Many of the 10 million or so auto accidents reported each year in the United States go much deeper than the dents and scratches you see on the surface. Some of these accidents are staged or never happened at all. Yet the cost to holders of auto insurance policies is very real.
State and national organizations have just begun to measure the financial impact of staged accidents, so no firm estimate is available on how this type of fraud affects auto insurance premiums. However, fraud associated with staged accidents costs auto insurers millions of dollars in personal injury protection (PIP) claims. A chunk of those losses get passed along to auto policyholders in the form of higher premiums.
Staged accidents represent one of the fastest-growing varieties of fraud in the insurance industry, which takes an estimated $30 billion hit from all types of fraud each year.
“If you drive a car, your pocketbook is affected by this,” Frank Scafidi, director of public affairs for the National Insurance Crime Bureau, says of staged accidents.
Most affected drivers are in the dozen states that have no-fault auto insurance laws on the books, according to the National Insurance Crime Bureau. These laws allow policyholders to recoup medical costs from their own insurance company’s PIP coverage, regardless of who's at fault in an auto accident, and limit an accident victim’s right to sue the other driver.
Staged accidents are hard to prove, and criminals know it. That's especially true in New York City, the nation's “crash for cash” capital, which led U.S. cities in the number of staged accidents (1,304) reported to the National Insurance Crime Bureau from 2007 to 2009. In 2009, New York City consumers paid up to four times as much on their auto insurance premiums than the state average, and litigation regarding no-fault claims has clogged the courts. Statewide, auto policyholders paid an additional $229 million ($628,000 per day) to offset the cost of no-fault insurance fraud, says Cassandra Anderson, a spokeswoman for the New York Insurance Association.
In Florida, where drivers are required to carry $10,000 in PIP for each passenger in a car, the math is simple -- and appealing to criminals. Pile six people in an automobile, stage a wreck, send each to a medical professional, and a minor fender-bender can wind up costing an auto insurance company $60,000, with each of the guilty parties getting a cut of the action.
“This is a big issue and concern to all of those in the auto insurance industry -- we all pay the price,” says Aymee Zubizarreta, a spokeswoman for State Farm Insurance, the country's No. 1 auto insurer.
Just how big is the issue? About 85,000 questionable insurance claims were reported to the National Insurance Crime Bureau in 2009. The largest number of questionable claims involved staged accidents (4,800), up 43 percent from 2008. An additional 1,779 questionable claims were so-called "phantom accidents," when a wreck never happened but was reported as a real crash to gain insurance money.
Within the network of staged accident architects are recruited "victims," attorneys, doctors and other professionals collaborating to misrepresent or make up the facts in an auto accident to fraudulently obtain auto insurance money from unwitting insurers.
This brand of fraud is growing disproportionately. For example, medical care costs nationwide rose 21.1 percent between 2004 and 2009, according to the Consumer Price Index. During the same time period, the average no-fault claim, including claims from staged accidents, rose 47.7 percent, according to the Insurance Information Institute.
Gaming the system
Staged accidents usually encompass one of three elements: fake auto accidents with fake injuries, falsification of reports about cars being hit while parked, and "victims" being added to real or fake accident reports.
The perpetrators, many of whom operate fake "medical mills," pack two or more cars with "victims" and stage a minor car accident, or they crash nearly empty cars and then fill the vehicles with "victims" after the fact. When police and medical personnel arrive, the people in the cars complain of neck and back pain, and some even ride in ambulances to nearby hospitals.
Sometimes “runners” will monitor local police reports for real accidents. After an accident, they approach the real victims, recommend “doctors” and even offer to drive the victims to a clinic for care. A medical professional who's in on the scam will diagnose the patient with a soft-tissue or back injury -- which is hard to disprove in court -- and then submit a claim to an insurer. The people involved in the accident can make anywhere from $500 to several thousand dollars.
“It’s a big business for the crooks,” says Lynne McChristian, Florida representative for the Insurance Information Institute.
It's also a big drain on the court systems. More than four in 10 no-fault claims result in litigation in New York, according to Anderson. Of these lawsuits, more than 99 percent are filed on behalf of medical providers, not the victims purportedly injured in the auto accidents.
“No-fault cases have doubled in New York City civil courts from 2008 to 2009,” Anderson says. “At the end of 2009, courts were scheduling cases for trial beginning in 2011.”
Criminals get creative
With each passing month, staged accident schemes become more creative, says Capt. Steve Smith of the Florida Division of Insurance Fraud.
“It’s gotten so bad that sometimes we’ve had owners of clinics stage accidents so they can get a share of the insurance claim,” Smith says. “These accident clinics treat only accident victims. If you have a cold or a fever, they won’t treat you. And the majority of these clinics are owned by people not in the medical field.”
In the vast majority of staged accidents, everyone involved in the wreck is in on the scheme, Smith says. Often, the claim filers use rental cars to stage these accidents in the evening or on isolated roads where there are fewer witnesses.
In Michigan, Allstate -- the country's second-largest auto insurer -- is suing Global Medical Billing Inc. and 23 other defendants in an alleged staged accident scam that netted $680,000 in fake claims. Allstate's lawsuit claims that Global Medical Billing recruited fake auto accident victims who were referred to real doctors for bogus treatments at bogus medical treatment clinics. In some cases, the suit alleges, patients with a diagnosis of a sprain or a strain would be sent to physical therapy for months or years at a time.
The Allstate suit claims that one physician, Dr. Jeffrey Parker, diagnosed a “patient” with a back strain, ordered physical therapy -- which lasted more than 14 months -- and ordered electromyography (EMG) studies of the patient’s legs, even though the “patient” didn't complain of radiating pain in his legs. Global Medical officials have denied any wrongdoing. The case is pending in federal court.
Twelve states have no-fault insurance laws, which require a certain amount of personal injury protection (PIP). Among those states, the hotbed of staged accidents is Florida. From 2007 to 2009, a little more than 3,000 questionable Florida claims regarding staged auto accidents were referred to the National Insurance Crime Bureau. That's nearly double the number in New York (1,680) and California (1,619). Texas (792) was No. 4 and Illinois (433) was No. 5 in reporting staged auto accidents to the National Insurance Crime Bureau from 2007 to 2009.
“That personal injury protection is a dollar target to unscrupulous medical providers,” the Insurance Information Insitute's McChristian says. “From the attorneys to the doctors, to even the people involved in the accident who may get $500 to $1,000 per accident, everybody’s in on it.”
Although experts estimate tens of thousands of staged accidents happen each year, only a small percentage of the fraud prosecutions result in criminal convictions. This year, fewer than 100 perpetrators of staged auto accidents have been convicted, according to the Coalition Against Insurance Fraud.
Nonetheless, authorities remain vigilant. In Hillsboro County, Fla., the sheriff’s office in April announced that an eight-month sting nabbed more than 50 people involved in staged vehicle crashes. The suspects include “victims,” clinic employees and even massage therapists.
States such as New York are lining up legislation to equip their insurance commissioners in the fight against insurance fraud, and, in particular, staged auto accidents. For instance, proponents would like to extend the time that insurers have to review a claim and either pay it or reject it. Now, that window of time is 30 days in New York. Anderson says that's not enough time to determine what’s real and what's not, Anderson says.
“New York’s no-fault system is broken,” she says. “These are complex cases, and 30 days is not enough time to determine if the claim is a fraud. We need to get a handle on this before it completely gets out of hand.”
Smith, of the Florida Division of Insurance Fraud, knows his work is cut out for him trying to get a handle on staged auto accidents. From 2007 to 2009, three of the top five U.S. cities for questionable insurance claims were in Florida -- with Tampa ranking No. 2; Miami, No. 3; and Orlando, No. 4.
“We have a dedicated squad who looks at personal injury protection fraud -- 40 of our 100 agents,” Smith says. “But unfortunately, it’s still not enough.”