Tag Archives: automobile insurance

Inside Perspective on Auto Fraud, Part 1

This is Part 1 in a two-part series on automobile insurance fraud.

Introduction

Traffic engineers would love to unblock the clogged arteries of Southern California’s freeway system, where rush hour is anything but “rush” — more like gridlock. But in a land where one’s car is one’s empire, one’s freedom and personal statement, carpooling is a tough sell. The high-occupancy vehicle (HOV) lanes have scant occupancy. In fact, cars carrying multiple passengers are such a rarity that they, alone, raise red flags for auto insurance claims adjusters.

Operating under the radar is a fast-growing segment of the “underground economy” — organized criminal enterprises that stage automobile collisions to defraud insurance companies of medical payments. In some cases, the entire incident is created on paper, with fictitious vehicles and false identities. In other cases, the perpetrators take real vehicles with legitimate insurance policies out to vacant lots or remote fields to crash them and then fill out a report. The most compelling cases are the ones where participants intentionally ram vehicles together on city streets — often a rear-end collision in a left-turn lane — then dial 911 and wait for police and emergency medical services (EMS) to arrive. This approach triggers a police report and EMS records, which lend an air of legitimacy to the event. It really happened.

Based on instructions from a stager, the driver and two or three passengers — who are known as “stuffed passengers” — report neck and back injuries. The passengers later visit a physician or chiropractor who is in collusion with the criminal ring. The patients sign in and leave without receiving any treatment. If the insurance company balks at paying the specious claim, the claimant enlists the help of an attorney who is also party to the scheme. The attorney is tenacious, willing to go to court, generally able to bluff until the insurance company backs down and settles.

In the process, everybody except the insurance company gets easy money. Property damage to the vehicle is paid to the owner of the vehicle, while multiple players split the proceeds of the settlement for medical payments. In a typical case where the insurance company settles for, say, $6,000, each vehicle occupant might get $1,000, the lawyers and doctors collect their fees and the enterprise leader retains 50% of the professional services fees plus the balance of the claimants’ settlement, if any. If the enterprise leader successfully stages dozens of such incidents a month, it’s a lucrative business.

This practice exploded in Southern California in the mid-1990s. If you are a special investigations unit investigator, you are dealing with this every day. The average caseload for an adjuster or claims representative might be 150 or 200 a day, depending on the size of the company. At least 25% of that is some flavor of fraud. It’s either a false claim or an embellishment to it. People are doing it. Even people who think of themselves as law-abiding are doing it, because they don’t think of insurance companies as victims. This type of activity is so prevalent that our undercover investigators would hear paramedics on the scene saying, “Okay, which one of you is going to the hospital this time?”

Automobile insurance fraud is such easy money that the business is even creating unlikely bedfellows. For example, in south central Los Angeles, the Bloods and Crips — gangs that have had an intense and bitter rivalry — are now cooperating with one another in organized insurance fraud, because it’s more profitable to join forces.

Six Steps to a Successful Insurance Scam

Constantin Borloff (not his real name), the former leader of a successful and sophisticated fraud enterprise that operated in San Diego, Los Angeles and San Francisco, shares his top tips for making fraud pay. Having paid his debt to society, the ringleader now tells insurance companies how he was able to steal so much money from them, who does it and why it’s so easy.

Go for the Med Pay Money
Borloff would insist that vehicle insurance policies have med pay coverage — coverage for reasonable expenses to treat accident-related bodily injury. Because this coverage follows the vehicle, passengers in a vehicle that has med pay coverage will likely be covered, as well. Borloff gave vehicle owners a list of insurance companies that would freely provide these policies.

In theory, claimants are supposed to repay med pay money if they receive a settlement, but that doesn’t happen, according to Borloff. “For all history, maybe two times the insurance company asked for money back. If you say you don’t have money and can’t pay it back, they say, ‘Okay, don’t pay back the money.'”

Find the Inattentive Insurance Companies
Borloff also selected insurance companies with a reputation for laxity, the ones whose claims representatives didn’t take a stand and ask the hard questions. “Big companies like State Farm or Farmers have millions of policies, good special investigation units and more experienced adjusters, so that’s where you would see more problems. It’s better to go to the smaller company or where it’s not their main business. These companies usually pay more, while the big companies usually pay a little less.”

Insiders in the business share this information, so they know which companies to avoid and which ones would pay off like loose slot machines in Henderson, NV.

What would make an insurance company an unattractive target? “I don’t know what will stop me,” Borloff. said “All insurance companies are bound by law to pay. So for us, the system is working perfectly. The insurance company can fight, and they have a lot of resources to fight, but eventually they have to pay something. Maybe more, maybe less, but eventually they have to pay something.”

Choose Participants Who Won’t Raise Suspicion
In a perfect world, your participants are white American citizens with clean driving records and their own driver’s licenses. Judges and juries look most kindly upon this type of claimant, according to Borloff.

It is equally important that their behavior fits accepted patterns. For instance, policies should be active for four to eight months before the staged collision. Claims should be modest, usually no more than $5,000 or $6,000. Activities were choreographed to avoid triggering red flags. “I know insurance companies have about 25 red flags,” Borloff says. “What the claims adjusters know, the criminal enterprise knows twice. I knew about all these red flags, and I tried to avoid them.”

Distributing the cases is one way to avoid detection, Borloff said. “If the enterprise will do, say, 20 collisions a month, the claims will go to five different insurance companies, each to a different attorney — 10, 15 or 20 different attorneys — and any given adjuster will have at most two cases to a specific attorney. Will the adjuster be suspicious about it? I don’t think so. It’s very difficult for the insurance company to catch these people in this situation.”

Borloff tells of a fringe case where a woman, working against the advice of her stager, staged four accidents in a single week. She submitted claims to four different insurance agencies. All four claims were paid, but this pattern of activity could have exposed everybody in the fraud enterprise to scrutiny and discovery.

Pay More Than Lip Service to the Medical Treatment
When private investigators were first sent to wait outside medical clinics to observe and videotape (the comings and goings of visitors), the first people they caught were the ones who walked in, signed in and left within a minute. People quickly learned to stay longer inside the clinic and have follow-up visits at intervals that would seem appropriate for their injuries and type of care.

Keep Your Stories Straight
Cappers and stagers write notes for people so they can remember their stories when talking to claims representatives and, later on, if they meet with an attorney and go into depositions. Somehow, somewhere, there is a record of all this. If the ring is dealing in volume, there must be good notes, or they won’t remember the details of a case, and that’s how they get tripped up. Some stagers get tripped up simply by having these notes in their possession — in their offices or briefcases, waiting to be found during a routine traffic stop or search.

Insulate the Players From Each Other
These groups tend to function as classic cell networks. In an effective cell network, the claimant may or may not be exposed to the other people involved, or may be only exposed to the doctor but not to the attorney. That’s how these people are protected from one another. Participants may not have a knowledge of what else the group is doing. When we arrested 72 people on a state level and brought them into interrogation rooms for 72 hours, it was pretty clear that they only knew their own activities or those of friends they had brought into the group. They had no knowledge of the bigger scheme. That’s how you protect your enterprise.

The parties in these fraud rings learn never to admit to anybody that the accident was staged. Everybody in the enterprise knows it, but if you tell even one person, there’s a point of vulnerability. It is especially important to insulate the medical and legal providers, because their professional licenses are critical to facilitate these claims. They take it all the way and never back down.

How often would a criminal enterprise walk away from a case because an insurance company’s special investigations unit got involved? “I would not walk away, but I would accept lower settlement, for sure,” Borloff said. “One time, one of my colleagues made a terrible mistake and sent 63 cases to Allstate — one attorney, same office. They came to me and said, ‘What should we do now, SIU is after us?’ I said, ‘Don’t give up, try to fight,’ but they decided to give up. It was the biggest red flag. They lost money. It upset people.” Giving up is tantamount to an admission of wrongdoing.

This series of articles is taken from the SAS white paper of the same name. © 2013, SAS Institute Inc. Used by permission.

Five Workers’ Compensation Myths

Travelers Insurance, which recently passed Liberty Mutual to be the largest workers' compensation insurance carrier in the U.S., published a list of five common workers' comp myths, from a small employer's perspective:

  1. “I only have a few employees, so I don’t need comp insurance.”
  2. “My employees won’t sue me.”
  3. “Comp insurance is too expensive, so I’ll just pay out of my pocket if an injury occurs.”
  4. “I provide a safe workplace, so my employees won’t get injured.”
  5. “Medical costs in the workers' comp system are just too high.”

While these myths are prevalent, I often see an additional five beliefs from my perspective as a workers' comp defense attorney that are as mythical as a mermaid:

1. Every injured worker needs an attorney.

While it is true that many injured workers do need to hire an attorney, there is certainly no need for most to obtain counsel. Most states have systems to resolve the claim directly with the injured worker without the time and expense associated with the claimant's hiring an attorney and filing a formal claim.

The complaint against injured workers representing themselves is what gave rise to that old joke: “A person who acts as his own attorney has a fool for a client.” I agree that most claimants don’t know as much comp law as does the average claimant’s attorney. That shouldn’t come as a shock to anyone.  But that doesn’t mean every injured worker needs an attorney. 

Most comp claims are compensable, so the only issue is the nature and extent of impairment. 

Is the final settlement for an unrepresented claimant always the same as for those who retained counsel? Obviously not, but that doesn’t mean the claimant gets less money. Remember that, in most jurisdictions, the claimant’s attorneys take between 20% and 33% of the final settlement as a fee. Add in a few thousand dollars for an IME report and discovery costs, and you can see how the fees and expenses go up faster than the winnings on Wheel of Fortune. If the claimant resolves the permanent partial disability portion of the claim on his own, he can still take home roughly the same amount as if he had retained counsel and paid fees and expenses out of a larger final settlement.

There is also the time value of money to consider.Claims where the injured worker is represented often take years to resolve, not weeks or months. Which is better to receive: $10,000 today or $12,000 three years from now? Most people would chose the former, and injured workers who don't hire an attorney are virtually guaranteed to get their money faster than if they retain counsel.

2. Injured workers are entitled to compensation for any painful condition that arises during working hours.

While this may be somewhat true in a few states (New York, California, Illinois), in most states this is simply false.

There are various philosophical theories that underlie the workers compensation statutes of a particular state, such as the “positional risk doctrine,” the “mutual benefit doctrine” and the “scope and course of employment” doctrine. Nevertheless, in most states there must be some connection between the injury and the employment for a claim to be compensable. Merely feeling pain at work is not enough.

It doesn’t surprise me that many claimants believe otherwise. What is surprising is how many small business owners believe this same myth.

I often talk to business owners who tell me stories that generally follow this path: “My employee says his arm hurts, and he wants me to take care of it. That’s all I know.” One doesn’t have to be that sunglasses-wearing guy from CSI: Miami to ask a few questions of the claimant, such as, “How did you hurt your arm?”; “Did the pain start while you were doing something in particular?”; or “When exactly did the pain start?”

3. The jurisdiction for a comp claim is where the carrier wants it to be.

This is a myth that is pervasive among adjusters and safety directors.

If employee works in State A but is in State B for a work-related purpose and is injured in State B, which state has jurisdiction over the claim? In most instances, the employee can choose to file his claim in either State A or State B, or even both! Yet, I have a conversation almost weekly with claims professionals who tell me: “Brad, I want this claim to be in State A, so please have the claim dismissed from State B.”

If a state says it has jurisdiction over a claim, the basis for asking for a dismissal cannot be: “Judge, my adjuster simply doesn’t want the claim to be here.” I would obviously have a more reasoned position upon which to base my request, but the result is often the same: The judge denies the request.

4.  Employers have workers' comp insurance so they can let the carrier worry about their claims.

This is basically the same as believing that if I stick my head in the sand bad things can’t happen to me. Employers should manage and monitor comp claims as if the money being paid to the claimant is their own money. Wanna know why? BECAUSE IT IS THEIR MONEY!

Comp insurance works just like automobile insurance — more claims always equates to increased premiums. Sure, an employer may have one or two claims that won’t affect premiums. However, with the cavalier attitude toward claims that underlies this myth, it’s only a matter of time before the premiums get higher than a surfer locked in a medical marijuana facility. 

5.  Most workers comp claims are fraudulent.

For claims professionals who handle comp claims on a daily basis, it often seems as if most comp claims are fraudulent. However, statistics simply don’t support this conclusion. A recent study from the University of Michigan concluded that only 2% of claims are fraudulent. I would think that the actual number is a bit higher than 2%, but certainly a far cry from 100%.

The danger in believing that most claims are fraudulent is that employers and carriers can face steep penalties for failing to provide legally required comp benefits in the absence of a valid reason to deny the claim. Additionally, employers and carriers that develop a reputation for denying claims without a valid reason often face higher awards from judges and arbitrators.

I like the approach used during the missile reduction talks with the Soviet Union during the 1980s: “Trust, but verify.” If we treat most claims as compensable while always being on the lookout for evidence of fraud, it creates opportunities to prevail at trial rather than opportunities to reinforce an employer stereotype as one that denies all claims.

An Inside Perspective On Automobile Insurance Fraud, Part 1

This is Part 1 in a two-part series on automobile insurance fraud. Part 2 in the series can be found here.

Introduction

Traffic engineers would love to unblock the clogged arteries of Southern California's freeway system, where rush hour is anything but “rush” — more like gridlock.

But in a land where one's car is one's empire, one's freedom and personal statement, carpooling is a tough sell. The high-occupancy vehicle (HOV) lanes have scant occupancy.

In fact, cars carrying multiple passengers are such a rarity that this scenario alone raises red flags for auto insurance claims adjusters.

Operating under the radar is a fast-growing segment of the so-called “underground economy” — organized criminal enterprises that stage automobile collisions with the intent to defraud insurance companies of medical payments. In some cases, the entire incident is created on paper, with fictitious vehicles and false identities. In other cases, the perpetrators take real vehicles with legitimate insurance policies out to vacant lots or remote fields to crash them and then fill out a counter report. The most compelling cases are the ones where participants intentionally ram vehicles together on city streets — often a rear-end collision in a left turn lane — then dial 911 and wait for police and emergency medical services (EMS) to arrive. This approach triggers a police report and EMS records, which lend an air of legitimacy to the event. It really happened.

Based on instructions from a stager, the driver and two or three passengers — who are known as “stuffed passengers” — report neck and back injuries. The passengers later visit a physician or chiropractor who is in collusion with the criminal ring. The patients sign in and leave without receiving any treatment. If the insurance company balks at paying the specious claim, the claimant enlists the help of an attorney who is also party to the scheme. The attorney is tenacious, willing to go to court, generally able to bluff until the insurance company backs down and settles.

In the process, everybody except the insurance company gets easy money. Property damage to the vehicle is paid to the owner of the vehicle, while multiple players split the proceeds of the settlement for medical payments. In a typical case where the insurance company settles for, say, $6,000, each vehicle occupant might get $1,000, the lawyers and doctors collect their fees, and the enterprise leader retains 50 percent of the professional services fees plus the balance of the claimants' settlement, if any. If the enterprise leader successfully stages dozens of such incidents a month, it's a lucrative business.

This practice exploded in Southern California in the mid-1990s. If you are a Special Investigations Unit investigator, you are dealing with this every day. The average caseload for an adjuster or claims representative might be 150 or 200 a day, depending on the size of the company. At least 25 percent of that is some flavor of fraud. It's either a false claim or an embellishment to it. People are doing it. Even people who think of themselves as law-abiding are doing it, because they don't think of insurance companies as victims. This type of activity is so prevalent that our undercover investigators would hear paramedics on the scene saying, “Okay, which one of you is going to the hospital this time?”

Automobile insurance fraud is such easy money that the business is even creating unlikely bedfellows. For example, in South Central Los Angeles, the Bloods and Crips — gangs that have had an intense and bitter rivalry — are now cooperating with one another in organized insurance fraud, because it's more powerful and profitable to join forces.

Six Steps to a Successful Insurance Scam

Constantin Borloff (not his real name), the former leader of a successful and sophisticated fraud enterprise that operated in San Diego, Los Angeles and San Francisco, shares his top tips for making fraud pay. Having paid his debt to society, the ring leader now tells insurance companies how he was able to steal so much money from them, who does it and why it's so easy.

Go For The Med Pay Money
Borloff would insist that vehicle insurance policies have med pay coverage — coverage for reasonable expenses to treat accident-related bodily injury. Since this coverage follows the vehicle, passengers in a vehicle that has med pay coverage will likely be covered as well. Borloff gave vehicle owners a list of insurance companies who would freely provide these policies.

In theory, claimants are supposed to repay med pay money if they receive a settlement, but that doesn't happen according to Borloff. “For all history, maybe two times the insurance company asked for money back. If you say you don't have money and can't pay it back, they say, 'Okay, don't pay back the money.'”

Find the Inattentive Insurance Companies
Borloff also selected insurance companies with a reputation for laxity, the ones whose claims representatives didn't take a stand and ask the hard questions. “Big companies like State Farm or Farmers have millions of policies, good special investigation units and more experienced adjusters, so that's where you would see more problems. It's better to go to the smaller company or where it's not their main business. These companies usually pay more, while the big companies usually pay a little less.”

Insiders in the business share this information, so they know which companies to avoid and which ones would pay off like loose slot machines in Henderson, Nevada.

What would make an insurance company an unattractive target? “I don't know what will stop me,” said Borloff. “All insurance companies are bound by law to pay. So for us, the system is working perfectly. The insurance company can fight, and they have a lot of resources to fight, but eventually they have to pay something. Maybe more, maybe less, but eventually they have to pay something.”

Choose Participants Who Won't Raise Suspicion
In a perfect world, your participants are white American citizens with clean driving records and their own drivers' licenses. Judges and juries look most kindly upon this type of claimant, according to Borloff.

It is equally important that their behavior fits accepted patterns. For instance, policies would be active for four to eight months before the staged collision. Claims would be modest, usually no more than $5,000 or $6,000. Activities were choreographed to avoid triggering red flags. “I know insurance companies have about 25 red flags,” Borloff says. “What the claims adjusters know, the criminal enterprise knows twice. I knew about all these red flags, and I tried to avoid them.”

Distributing the cases is one way to avoid detection, said Borloff. “If the enterprise will do, say, 20 collisions a month, the claims will go to five different insurance companies, each to a different attorney — 10, 15 or 20 different attorneys — and any given adjuster will have at most two cases to a specific attorney. Will the adjuster be suspicious about it? I don't think so. It's very dif!cult for the insurance company to catch these people in this situation.”

Borloff tells of a fringe case where a woman, working against the advice of her stager, staged four accidents in a single week. She submitted claims to four different insurance agencies. All four claims were paid, but this pattern of activity could have exposed everybody in the fraud enterprise to scrutiny and discovery.

Pay More Than Lip Service To The Medical Treatment
When private investigators were first sent to wait outside medical clinics to observe and videotape (the comings and goings of visitors), the first people they caught were the ones who walked in, signed in and left within a minute. People quickly learned to stay longer inside the clinic and have follow-up visits at intervals that would seem appropriate for their injuries and type of care.

Keep Your Stories Straight
Cappers and stagers write notes for people so they can remember their stories when talking to claims representatives, and later on, if they meet with an attorney and go into depositions. Somehow, somewhere, there is a record of all this. If the ring is dealing in volume, there must be good notes, or they won't remember the details of a case, and that's how they get tripped up. Some stagers get tripped up simply by having these notes in their possession — in their offices or briefcases, waiting to be found during a routine traffic stop or search.

Insulate The Players From Each Other
These groups tend to function as classic cell networks. In an effective cell network, the claimant may or may not be exposed to the other people involved, or may be only exposed to the doctor but not to the attorney. That's how these people are protected from one another. Participants may not have a knowledge of what else the group is doing. When we arrested 72 people on a state level and brought them into interrogation rooms for 72 hours, it was pretty clear that they only knew their own activities or those of friends they had brought into the group. They had no knowledge of the bigger scheme. That's how you protect your enterprise.

The parties in these fraud rings learn never to admit to anybody that the accident was staged. Everybody in the enterprise knows it, but if you tell even one person, there's a point of vulnerability. It is especially important to insulate the medical and legal providers, because their professional licenses are critical to facilitate these claims. They take it all the way and never back down.

How often would a criminal enterprise walk away from a case because an insurance company's Special Investigations Unit got involved? “I would not walk away, but I would accept lower settlement, for sure,” said Borloff. “One time one of my colleagues made a terrible mistake, and sent 63 cases to Allstate — one attorney, same office. They came to me and said, 'What should we do now, SIU is after us?' I said, 'Don't give up, try to fight,' but they decided to give up. It was the biggest red flag. They lost money. It upset people.” Giving up is tantamount to an admission of wrongdoing.

This series of articles is taken from the SAS white paper of the same name. © 2013, SAS Institute Inc. Used by permission.