The TV show “American Greed” recently featured the dismantling of a major car insurance fraud ring. Hundreds of people were involved in schemes that cheated 17 insurance companies out of more than $2 million. These criminals often relied on "paper accidents" as part of their dirty deeds.
Paper accidents don’t require a fake accident for the criminal to file an auto insurance claim. A successful paper accident claim is the Holy Grail for con men because it doesn’t involve any of the risk of staged accidents, where criminals lure innocent drivers into fake crashes and claim non-existent injuries or damage.
Paper-accident thieves simply claim an accident took place. They may visit a police station, tell the cops there that a crash happened but that no police officers showed up, and ask to file an accident report. Then they call their insurance companies.
Paper accidents typically require cooperation from a doctor willing to vouch for the false injuries along with a law enforcement officer willing to write a false report, and a cooperative towing company and body shop, making it a complex operation to pull off.
In the end, everyone pays. According to the FBI, costs related to insurance fraud (not including health insurance) total more than $40 billion a year, with the average family paying an extra $400 to $700 for premiums.
To catch a thief
Insurance agents have no way of knowing whether such a report is fraudulent, says Keith Verisario, principal with All-Security Insurance Agency Inc. in Illinois. However, a person may appear suspicious because of how he tells his story. "The person may trip over his words and all but admit he's out for a few undeserved dollars," Verisario says.
If something doesn't add up, Verisario will notify a claims representative of the insurance company to check the client’s story before a check is issued. "I let the carrier do the investigating and follow their guidelines to paying a claim," he says.
Tracking fraudulent claims
If a claims representative thinks a paper accident or other fraudulent activity may be behind the claim, an insurer can report a questionable claim to the National Insurance Crime Bureau, which investigates these potential crimes.
Frank Scafidi, a spokesman for the nonprofit National Insurance Crime Bureau, says: "A single claim may contain up to seven 'referral reasons' indicating why it was deemed questionable," Scafidi says. Those reasons may include a suspicion of faked damage, auto glass fraud and paper accidents.
Questionable claims stemming from paper accidents rose from 2,066 in 2010 to 2,237 in 2011, an increase of 8 percent, according to the crime bureau. This followed a 17 percent hike from 2009 to 2010.
Referrals of suspicious claims don't automatically mean fraud has occurred, Scafidi says, but many of them do turn out to be shams. "It's up to the insurance company whether or not they want to spend the resources to deny a claim," he says. Denying a claim requires the insurance company to launch an investigation, which requires plenty of time, effort and money, Scafidi says.
Insurance companies don't follow up with the crime bureau after a questionable auto insurance claim is flagged, so the bureau can't determine how many initial referrals actually get denied, Scafidi says.
When the economy is tough, people resort to schemes like paper accidents that seem like easy money, says Mike Freed, managing partner at Brennan Manna & Diamond, a Florida law firm. "Insurance fraud is always one of those potential targets. We see it in all different types of insurance products,” he says.
More cases of fraud make it tougher for people who file legitimate claims, Freed says. "All claims are scrutinized more closely. There's increased vigilance on the part of the insurance companies to ferret out fraud, both in the application process and in the claims process," he says.
In fact, when insurance fraud is on the rise, some legitimate claims are denied. In these cases, policyholders can get legal help to fight the claim denials.
To avoid the risk of a legitimate claim being denied, Freed suggests documenting everything that takes place in an auto accident and filing a police report. It can be more challenging to submit a claim without a police report, he says.