Auto insurance fraud is a multi-billion dollar industry that stretches around the globe. Like any other successful industry, it is innovative and market-driven, quick to take advantage of new opportunities and to adapt to changing regulations or threats to its profitability.
It is also organized and professional, reflecting the huge dollars involved. That’s not to say that there’s no room for the amateur, opportunistic fraudster operating on his own. But the reality is that insurance fraud is increasingly sophisticated and predominantly run by highly-professional organized crime rings with deep pockets, and lots of experience and expertise.
There are various types of insurance fraud, including staged accidents, caused accidents with innocent victims, auto arson, fake collision claims, false theft claims and so on. All frauds are costly to the insurance industry and consequently to innocent policy holders. But the most costly usually involve phony injury claims from faked, staged or caused collisions.
The made-up accident
The simplest type of staged accident is known as the paper accident. A paper accident is a prevarication; it never occurred. However, a claim would be submitted, backed by the required paperwork and so-called physical evidence – a damaged vehicle.
When this type of crime was originally devised, the perpetrators would purchase previously salvaged vehicles from a salvage yard. They would devise a scenario that involved either a single or multiple motor vehicle accident. In the case of a single vehicle, the driver would report that either he lost control of the vehicle or was the victim of a hit and run collision, but regrettably was only able to provide a vague description of the other vehicle.
The multiple vehicle scenario would be similar, but would involve a reported collision having occurred between two vehicles which, of course, were also cheaply purchased salvage vehicles.
In both cases, the fake accident would trigger a whole series of phantom claims costs: towing, auto repair or replacement, legal or paralegal representation and, most expensive of all, accident benefits for the multiple people in each of the vehicles. Each of the (non) service providers was part of the conspiracy, and each would take its cut of the pie.
Making it happen
How is all of this possible?
The organized crime cells are tiered conspiracies that start with towing firms and auto body repair shops. These facilities have the necessary licences to allow them to purchase salvaged vehicles from designated salvage yards. These connections also provide falsified documents to support the rebuild, safety and emissions tests for the vehicles, allowing them to be registered and supposedly put back on the road.
In reality, the only work performed was the false paperwork.
Once the vehicle was registered as fit, it could be insured, and not surprising, it was soon reported to have been involved in an accident – all without ever actually leaving the bodyshop’s storage yard.
Once the accident was reported, the bills for towing, appraising the damage and replacing the vehicle, car rental, legal representation, along with the numerous health assessments and treatment plans would begin.
The new branding legislation in Ontario (and similar regulations in other jurisdictions), was designed to halt the use of salvage vehicles in these phantom accidents, and it has forced the crime rings to change how they operate. However, it hasn’t eliminated the problem. Today the paper accident has evolved to overcome the branding challenge.
Recent investigations have proven that the organized crime groups now provide their own “accident vehicles” rather than rely on local salvage yards. For the most part, these are older model vehicles, usually in poor mechanical condition with existing damage from prior mishaps. Some of them are higher-end vehicles from manufacturers such as BMW, Mercedes Benz and Audi, often salvage vehicles brought in from the United States, where the branding requirements don’t apply. The use of false documents to certify and register vehicles remains just as effective.
Bringing it full circle
So how does it all come together?
It starts with a recruiter for the organized cell, who entices various individuals to become involved in the scam. The recruiter is generally paid about $200 for every person he recruits, with the goal of filling each of the vehicles that will participate in the phantom accident. These vehicle “occupants” are usually promised $1,500 if they report the accident as instructed and attend five treatments at a delegated rehabilitation facility. The occupants are told that the balance of their benefits will come from their insurer. Each vehicle is registered in the name of one of the occupants and this individual is designated as the “driver.” The fake driver is instructed to insure the vehicle with a randomly chosen insurer, with the organizers providing the funds to pay for one or two months of premium.
Obviously, the driver doesn’t bother to shop around for the best premium, and won’t worry about the cost of his coverages. Considering the potential windfall from the accident claims, the cost of a couple of months of premium is a small investment for the crime ring. Not surprisingly, once the claim is submitted, the insurance will be cancelled.
Investigations have proven that the involved drivers almost never get behind the steering wheel of the vehicle that they insured. The vehicles are not damaged as a result a traffic accident, but deliberately to simulate a collision.
The fake drivers are supplied with a description of the phony accident, along the necessary insurance and other information about the other fake driver and car. In the vast majority of cases, the two drivers never actually meet, let alone crash into each other. The drivers are also supplied with a list of the names of the “friends” who were in their vehicle at the time of the fake accident. Chances are the driver has never met any of these individuals either.
The organizers understand that realistic details are important in order to allay suspicion. The fake drivers are typically provided with a map of the location of the alleged collision, and in some cases they are given drawings to show how it occurred. Some will even go so far as to take the drivers to the accident intersection so they can familiarize themselves with the area, and thus sound more credible when reporting the accident. The drivers are also provided towing information and the location of the vehicle after the collision.
Once the driver is familiar with all the necessary, though phony details, the recruiter and the driver meet up with the tow truck driver with the previously damaged vehicle in tow. Then ,as a group, they attend a collision-reporting centre to report the accident. The centre will merely take down the information as reported by the driver.
Later, the fake drivers report the accident to their respective insurers and the injury claims begin to evolve, usually to the tune of tens of thousands of dollars for each driver and occupant.
In the end, the only real part of the scenario is the money paid out to the closely linked network of assessment centres, rehab centres, body shops, legal firms and towing companies.
Fortunately, insurance investigators are becoming smarter at recognizing and investigating these types of paper frauds. However, this has a downside, as the fraud industry has merely evolved to more complex and potentially more dangerous staged and caused accidents – raising the bar yet again for insurance investigators.
The Canadian Association of Special Investigation Units (CASIU) is a low-profile association whose membe
rs come from the claims side of the p&c industry.