Car insurance fraud is epidemic
PZU's deputy director of internal controlling Jerzy Cywoniuk, said corrupt garage operators, who collude with vehicle owners to inflate the cost of damage done to vehicles involved in accidents, are the main culprits.
"There are definitely more 'professionals' in the fraud business now than a few years ago, and by professionals I mean that these frauds are professionally organised," Cywoniuk said. "And the most frequent fraud is done in garages."
Current industry figures from the Polish Chamber of Insurance - the industry's self-regulatory body - estimate that up to 50% of all insurance claims made on cars are fraudulent, and of these only 1% can be pinned down as fraudulent because of difficulties in tieing down proof.
According to Mike Adlem, director of forensic accounting services at Deloitte & Touche, who has reviewed fraud levels for one of Poland's largest insurers, car insurance fraud is typically controlled by organized crime gangs.
"It's people running a business and doing it as a full-time job," Adlem said.
He added that the effect of this crime on a company's bottom line, "can be pretty devastating" because of the low cost of insurance premiums, relative to the amounts that are paid out for damaged or stolen vehicles. Adlem said one of the most common types of car insurance fraud is vehicle owners putting in a claim for a stolen car, when in fact they had sold it "and shipped it off to Russia" or disposed of the car.
Last year, 59,458 cars were reported stolen to the police.
According to PZU's Cywoniuk, for Poland's low success rate in stopping car insurance fraud is aresult of its tough laws on personal data, which prohibit insurance companies from sharing industry information.
"We simply cannot check if our customer is insured with other insurance companies; if they have previously committed insurance fraud, or if they are what we would deem to be, 'risky customers,' " Cywoniuk said.
He added that the industry cannot even calculate how many drivers do not have compulsory insurance (which covers drivers for damage to third parties), although he suspects that 20% of vehicles on the road today are uninsured.
"I hope, that once we enter the European Union, personal data will be allowed to be exchanged to a certain extent, as it is done in EU member countries," Cywoniuk said.
This exchange could come much sooner.
This week, Parliament is expected to make a final decision on four new laws that will help stamp out car insurance fraud in meeting EU standards, and drag our insurance regulations into line with those of the European Union.
Fundamental to these laws will be the creation of two databases - one listing holders of compulsory car insurance policies and another on insurance brokers and agents. According to the Polish Chamber of Insurance's president, Jerzy Wysocki, these databases will allow ready access to important industry statistics, not only in Poland, but also in the European Union and help insurance companies weed out fraud.
But according to one industry source, it will be at least five years before the market starts seeing fraud-fighting results from these databases.
"They are really just at the conceptual stage, and, of course, there is the crucial question about funding this infrastructure," the source said.
The government has been squabbling for the past year over how to fund yet another database - this time one that lists vehicle registration details - and arguments are already fermenting over the government's plans to push the cost of these two new additional databases on to the insurance industry.
Danuta Karwowska, a board advisor at insurance company Allianz, said any additional costs to the insurance industry would probably be directly passed on to the public in the form of more expensive insurance premiums.
But regardless of arguments over funding, Karwowska said once Poland joins the European Union, it would be obliged to share car registration and insurance data with its Western neighbors. Poland is already a member of the European Federation of National Insurance Associations, which requires the country to start exchanging national data as soon as possible.
As for the efficiency of these databases, Karwowska believes that they will definitely help reduce car fraud. Last year, Allianz customers reported 2,600 cars stolen. So far this year, the figure has already reached 1,400. Of these cases, Karwowska said around 30% is investigated for fraud and around 1% is proved guilty.
Karwowska said older makes of Polish cars are the most susceptible to theft and are usually stolen for parts.
Warta, another of Poland's insurance giants, has already taken steps to internally address the problem of car insurance fraud.
"It's no secret that we investigate and observe very carefully all the cases when a car is reported stolen, especially if it's only shortly after an insurance policy was taken out," said Jacek Balcer, the director of marketing and public relations at Warta.
Even when a case is closed, Balcer said the company's "insurance police" continue investigations and cooperate with border guards in case the vehicle is intercepted leaving Poland.
"It's easier nowadays to sell your car to somebody from the eastern countries, for example, Ukraine, Russia or Belorussia, and report it stolen, than to burn down your own firm or house," Balcer said.
"You might laugh at this, but a few decades ago there were such cases; when a firm had a financial problem, the owner would set fire to it and claim the insurance, which was worth more than bankrupting himself. Hopefully nowadays, such cases almost never happen.
"But unfortunately, car fraud still persists."
