Insurance Fraud is No Game

“Earn some quick cash by jumping in front of a car.” That’s the promotional blurb for a new video game, Saints Row 2–Insurance Fraud.

Designed for several game systems, Saints Row 2 shows the dollar value of a collision each time a male avatar throws himself at or under a moving car. Game players can watch the man’s body bounce off the car, fly through the air and spurt blood on the pavement; each and every time, the avatar jumps up with his machinegun and runs into traffic for more. A demonstration for those who “certify” that they are at least 18 years old is available free online at http://gamevideos.1up.com/video/id/21649.

Insurers attending an Insurance Bureau of Canada (IBC) fraud seminar in Toronto on Oct. 2 learned about the disturbing new video game. Those in attendance knew well that insurance fraud is no game: two IBC auto theft investigators, Dan Beacock and Greg Martin, noted auto theft costs Canadian insurers Cdn$600 million per year.

Cars are stolen for four main reasons, the investigators noted. They are:

• used for transportation to commit a crime;

• used for parts at a chop shop;

• given a new identity with a false identification number; or

• exported. In an update, IBC investigators provided information about the following illegal activities:

• “Owner give-up”: Describes a situation in which an owner turns his car over to thieves, submits a false police report and then makes a theft claim to the insurer.

• Leased and exported vehicles: When leased vehicles are illegally exported, lease payments are usually continued after the car is exported; the car is then reported stolen months later.

• “VIN switch”: Describes when a VIN plate is moved from a wrecked vehicle to a similar one that has been stolen.

• “Cloning” or “Twinning”: This occurs when the fraudster copies down the VIN number from a vehicle being operated in the United States, and then installs a similarly-numbered VIN plate and other identifiers on a stolen car of the same model and colour in Canada. The stolen vehicle is then registered in Canada using forged or fraudulent ownership documents. (Since 1968, the VIN has been visible through the windshield of passenger cars and light trucks.) This fraud is possible because there is no interface between the depart- ment of motor vehicles (DMVs) in the United States and Canada. Beacock said some car dealers in the United States put their entire inventory on the Web, including VIN numbers. On eBay, there is a space for the VIN number to help establish the identity/type of vehicle, but the information also provides valuable information to fraudsters.

To help prevent vehicle theft and insurance fraud, IBC investigators recommend that underwriters look for certain telling indicators. For example, is the vehicle:

• several years old, but there is no record of previous owners?

• previously registered as “salvage,” “irreparable” or “wrecked”?

• from another province or the United States, and listed as “salvage” or something similar?

• registered as “rebuilt”? With a rebuilt vehicle, the VIN begins with the letters ‘RBT’ and is 17 characters long in total. On occasion, Beacock said in an interview after the seminar, the rebuilt VIN may contain the correct characters/digits for the make/model of the car, but not always.

According to IBC investigators, the vast majority of stolen cars are leaving Canada in storage containers. Sometimes, as many as six cars are squeezed into a single container headed towards an intended foreign destination. Some cars are bolted and chained to the ceiling; some are slotted in every which way. Even if there is minor damage to some cars as a result of improper transport, there is still a market for such cars, and the profits are huge.

How profitable? According to investigator Greg Martin, a Ford Explorer sells for US$40,000 in Panama. The cost to steal it in Canada, re-VIN it and ship it to Panama is US$10,000. If the Explorer is traded in Panama for 16 kilos of cocaine, valued at around US$2,500 per kilo in Panama, the car has suddenly helped fraudsters reap a street value of well over Cdn$400,000.

In 2006, 159,000 vehicles were stolen in Canada. The rate of recovery has been on the decline for the last few years, falling to an average of 70% across the country. Between July 2005 and September 2008, the IBC investigation team, operating as “Ontario Auto Theft and Vehicle Services,” has been involved in the recovery of 2,131 vehicles valued at more than Cdn$28 million. Between January and September 2008 alone, the team has been involved in the recovery of 849 vehicles. The team also assists police in the laying of Criminal Code charges, leading to numerous convictions and some restitution orders.

In an interview after the seminar, Beacock provided examples of convictions with restitution orders:

• In October 2005, after a chop shop investigation, the accused pleaded guilty to possession of stolen property and was sentenced to 90 days in jail to be served on weekends. The accused was ordered to pay Cdn$700 per month towards a total order of Cdn$31,820 in restitution.

• In January 2007, an individual charged in relation to stolen vehicles was convicted on charges of theft over Cdn$5,000 and possession over Cdn$5,000. He received 12 months’ probation and was ordered to pay Cdn$2,000 in restitution to the three insurance companies involved.

Investigators shared a few means they have used in the past to help detect and combat fraud.

If, for example, stolen vehicles are not recovered after five years, police purge those records; however, IBC does not purge its records and makes them available to police.

Insurance investigators say they have also had success using aerial satellite photos from the Internet. For example, a residential backyard in Hamilton that was being used to store car parts was visible using online satellite photos.

PERSONAL INJURY

IBC investigators Kathy Metzger and George Gladish and team leader Kirk Quinn updated seminar participants on developments in personal injury investigations.

The personal injury unit investigates the following types of issues: billing for services not provided; excessive treatment; assistive device fraud (devices that are billed to insurers but not provided to insureds); double invoicing; double assessments; and identity theft (regulated health professional’s registration number being used by the clinic without his or her knowledge).

The unit has also identified some possible indicators of another form of fraud — staged accidents. Indicators of staged collisions include low-speed collisions; collisions resulting in little or no damage; older vehicles; three or more occupants per car; vehicle with prior damage;VIN doesn’t match pink slip; previously salvaged vehicles; conflicting descriptions of an accident; one driver says he was deliberately hit; severe soft tissue injury claimed but vehicle damage minor; questionable pink slips; a binder/policy is too new to be on the system; and the collision occurred in a rental or a borrowed vehicle.

IBC investigators then gave an example of the potential profits and payouts to the “players” involved in such a staged accident (assuming four claimants in this scenario):

• The “occupants” of a car in the staged collision pay the organizer between Cdn$500 and Cdn$1,000 per person (x4) for a seat in the car. As claimants, they receive weekly income replacement benefits of Cdn$41,600 (Cdn$400 x 104 weeks) x 4 = Cdn$166,400

• The tow truck operator gets a kickback of between Cdn$500 and Cdn$1,000 per client delivered.

• The paralegal sometimes collects a retainer of between Cdn$1,000 and Cdn$1,500 per client, takes 20-30% of each client’s claim and sometimes gets a kickback from t he clinic.

• Rehabilitation clinics collect about Cdn$10,000 (x 4) for treatment, notwithstanding the following assessments:

• In home: $1,200 x 4 = $4,800 • Work site $1,200 x 4 = $4,800

• FAE $1,200 x 4 = $4,800

• Dental $1,500 x 4 = $6,000

• Psychological $2,250×4=$9,000

• Driver evaluation $1,300 x 4 = $5,200

Add all of these assessment costs together and the total exposure to the insurer is Cdn$74,000.

WHAT CAN YOU DO?

What can insurers do to detect and prevent this type of fraud? IBC investigators offered some tips. They include:

• re-inspecting the vehicle after repairs are done;

• checking the underwriting file to see if the vehicle is classified as rebuilt;

• checking for salvage records;

• considering an accident reconstruction;

• considering the use of surveillance, especially if there are concerns about where the party actually lives or works;

• obtaining detailed statements;

• comparing client signatures on various documents;

• contacting the doctor or other health practitioners directly; and

• requesting backs and fronts of cancelled cheques, T4 slips, records of employment and, perhaps, bank statements showing deposit dates for the cheques (in order to prevent employment fraud).

As an example of what can be done through co-operative investigation, the Financial Services Commission of Ontario (FSCO), the IBC and IBC member companies were able to obtain a conviction on Oct. 23 of the principal of Ideal Therapy Inc., Osman Abukar. Quinn said Abukar was one of several defendants in a case in which the defendants were convicted for a total of 64 of 67 provincial offences charges laid by FSCO investigators under section 447 of the Insurance Act. The offences consisted of using the registration number of a psychologist without his knowledge and consent and billing for services not performed by him. A fine of Cdn$72,000 was levied against each of the accused. In addition, Osman Abukar was put on two years’ probation, restricting his activity related to Ontario auto insurers.

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The vast majority of stolen cars are leaving Canada in storage containers. Sometimes as many as six cars are squeezed into a single container headed towards an intended foreign destination.