A Field Guide to Insurance Frauds and Fraudsters of North America

“Forewarned is forearmed” may be a clichéd aphorism, but it’s a useful one for claims adjusters to keep in mind. The most pressing forewarning is that, insurance fraud, already a huge drain, is likely to increase in Canada as it has in the United States, due to the present economic climate.

The Insurance Bureau of Canada estimates the annual cost of insurance fraud at $500 million, for home, car and business claims containing elements of fraud. In the United States, the Coalition Against Insurance Fraud notes nearly $80 billion is lost to fraud annually in all lines: health, property, casualty, life and disability. Spokesperson, James Quiggle, says, “Several kinds of fraud have spiked considerably during the worst years of the recession. People’s finances have become pinched and, desperate for a way out, they resort to insurance fraud as an economic bailout.”

Slip, trip, fall, collect

Perhaps the personal injury claim that adjusters see most often is the infamous “slip & fall.” A close second is its cousin, the “trip & fall,” which typically involves elevator doors failing to line up with the floor they opened on, causing claimants to either “fall in” or “fall out.” These accidents do happen and can be caused by negligent retailers, office building and condo management firms and grocery and convenience stores, among others. We don’t dispute that.

But slip & fall and trip & fall incidents are a favourite among fraudsters, because they’re so easy to stage. If an incident that no one witnessed allegedly occurred in a ladies’ or men’s room because of water on the floor, it’s very hard to disprove. The only recourse is knowledge of the red flags signaling the claim is most likely not legitimate. These include: a long delay in reporting the incident; greatly exaggerated injuries; treatment provided by facilities and/or medical practitioners with a history of suspect claims; a claimant with a history of similar, if not identical, claims; and a claimant who avoids meeting for an in-person interview.

To protect themselves from fraudsters — and organized insurance fraud rings — businesses large and not-so-large have installed surveillance cameras in incident-prone places. But since cameras can’t be installed in ladies’ and men’s rooms, many at-risk companies have employees regularly check for water or towels on the floor, and keep meticulous logs of what they found and how they removed it. Adjusters may find that informing claimants about the existence of surveillance video and maintenance (sweep) logs encourages them to drop a suspect claim, or settle for a lesser amount.

What’s in my peanut butter?

The next most common claim attractive to entrepreneurial fraudsters is the product liability claim. Contaminated and defective products do exist. And because they do, claims for products that result in a “gross out” moment, food poisoning, or physical injury are also relatively easy to stage. But fraudsters are getting bolder, too. Some immediately demand $50,000 or $500,000, in exchange for “not going to the media” with their complaint about an alleged foreign object in the peanut butter, or the product that exploded when they plugged it in. They know no store wants negative publicity any more than a food manufacturer does.

For the adjuster, these claims can put him or her in a very difficult position. Careful investigation — getting to know the claimant thoroughly, and knowing exactly what the client wants to achieve — can save the day.

‘Bye ‘bye, car payments

The National Insurance Crime Bureau in the United States saw a rise in suspected vehicle “give-ups” between 2004 and 2007. Owners who lost their job and can’t afford car payments on a big SUV that no one else wants to buy, may decide to destroy it in order to escape financial responsibility.

One popular method is to park an unwanted car in the path of a hurricane — out on a pier, in a parking lot near the ocean, or even in the middle of a beach (even though these bizarre parking spots are all too obvious to investigators). Another method is arson, and there have been incidents in which investigators knocked on the door of an insured while his car was still smoldering, before he had time to concoct a plausible story.

Some common red flags that occur when a vehicle was deliberately destroyed include: no ignition or steering lock damage; the insured doesn’t have the keys; no evidence in the car of a break-in; the vehicle was recovered before the insured reported it stolen; and the insured is having significant financial problems.

Mortgage payments no more

A similar quick-disposal scheme can be seen with home owners who realize they owe more on their house than it’s currently worth, but no one is buying, or they lost their job some time ago and haven’t found another. It’s the kind of situation that leads some to take desperate measures that involve insurance fraud. Yet it rarely works out in the fraudster’s favor.

Ron Arnold, a Canadian private investigator, says that arson is fairly easy to prove when working with a fire marshal, and there are always telltale signs, such as: suspiciously clean wall areas where family photos were removed; pets that were taken to a safe place prior to the fire; and owners who make small mistakes when telling their story to the adjuster, the fire department and the private investigator. Apart from that, when the investigator has the insured’s phone records, financial records and employment information in-hand, that often frightens the would-be fraudster into hiring a criminal lawyer — a common telltale sign.

Swoop & squat staged collisions

The most dangerous form of insurance fraud — a type typically practiced by fraud rings — is a staged rear-end collision, known as a “swoop & squat.” The fraudster, often driving a rental vehicle and accompanied by several passengers, changes lanes suddenly, pulls ahead of the car in front and jams on the brakes, causing the car now behind him to crash.

All of the three or more fraudsters in the rear-ended car then file bodily injury claims, using fake medical reports from providers who are part of their scheme, as well. But, if a witness at the scene of the accident casts doubt on the fraudsters’ story, that they didn’t stop and it was all the fault of the car behind them -resulting in their claims being denied -they will simply file suit through an attorney who is another member of their fraud ring.

In cases like these, the people involved are usually well-known to law enforcement officials. In the United States, they often appear in the files of the National Insurance Crime Bureau, as well as the state department of insurance fraud bureau, for the state in which the fraud occurred.

Just knowing what to look for, in common cases of insurance fraud like these, is often, as they say, “half the battle.”

Alfred J. Marrazzo is the SIU manager of ESIS Inc.’s anti-fraud program. Steve Young is assistant vice president responsible for ESIS Canada’s operations.