In California, someone who owes more on their car than it is worth easily remedies the situation by driving the car to Mexico and reporting it stolen. In New York, a man low on cash dresses up as his recently deceased mother to cash in on her workers’ compensation claim. While these incidents may seem like a good way to solve your financial troubles, authorities still consider these incidences insurance fraud and those who carry out these “quick cash” schemes may find themselves doing hard time behind bars.
Steven Nachman, an investigator with the New York State Insurance Department says the agency has seen a significant increase in insurance fraud cases since 2008—when the economy started putting a pinch on everyone’s pocketbook.
Nationwide, nearly 10 percent of all insurance claims are fraudulent.
“More people are doing this (committing insurance fraud) out of desperation,” Nachman says. “They see an opportunity to get a few extra bucks but nonetheless, it’s illegal.”
From 2008 to 2009 property insurance fraud claims jumped by 20 percent and between 2009 and 2010 the claims jumped another 14 percent, according to the National Insurance Crime Bureau. While statics are less in 2010 than in 2009, fraudulent claims continue a steady climb.
One scam that seems to be getting a lot of use lately is the “owner give-up,” says Frank Scafidi with the Illinois-based insurance crime bureau.
In an “owner give-up” scam, the vehicle owner may drive it into a lake or sell it to a middleman who sends it to a chop-shop. The owner will then report the vehicle stolen and cash in on his or her car insurance policy. Scafini says in California it is common for scammers to abandon the car in Mexico and walk home.
“They see a big financial incentive to do this,” Scafini says. “Either they get out of paying on a loan or they see an opportunity to get money to replace a car they have gotten tired of driving.”
Reports of questionable vehicle thefts increased from 6,212 in the first half of 2008 to 6,852 in 2009. By the first half of 2010, there was a drop to 6,290 cases, according to the insurance crime bureau.
Meanwhile, staged accidents have increased by 27 percent since 2008. This is another common auto insurance scam where a driver cuts off another driver and slams on the brakes, causing an accident, in the hopes of padding or falsifying claims against an innocent driver’s car insurance company.
Although a failing business conveniently going up in flames is still occurring in this troubled economy those cases have remained constant at nearly 1,000 cases reported in the first half of 2009 and 2010.
Property and casualty insurance fraud costs insurance companies about $30 billion a year, says Scafini. That amount doesn’t include fake workers’ compensation claims, which are down 9 percent, or fraudulent healthcare claims which are up 15 percent, according to the insurance crime bureau’s report.
Workers’ comp fraud comes in a variety of classifications from basic on-the-job injury claims to female impersonation.
In September, the San Bernardino County prosecutors filed nine felony charges against a Southern California man who claimed he broke his elbow when he stumbled on plumbing fittings lying on the floor of the warehouse where he worked. Investigators discovered he actually broke his elbow during a failed skateboard stunt at his girlfriend’s house, according to court records.
Nachman says he recently charged a New York man for fraud after the man dressed in his mother’s clothes in order to collect a check she received as part of a legitimate worker’s compensation claim. The mother died weeks earlier. Scafini called claim padding the “quiet fraud.”
“Mostly honest people seem to embellish on their claims,” Scafini adds. “So here you have people taking advantage of the system, trying to get some money back from a policy they have been paying for year—but it’s still fraud.”
Catching fraud can be as easy as checking someone’s story or checking someone’s Facebook page. The New York insurance department filed charges against an Ulster County woman for filing $8,975 in false workers’ comp claims. Investigators found a post on her Facebook page where she bragged about a new job.
Nachman says that case was one of about 20,000 cases reported in the last year to the New York insurance department.
State agencies typically partner with local police and insurance companies to look for fraudulent claims, he added.
Insurance companies have internal investigation units that report suspicious claims to police.
Also, professional organizations such as the insurance crime bureau offer access to its 130 investigators and it provides training seminars to help make agents and customers more aware of fraud.
Because losses tallied by insurance companies from fraud get passed onto customers, Scafini notes that being aware of scams and reporting them is important for customers.
“Know what your policy says and if you are in an accident, take pictures,” Scafini says. “And if someone approaches you at an accident scene telling you about their friend who is a doctor or a lawyer, beware.”
Investigators encourage policyholders to report insurance fraud to their insurance companies or local or state law enforcement agencies. The NICB offers a toll free hotline for those who wish to remain anonymous at 800-835-6422.
How an insurance scam is carried out can be rather creative but the National Insurance Crime Bureau and the Insurance Information Institute estimate that one in 10 claims are fraudulent and most fall into these five categories of insurance fraud.
- Stage an accident to collect on another person’s car insurance policy.
- Intentionally destroying property or vehicles and lying to insurers about the alleged “accident.”
- Slips, trips and falls that lead to fake injuries so someone can collect on disability, workers’ compensation and personal injury insurance.
- Inflating insurance claims.
- Dumping a vehicle in a lake or another country and then making a false theft report.
TIPS TO AVOID INSURANCE FRAUD
- Keep plenty of distance between your vehicle and the one in front of it to avoid getting caught in scams where criminals will abruptly stop, causing you to rear-end them.
- Call the police if you are in an accident and be sure to get a police report with the officer’s name, even if the damage is minor. This protects you from the other driver damaging their car later and trying to collect larger claims.
- Document the damage of the accident and even the number of passengers in the other vehicle by taking photographs using your cell phone camera or using a disposable camera.
- Do not share insurance information with anyone at the scene except for police.
- Avoid talking to people at the accident scene who try to direct you to a doctor or an attorney.
- Be wary of doctors who encourage you to file an injury claim after an accident if you are not hurt.
- Be suspicious of people who claim they were seriously injured on your property if you have no prior knowledge of the accident.