The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas First is aiming to stop issuing auto insurance ‘cover notes’ by September 1 in a bid to stop their “fraudulent use”, its chief executive estimating that 25 per cent of the vehicles on Bahamian streets are not properly insured.

Patrick Ward, who is also the general insurer’s president, confirmed to Tribune Business that the property and casualty underwriter was talking to its agents/brokers about phasing out ‘cover notes’ due to “a significant increase” in their fraudulent use.

He explained that this was costing both the Bahamian insurance industry and the Government much-needed income, and defrauding many innocent auto buyers.

With many ‘cover notes’ being written-up and issued manually, Mr Ward said they were easily reproduced by fraudsters, who simply blocked out the old names and exchanged them with new ones.

This, in turn, enabled unscrupulous vehicle sellers to claim they had insured the auto on the buyer’s behalf - a claim that was totally untrue.

And, apart from the ‘cover note’ issue, Mr Ward also called for all auto industry players to make “a really big push” to finally implement a proper vehicle titling system in the Bahamas.

This, he added, would crack down “on a lot of fraud that goes undetected” and prevent thieves from quickly recycling stolen vehicles back into the system.

‘Cover notes’ have previously been issued to show that an auto owner has the required insurance coverage prior to the underwriter issuing the full Certificate of Insurance.

Their phase out will require a major ‘change in culture’ for numerous Bahamian auto insurance customers, who have become accustomed to visiting their agent/broker in the last few days before they have to take their vehicles through the Road Traffic Department inspection.

They cannot have their vehicles re-licensed without insurance, and typically obtain ‘cover notes’ as proof they have it.

However, Bahamian insurance brokers and agents have, in the past, told Tribune Business that clients often only pay just enough of the premium to obtain insurance coverage - and pass the Road Traffic Department inspection - then fail to pay the balance.

And, also confirmed by Mr Ward, the industry has seen ‘cover notes’ abused by its own employees. They have issued them to family members and friends, without any premium being paid or subsequent Certificate of Insurance issues.

Typically, the premium is only paid and/or policies issued once these same relatives/friends become involved in an auto accident.

Aiming to stamp all this out, Mr Ward confirmed to Tribune Business: “We’ve begun the process of dialoguing with our agents and brokers with a view, by September 2013, that Bahamas First wants to completely phase-out the issuance of cover notes - manual cover notes, in particular.

“Frankly, there are several reasons. One, it’s long past the time when the industry has an acknowledged need for them.

“Second, we’ve had a number of incidents over the years, but there recently seems to have been a significant increase, in the fraudulent issuance and use of cover notes. Because we’re the largest auto insurer, our notes are coming up more frequently.

“Some of the companies have done this already - phased out their cover notes. We’re one of the last entities in the market to use cover notes.”

Outlining how fraud was impacting both the industry and consumers, Mr Ward added: “We’ve had people who have bought vehicles where the owner has claimed they’ve insured the vehicle on their behalf using these fraudulent cover notes.

“We obviously miss out on premium to provide the cover, the Government is not getting revenue from premium tax, and persons are buying uninsured vehicles from unscrupulous persons.”

The Bahamas First chief told Tribune Business that the carrier has seen an increase in the fraudulent use of cover notes “towards the end of last year”, a trend that has continued through 2013.

“We’ve had several cases where the Road Traffic Department has called us up to see if cover notes are authentic, and in a number of cases they haven’t been,” Mr ward disclosed.

“There have been a number of people employed at insurance companies and intermediaries that have been dismissed because of the improper use of cover notes.

“At one point we were seeing a few of them [fraudulent cover notes] every month. The fact we’re getting a detection rate a lot higher than in the past, if that’s a reasonable sample, tells you there’s a lot more of these fraudulent documents going about.”

Looking at the wider dangers for the Bahamian public, Mr Ward told Tribune Business: “I would say that at any point in time, we probably have no more than 75 per cent of vehicles on the road properly insured.

“There’s 25 per cent out there where people are not properly insured or are fraudulently insured.

“We see it all the time. We’re involved with a number of accidents on a regular basis, and either the cover has expired or there’s no record of it with the insuring entity.”

Mr Ward also added his voice to those calling for the Bahamas to implement a vehicle titling system - something that has been kicking around for two-three decades.

“There needs to be a real big push by all stakeholders to implement a proper vehicle titling system in the Bahamas, as a lot of fraud issues go undetected,” he said.

“You can get a stolen vehicle re-registered and on the road in a short time, because of the lack of a database to benchmark proper title documents against.

“It’s [a vehicle title system] that will enhance the registration process, it will enhance government revenues, and ensure that loopholes that aid and abet fraudulent scenarios will be closed, and make it much harder for thieves to get these vehicles back on the street again.”