Why it's so easy to steal from insurance companies – and what to do about it

Criminal gangs are staging car wrecks to defraud insurance companies. Sounds like a bad movie, right? Well, it’s true, and it’s big money. In a typical case, if the insurance company settles for $6,000, each vehicle occupant might get $1,000, the crooked lawyers and doctors get their fees, and the leader gets 50 percent of the professional services fees - plus the balance of the claimants' settlement. That’s a hefty pay check!

Here’s an example:
Members of a criminal ring intentionally ram vehicles together on a city street and wait for police and emergency medical services to arrive. The driver and two or three passengers – known as "stuffed passengers" – report neck and back injuries. Later, they visit a physician who is in collusion with the criminal ring. If the insurance company balks at paying the phony claim, the claimant enlists an attorney who’s also part of the fraud. The attorney bluffs until the company settles.

Read The Coalition Against Insurance Fraud report on the state of insurance fraud

Constantin Borloff (not his actual name) is the former leader of a successful and sophisticated fraud enterprise that operated in San Diego, Los Angeles and San Francisco. Recently Borloff spoke to leading SIU investigators in Florida about the hows, whos and whys of a successful automobile insurance fraud scheme.

“People don't necessarily set out to go into insurance fraud as a career, but it's easy to see the attraction," said Borfoff. When you're first introduced to the people in this business, they say, 'This guy, he's in the insurance business,' and everybody understands he doesn't have an insurance company – he's in a different side of the business. But he's a well-to-do guy, with a house in Beverly Hills, with a car, with everything. And you ask yourself, 'Why can he do it and I can't?' And then you start to learn."

What the claims adjusters know, the criminal enterprise knows twice.
Constantin Borloff  - alias
Former leader of a successful, sophisticated fraud enterprise

Borloff shares his top seven tips that insurance fraudsters practice:

  1. Target insurers that offer medical expense coverage – Insist that the insurance company provides med pay coverage (coverage for reasonable expenses to treat accident-related bodily injury.) This coverage follows the vehicle, so passengers in the vehicle will probably be covered too. In theory, claimants are supposed to repay med pay money if they receive a settlement, but that is rarely enforced – so double the payday!
  2. Aim for the little guys – “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,” said Borloff.
  3. Know the red flags – Look for clean driving records and owned drivers’ licenses. Policies should be active for four to eight months before the staged collision and the claims should be modest, usually no more than $5,000 or $6,000. "I know insurance companies have about 25 red flags," said Borloff. "What the claims adjusters know, the criminal enterprise knows twice."
  4. Share the risk – "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,” advised Borloff. “It’s very difficult for the insurance company to catch people in this situation."
  5. Take care of the details – Private investigators have caught fraudsters because they were the ones who walked in, signed in and left the doctor’s office within a few minutes. Follow-up visits should seem appropriate for the injuries and type of care needed.
  6. Keep your stories straight – Keep notes of the incidents – especially if you run a lot of these scams – or you won’t remember the details later.
  7. Build in protection for everyone – A cell network helps insulate each player: The driver of the car may meet the doctor but not the attorney and may know nothing about what others are doing. And it’s very important to shield the doctors and attorneys – their licenses are critical to winning the claims.
  8. Never back down – "All insurance companies are bound by law to pay,” says Borloff. “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."


Staged accidents are a truly global problem

And this isn’t just an issue in the USA. These schemes have spread globally with the UK’s Insurance Fraud Bureau estimating that ‘Crash for Cash’ costs the insurance industry around £340m a year.

The data solution

"The main problem for insurance companies is they don't have enough information," said Borloff. "When the adjuster discusses the case, he knows nothing.” There is a car, there is damage and these are the people who were involved. But the claimant’s records rarely raise red flags.

Insurance companies need access to transaction information and supporting details that are in other systems. A single transaction may look normal, but it may look very suspicious if you could correlate the transactions across related entities. Smarter integration and analysis of the data are a strong defense to the growing fraud problem. 

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