the same level of resource on hand to enable them to investigate a dubious claim.

It is therefore essential that motor insurers ask customers, at the inception of a policy or presentation of a claim, whether there is a GAP insurance policy and for the identity of the insurer. Motor insurers are then encouraged to collaborate with GAP insurers to detect fraud.

Some of the tell-tale signs are as follows: -

  1. A customer ostensibly suffering from financial distress; they might recently have lost their job and/or have missed finance payments
  2. A GAP insurance policy that will soon come to an end, meaning the profit margin for the fraudster will be greater
  3. Multiple claims from the customer or other members of their family for theft or own fault damage
  4. Inconsistencies or improbabilities in the evidence provided by the customer as to the circumstances which gave rise to the loss
  5. In cases where the customer has keyless entry, evidence from the key data that paints a picture which differs from the picture the customer has provided about the last time the vehicle was used
  6. Aggressive or impatient customers.

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