This paper provides further new evidence of opportunistic fraud which is induced by the loophole in the clause on theft insurance. Automobile theft insurance covers only the total theft loss. The insurance company will compensate for the loss of accessories or spare parts to those insured vehicles with automobile theft insurance provided that the insured vehicles were stolen but recovered after searching. This loophole provides incentives for the insured who is only covered by automobile theft insurance to defraud. The insured can obtain indemnity for the loss of spare parts and accessories by submitting a total theft claim and waiting until the insured vehicles are recovered. Based on the insured vehicles which have encountered total theft, we find evidence that, when the loss amount approaches the cost of reinstating valuable accessories within a vehicle, the conditional recovery probability is significantly positively correlated with buying automobile theft insurance coverage without the endorsement for auto parts accessories.
