Staged Auto Accident Rings Adapt To Fraud Detection With New Scams

Mr. Nachman cited two efforts that have helped law enforcement gain the upper hand on staged accident rings. One was a regulatory change that tightened up the deadlines for submitting medical bills to insurance companies and for announcing the intent to file no-fault claims.

The deadline for submitting bills was shortened from 180 days to 45 days. For announcing the intent to file a claim, the deadline was changed from 90 days to 30 days.

"Those two regulatory changes from a few years ago enabled insurance carriers to tighten up their scrutiny of claims or quickly order independent medical examinations where they suspect fraud, and to try to shut the spigot if they determine any claim is fraudulent," he said.

The second tactic involved a concerted law enforcement effort. Mr. Nachman–who worked as head of the Auto Insurance Fraud Unit at the New York Attorney General's Office prior to his current post–said the crackdown on fraud included a coordination of efforts among the insurance industry, the insurance department, the Attorney General's Office, local law enforcement, district attorneys and U.S. attorneys.

Specific efforts included undercover officers posing as accident victims to gain access to unscrupulous medical clinics that pad claims, and executing instant wiretaps on medical clinic managers and runners who recruit phony accident victims.

"The law enforcement crackdown, combined with regulatory changes…helped to stem the tide [of fraud] so that in 2005 premiums collectively went down about $400 million across the board," according to Mr. Nachman.

Massachusetts has also seen favorable results using coordinated law enforcement efforts. But in that state, auto insurance fraud is prevalent in multiple areas, and so the Insurance Fraud Bureau devised a strategy to attack fraud rings city-by-city.

Daniel J. Johnston, the bureau's executive director, said that in October 2003, the bureau formed Community Insurance Fraud Initiatives, or CIFIs, that operate solely within designated cities in the state. Currently, Mr. Johnston said there are 13 of these task forces.

Explaining how the task forces were formed, Mr. Johnston said the bureau analyzed how many no-fault claims were reported by town in relation to the number of accidents.

The statewide average, Mr. Johnston noted, is 40 injuries per 100 accidents. The bureau looked at areas where the injuries per accident were unusually higher than the state average, because staged accident rings tend to pile as many passengers as possible in a vehicle, and all of them will claim injuries.

Using this methodology, Mr. Johnston said the bureau decided to focus first on Lawrence, Mass., which averaged 141 injuries per 100 accidents.

The bureau then began a coordinated effort, working with the local police department and local district attorneys, and began to see results quickly. These efforts were then duplicated in other cities around the state.

"In each case, we've partnered with the police department. We've put our staff in the towns to work with the locals. They're permanently based there," Mr. Johnston noted.

Touting the success of focusing on geographical areas as opposed to responding to individual insurer notifications of suspected fraud, Mr. Johnston said that in Lawrence, the injury-per-100-accidents rate "came down from 141 rather dramatically. Last year it was around 50."

Insurance rates also came down, and 13 suspected fraudulent chiropractic clinics closed–many of them voluntarily as fraud activity decreased.

Mr. Johnston said the legislature has acted to give fraud fighters useful tools to combat fraud rings with recent passage of laws that classify insurance fraud as a felony and make it illegal to act as a runner.

Legislation has been at the forefront in Florida's battle against insurance fraud, according to Howard Goldblatt, director of legislative affairs for the Washington, D.C.-based Coalition Against Insurance Fraud.

He mentioned that the state had a law making staging an accident a crime, but the law stated there had to be an actual accident for the penalty to apply.

Mr. Goldblatt said that in response, fraud rings increasingly began staging accidents only on paper–obtaining either legitimate or falsified police reports, and then using the information on the reports to funnel patients to medical clinics.

Mr. Goldblatt said one of the ways fraud rings are able to cause staged accidents, on paper or for real, is to gain information from police accident reports.

These reports, Mr. Goldblatt noted, are public record. "And so the question arises, why are private citizens able to simply walk into a police department and purchase information that describes an accident that may include personal private information of one of the victims?"

Florida ended up restricting access to these reports to just the victims, their representatives (attorney, insurance company, etc.), or "legitimate media," such as newspapers, television or radio reporters.

Journalists, Mr. Goldblatt noted, have to be able to prove they are legitimate, since fraud rings have resorted to posing as reporters in order to obtain accident reports.

California also has strong laws on the books, in addition to a sizable fraud-fighting budget and a large fraud bureau, according to Mr. Goldblatt. The biggest challenge in the state, Mr. Goldblatt said, is just its sheer size and number of people.

Laureen Pedroza, commander of the Los Angeles Auto Insurance Fraud Task Force, said that like New York and Massachusetts, California has employed the use of coordinated task forces to fight organized fraud rings.

Ms. Pedroza added that the bureau also provides training to California Highway Patrol officers so they can recognize when a staged accident occurs.

The use of paper accidents by fraud rings, in addition to Florida, has been seen in New York and the West Coast, said Jim Quiggle, director of communications for the Coalition Against Insurance Fraud.

He said that fraud perpetrators will use this tactic because it does not involve recruiting and training phony accident victims and worrying that they may perform their role inadequately. "Fewer things can go wrong," Mr. Quiggle said.

In California, the crime of identity theft has found its way into insurance fraud schemes, according to Ms. Pedroza.

"Today what we're finding, in probably one of the newer schemes, is that the same groups and types of people [involved in auto fraud schemes] are using false identities, or assuming identities," he said. "So instead of having to pay someone else to borrow their insurance and their cars, they're now using false identities to purchase cars and to purchase insurance and to file insurance claims."

Another recent tactic seen in New York and elsewhere involves recruiting victims of genuine accidents.

Explaining why fraud perpetrators see recruiting real accident participants as favorable to staging accidents, Mr. Nachman said, "I think for soliciting off of real accidents, the bad guys gain kind of a false sense of security that if the accident is real, both the insurance company and law enforcement would be less likely to scrutinize it, and we would have a harder time proving, where there's a real accident, that individuals are engaged in the submission of fraudulent claims."

Despite the evolution in tactics by fraud rings, fraud fighters are optimistic. Mr. Johnston said the word is out in Massachusetts that the state is fighting back against fraud.

"I would say that in the early stages, it took awhile for our fraud-fighting effort to get traction," he said. "But between the growth and the professionalism that we've been able to build here in the bureau, and the cooperation we've been able to get from the insurance companies, we're clearly kicking on all cylinders…."

While noting that auto insurance fraud will likely never be completely eliminated, Mr. Johnston summed up the general mood of fraud fighters by concluding: "There's a solid awareness up here that we're fighting back."