Organized fraud rings cost insurers and drivers big money

Auto insurance fraud has been on the upswing all over the country throughout the recession. However, one increasingly common scam that results in higher premiums for everyone has involved organized groups of criminals who stage phony accidents for profit.

Earlier this year, the Eagle Tribune newspaper of Massachusetts noted that a pair of area residents had been sentenced in a scam involving fraudulent claims from a 2007 accident. Earlier this decade, the city of Lawrence, Massachusetts made national news for an unusually high rate of phony insurance claims that were being filed by criminals involved in staged accidents.

A report by the Insurance Fraud Bureau of Massachusetts found that 43 people claimed injuries per 100 accidents on average in Massachusetts. In Lawrence, that average was instead 141 people per 100 accidents before authorities began cracking down on the problem. The crackdown began soon after an elderly woman involved in one such scheme ended up being killed in a staged accident.

Despite a task force set up to combat the problem in Lawrence, other states have been experiencing their own upswing in similar crimes.

For example, North Carolina insurance commissioner Wayne Goodwin announced recently that six people have already been sentenced in his state for their role in a fraud ring, with two additional defendants awaiting their own sentences.

That particular fraud ring operated for four years and cost auto and health insurance companies an estimated $100,000 in phony claims. Goodwin said that one of the state's insurance companies had detected the fraud and alerted state authorities.

The ringleader in the North Carolina case will serve up to 36 months in prison while other defendants are also expected to do jail time while also being ordered to pay restitution. This particular scam involved cars that were purchased for low prices at out of state scrap yards which were then crashed in the staged accidents.

According to Goodwin's office, about 10 percent of every dollar spent on insurance premiums is lost to fraudulent claims, illustrating the extent of the problem for both consumers and businesses. The office also reports that in 2008, North Carolina officials made 130 arrests for insurance fraud cases that amounted to about $5.8 million in recovered funds and 60 criminal convictions.

Another state to crack down on staged accident scams is New Jersey, where attorney general Anne Milgram recently announced the sentencing of three brothers who had been running such a scheme.

As is often the case, the New Jersey scheme involved the recruitment of "runners" who get into the staged accidents and proceed to file bogus health and auto damage claims. In New Jersey, the law specifically prohibits recruiting runners to engage in a criminal enterprise.

The state attorney general's office also noted that its law against using runners had even ensnared an attorney last year, who was sentenced to three years in prison for his role in a related scheme that involved at least 47 other defendants. The law focuses on healthcare professionals and attorneys who may be inclined to recruit runners to engage in insurance fraud. "The illegal use of runners to procure patients and clients drives up the cost of insurance in this state. As in this case, runners often urge people who are not injured to be treated for injuries and submit false accident claims," said prosecutor Riz Dagli.

As the recession continues, many people in difficult financial straits have been tempted to engage in auto insurance fraud, along with similar crimes. However, engaging in such activities is often a good way to end up in far more difficult circumstances, both financially and legally.

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Posted: August 11, 2009

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