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Accident reconstruction research
Introduction The objective of this paper is to make the reader more cognizant of the ripple effect of insurance fraud on the American economy. It will analyze the general problem of insurance fraud while focusing on auto insurance fraud, specifically, as an example of white collar crime. It will analyze the different types of auto insurance fraud and attempt to explain the motivation and opportunity of the individuals committing these types of crimes. It will also discuss what law enforcement agencies are doing or not doing to stem the tide of this growing problem. It will describe how some insurance companies are challenging the defrauders to recoup their financial losses. Finally, the paper will look at some recommended solutions to curb the growth of insurance fraud. Overview Insurance fraud is a calamity occurring every day in most American cities costing its citizens between $100-$120 billion annually (property-casualty and life-health segments){1}. Some common fraud schemes include "padding" or inflating claims by distorting facts when applying for insurance, submitting claims for injuries or damages that never occurred and "staging" accidents. Fraud occurs when all of the following elements exist: *An individual or an organization intentionally makes an untrue representation about an important fact or event. *The untrue representation is believed by the victim (the person or organization to whom the representation has been made). *The victim relies upon and acts upon the untrue representation. *The victim suffers loss of money and/or property as a result of relying upon and acting upon the untrue representation. The National Insurance Crime Bureau (NICB) believes insurance fraud is one of the most costly white collar crimes in the nation, ranking second to tax evasion (It is estimated that tax fraud is about 5 percent of the Gross National Product [GNP] in most developed nations.{2} This enormous cost is passed on to the policy holders through higher insurance rates, increased taxes and inflated prices for consumer goods and services. The NICB estimates that the average American household pays $200 a year in additional premiums to make up for the fraudulent acts.{3} Insurance Research Council (IRC-a not for profit research organization of the property/casualty insurance industry based in Wheaten, IL.) estimates that between $5.2 billion and $6.3 billion is added each year to the bill of American insurance policy holders because of outright fraud and and/or injury claim padding. The bulk of these excessive payments (90%) are due to opportunistic fraud and/or buildup resulting from a real accident and 10% to staged accidents. It is estimated that approximately 20 percent of all insurance claims submitted annually are fraudulent, which includes- rigged car crashes, auto thefts, slip and fall scams and inflated burglary claims.{4} It is believed by the insurance companies that nearly 40 percent of all auto theft claims submitted are fraudulent in nature and is the principle contributing force in driving up the annual cost of claims to $ 6 billion (It is interesting to note here that 60% of stolen vehicles that were reported stolen from a single Long Island, N.Y. mall are believed to be fraudulent {5}). It is estimated that some 10 percent or $1.3 billion of the annual $13 billion in medical bills submitted, relating to vehicle accidents, are fraudulent or abusive in nature.{6} In the realm of auto insurance fraud, the insurance industry is losing over $8 billion annually (contrasted to general insurance fraud with losses of $100-$120 billion annually). The insurance industry's "review of 15,000 cases in nine states found evidence of fraud in almost a third of accident claims in 1992."{7} Nine states
were examined: Arizona, California, Connecticut, Illinois, Michigan,
Missouri,New York, South Carolina and Texas. The study also
demonstrated that the level and type of fraud and buildup vary conspicuously
across the United States. For instance, claims involving fraud
and buildup appear to be more prevalent in California and Texas
than in the other states in the study. States with relatively
few claims involving fraud and buildup were Michigan and Missouri.
Within states, fraud and buildup were prevalent in major cities
than in other types of communities. For example, 67 percent
of the claims in Los Angles have the appearance of buildup and/or
fraud, or about double the levels seen the entire nine state sample
(36% appear to involve buildup and/or fraud). The Rand Corporation's
Institute for Civil Justice Reform calculated the cost of questionable
medical claims at $13 billion to $18 billion annually. This
is approximately 35 to 42 percent of all auto injury medical costs.{8} The Problem Insurance fraud flourishes because rip-off artists know that insurance companies rarely challenge claims that fall below a confidential dollar threshold. Professional criminals are generally aware of what the thresholds are, and proceed accordingly. For instance, if companies that establish a threshold of $10,000 would find themselves with claims ranging between $9,000 and $9,500. One of the fastest growing insurance fraud scams in America today is auto insurance fraud. Staged Accidents The most common form of pre-meditated auto insurance
fraud is staged accidents. Staged accidents occur when a driver
deliberately stops in front of a "target's" auto to cause a low
speed accident. The driver who staged the accident (and passengers,
if any) then submits a claim for "injuries" suffered during the
"collision" and attempts to cash in on the "target" driver's insurance
company. In cases where
fraud is suspected, insurance companies generally examine the following
predictors for the presence of fraud:{9} The following
is a simplified overview of the mechanics involved in preparation
of a staged auto collision. Common
Schemes-Auto Fraud Swoop and Squat Drive Down Hit and Run Paper Accidents Side Swipe Professional
Criminals & White Collar Offenders In spite of the fact that a certain percentage of insurance fraud is conducted by organized crime or professional criminals and some fraudulent claims are made within legitimate context ("torching" of a failing business, or instance)- generally most insurance frauds are committed by "legitimate and respected" middle or upper class members of society. Professionals, such as doctors, lawyers, insurance adjusters and even some police officers are involved in assisting, or even encouraging false injury, damage and theft claims.{11}
To understand why insurance fraud, especially auto insurance fraud,
is so enticing to some individuals who are not hard core criminals,
one must first calibrate the opportunity and motivational factors
involved. With regards to opportunity, the white collar offender
in staging an auto accident sees an unending "sea" of unsuspecting
victims with late model or luxury vehicles upon which to perpetuate
his opportunistic deeds. In the realm of motivation, the offender
sincerely believes, in most cases, that there is a low risk factor
of being apprehended while being an "effortless" act in making easy
money. The offender rationalizes that because lawyers, doctors
and some clinics are involved in the fraud that there is a certain
"legitimacy" attached. Offenders believe staging auto collisions
are, somewhat, victimless crimes because no individual really gets injured, except the insurance campanies (which offenders
believe to have "deep pockets"). Other contributing motivational
factors to consider are the pervasive spirit of the modern
age that glorifies wealth with no questions asked and the tendency
of living beyond one's means, while accumulating personal debts
and losses. Although motives and rational to commit white
collar crimes varies with each offender, the end result does not
vary- that is, there will always be a victim (an individual or organization)
who will suffer emotional and/or physical and/or financial damage.
Public's
Perception of Insurance Fraud Prosecution
of Insurance Fraud Because of the lack of zeal that prosecutors have demonstrated in prosecuting fraud cases, the onus has shifted back to the insurance industry for action. The National Insurance Crime Bureau (NICB), for instance, is attempting to meet the challenge by employing 200 full time investigators and by creating a national centralized computer network to funnel and distribute information. Through the deployment of a centralized computer network, NICB created a vehicle by which insurance investigators could more readily develop stronger cases to attract prosecutorial action. Insurance companies are utilizing computer technology to match telephone numbers, addresses and names from claims filed among the various insurers, to develop patterns of abuse by individuals- using the same lawyers and doctors.{15} Nationwide Insurance, based in Florida, is currently experimenting with a computer program primarily designed for federal intelligence agencies to perform computer searches to ferret out patterns of claims involving accidents with minor damages while engendering exorbitant medical claims.{16} Methods Deployed To Combat White Collar Crimes Two major vehicles employed for white collar crime prosecutions are in the Sentencing Commission guidelines and in RICO (Racketeer Influenced and Corrupt Organizations Act). RICO, which was used fight organized crime (Mafia), is now being used by the insurance companies to combat the onslaught of fictitious claims. RICO imposes criminal and civil liability on persons or groups engaged in certain "prohibited activities" which have a connection to "a pattern of racketeering activity." The law defines "racketeering activity" as "any act or threat" involving designated state crimes or any act indictable under specified statutes. A pattern of such activity is deemed to be at least two acts of racketeering activity within a ten year period. State Farm Insurance has applied RICO in its attack against organized fraud schemes. State Farm is currently in litigation in Federal District Court (which is expected to take 3 to 4 years to complete), having filed civil suits against four individuals who were allegedly responsible for hiring drivers and passengers to stage accidents. The four individuals were additionally alleged to have organized three lawyers, eleven doctors and chiropractors and ten clinics to build fictitious medical bills which totaled $3 million in false claims. In the suit, Ross Silverman and Ted S. Helwigm, two lawyers who had taken racketeering cases to court as assistant Unites States attorneys, outlined repeated accidents at the same locations in Chicago, in which the same drivers and passengers were treated repeatedly by the same doctors and then represented by the same lawyers. In all, there were more than 349 accidents since the late 1980's. RICO is an exclusive federal racketeering law which permits a judgment of up to three times the losses against the defendants. In this instance, if State Farm Insurance is successful in its suit, they could be entitled to $9 million in damages.Possible Remedies David Snyder, American Insurance Association general counsel, believes that although the problems with fraud and claims buildup are large, solutions do exist. he suggests "systemic reforms to the current tort liability system are the most effective remedies for fraud and claims buildup."{17} Mr. Snyder, further, suggests the following three prong approach to reduce fraud costs in the auto insurance system: 1.Providing an option for managed care for auto injuries. For example, Colorado has allowed optional managed care that has reduced medical cost by 20 to 30 percent and more than 90 percent of the people re-apply for the option. 2.Instituting a health care fee schedule coupled with effective utilization review. Pennsylvania enacted this combination in the early 1990's with dramatic results. The state concluded that the savings in medical payments rose to 30 percent for some insurers. 3.Instituting an effective no-fault compensation system. In its pure form, no fault eliminates non-economic damages- the profit for fraud and buildup. In other forms, it eliminates non-economic damages for minor injury cases and reserves the litigation system for serious or permanent injuries. Meanwhile, injured victims are recipients of better benefits for less money because fraud and lawsuit costs are reduced. Conclusion Insurance fraud, as all other white collar crimes, will never be eliminated as long as an individual has the opportunity and motivation to "gain something for nothing." As the new millennium approaches, America's capitalist infrastructure must address the consequences of psychological, social, political and economic forces that germinate the philosophy "everybody is doing it, why shouldn't I" (with regards to white collar crimes). When political leaders, "captains" of industry and professionals (doctors, lawyers, accountants, police and etc.) promote and engage, unabashedly, in skullduggery activities to increase their personal fortunes at the expense of innocent, trusting and unsuspecting populace- a radical review of our jurisprudence and social system is in order. If the level of hubris in "economic man" is not restrained by laws and regulations that have "teeth", white collar justice will be just a theory with no pragmatic applications. FOOTNOTES: {1}Esters,
S(1996) "Study calls insurance fraud a 'quiet catastrophe'" National
Underwriter (Property & Casualty / Risk & Benefits Managment)
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