GMAC says fraud hurt former insurance unit

GMAC Financial Services was experiencing higher levels of insurance claims, in part because of rising unemployment and consumer fraud, in a business line it recently sold.

This month, GMAC said it had completed the sale of its U.S. property and casualty auto insurance business to American Capital Acquisition Corp. The GMAC unit sold insurance for automobiles, commercial vehicles, motorcycles and recreational vehicles through independent insurance agents and on the Internet. Terms were not disclosed.

GMAC said it booked a total pretax loss of $250 million in 2009 for the U.S. operations, plus a property and casualty insurance business in the United Kingdom that the company is selling separately.

Meanwhile, GMAC kept the part of its insurance operations that sells extended service contracts and policies to cover dealer inventories.

Higher claims

In a 2009 annual report filed March 1 with the Securities and Exchange Commission, GMAC disclosed a higher level of claims on the business it sold.

"During 2009, the insurance marketplace experienced an increase in the frequency of claims due to an increase in miles driven as a result of lower fuel prices in comparison with 2008," GMAC said in its report. "High unemployment also contributed to an increase in instances of insurance fraud.

"We expect these factors will continue to negatively impact claim loss costs. We are addressing the increased claim loss costs with aggressive pricing and fraud detection methods in a number of markets."

A spokeswoman for GMAC declined to comment beyond the written statement in the company's annual report.

GMAC not alone

GMAC isn't the only one reporting an increase in insurance fraud. Progressive Corp., another major auto insurer, has noted in recent conference calls with analysts and investors that it is looking at whether rising unemployment and claims levels are increasing consumer fraud.

"We are very, very alert to those types of things," said Progressive CEO Glenn Renwick.

In a conference call Nov. 9, 2009, Renwick said: "It's sort of silly to say we are trying to catch the fraud. The bad frauds we catch, the [people who are good at fraud] we probably don't catch. But we are very well-aware of it, and there are certain locations in the country where these things emerge considerably faster and stronger than other places and we are alert to that."

GMAC said selling the property and casualty insurance business allows it to "refocus resources on strategic operations and restore financial performance."

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