State investigators are trying to stop a hot scam: New York and New Jersey drivers flocking to North Carolina for cheaper auto insurance.
The country’s fifth-lowest insurance rates draw them here, and the state does not require a North Carolina driver’s license or proof of address to register vehicles and get tags.
State officials say this rapidly growing form of insurance fraud has prompted hundreds of complaints in recent months, mostly from residents in the Northeast tattling on their neighbors. Scammers are hard to find, and officials are launching a multistate task force.
“I’m flooded with them in my own town. I mean, flooded with North Carolina tags,” said Douglas Fisher, a state legislator from Bridgeton, N.J., who has proposed tougher penalties for New Jersey residents with out-of-state license plates. “You can go sit on some streets and it appears that no one lives here.”
The potential losers are North Carolina drivers, whose insurance premiums are affected every time a fake North Carolinian crashes a car in the Bronx.
“We can say with a great degree of confidence that it is a massive problem,” said Chrissy Pearson, spokeswoman for N.C. Insurance Commissioner Jim Long. “The trick now is just determining what the best way is to tackle that problem.”
State officials don’t know precisely how widespread or costly the problem is, and they are just starting to track and investigate the complaints more systematically.
The “rate evasion” scam can work many different ways, but out-of-state drivers often start at the insurance office, said Shane Guyant, an investigator at the N.C. Department of Insurance.
They provide a fake address to the insurance agent in North Carolina, using falsified lease documents, a mail drop, or the home of a friend. Once they have proof of insurance, they can register their cars through the N.C. Division of Motor Vehicles.
On average, New Jersey drivers can save more than $600 a year per car by getting insurance here. Compare rural North Carolina areas with the most crowded cities of the Northeast, and the difference is even bigger.
Others come to North Carolina because they are illegal immigrants who want license plates. For years, North Carolina had a reputation as an easy place for illegal immigrants to get driver’s licenses. That’s tougher to do now, but the state still accepts certain foreign documents as proof of identification for registering a car.
Hard to detect
In North Carolina, to register a car, drivers must show proof of insurance and identification. But under state law, insurance agents cannot refuse to write a policy to North Carolina residents, and agents cannot always identify false documents, Guyant said.
That makes catching fraud at the insurance office difficult until an out-of-state driver gets in a wreck and files a claim, said James Kennedy, executive vice president of the Professional Insurance Agents of North Carolina.
“They will use a brother, a sister, a grandmother’s or a friend’s address here in Charlotte or Raleigh and Greensboro,” he said.
‘The easiest state’
Rate evasion isn’t new, although it’s hard to know exactly how common it is nationally. For years, drivers have fled high insurance rates, particularly in New York and New Jersey, where the average cost of car insurance topped $1,300 in 2003, according to the National Association of Insurance Commissioners. Philadelphia residents went to suburban New Jersey. New York City residents went to upstate New York. Many from both states went to Pennsylvania.
Tighter laws in those states may have pushed some drivers to North Carolina.
Earlier this year, Pennsylvania implemented rules that require drivers — in most cases — to have an in-state driver’s license before registering a car.
“That’s the common denominator,” Guyant said. “They’re going to go for the easiest state, and right now” it’s North Carolina.
Enforcing the rules can be unwieldy, said officials in New Jersey and North Carolina.
Most states require residents to get in-state licenses and registrations, but the penalty for violations is usually minor.
Fisher, the New Jersey legislator, is co-sponsoring a bill that would toughen the law. A first offense would prompt a $250 fine; by the third offense, police could impound the car.
“They come into the state. They don’t know the rules of the road,” said Fisher, who represents a rural part of southern New Jersey with many immigrant workers. “They many times have no license, and yet we certainly can’t just randomly stop cars” with North Carolina plates.
Police can stop cars with expired out-of-state license plates if they know what to look for.
Investigators said the more serious crime occurs in North Carolina, when drivers provide false information to insurance agencies and to the DMV. That’s a felony, which can carry a variety of penalties, including prison time.
“The problem needs to be stopped on our end,” Guyant said.
But that’s not simple. Once Northern drivers get registration and insurance cards, they may never return to North Carolina.
Brian Bozard, supervisor of special operations for the DMV’s license and theft bureau, said he doesn’t know whether drivers from New Jersey are making annual trips to get their cars inspected.
Looking for a fix
North Carolina officials and insurance companies may propose legislation to make it tougher for out-of-state residents to register and insure their cars in North Carolina. But they have no specific proposals yet. They don’t want to make the rules so onerous that North Carolina residents would drive without insurance, said Joe Stewart, executive director of the Insurance Federation of North Carolina, an industry group.
State Rep. Drew Saunders, D-Mecklenburg, who serves on the House transportation and insurance committees, said he had heard recently about rate evasion. If necessary, he said, he would consider new laws early in the legislative session that starts in January.
North Carolina officials want to start an advertising campaign in New York and New Jersey to encourage people to report illegal out-of-state plates.
Investigators in North Carolina can look into those tips, but Guyant said prosecutors would not be willing to spend the time and money needed to extradite people for insurance fraud.
Guyant can point to just one arrest — a recent case in Halifax County in which he and a DMV inspector started asking questions after they saw someone trying to get a driver’s license after arriving in a van with New Jersey license plates.
“It’s a huge problem,” Guyant said. “We have to catch them in the act. And we have to be there.”
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