The “F” Word

Much has been said and written about Ontario’s auto insurance reforms that came into effect on Sept. 1, 2010. Changes to the system were implemented to help control continually escalating claims costs and stabilize premiums.

We all know Ontario’s auto insurance system offers unusually generous accident benefits. Unfortunately, this reality attracts unscrupulous individuals determined to defraud the system. Insurance fraud includes all manner of activities including exaggerating a claim, but the problem with Ontario’s auto insurance system extends far beyond claiming a few extra massages. In fact, the problem leads right into the arms of organized crime.

Insurers have always been aware of how fraud contributes to undermining insurance systems. Only recently, however, has fraud become a central theme of the Ontario reforms, voiced by politicians and journalists alike.

Despite the pervasiveness of the problem, insurers usually don’t like to talk publicly about fraud because it is difficult to determine its exact toll. Some reports have suggested that at least one third of all accident benefits claims contain some element of fraud. The issue of insurance fraud is also sensitive to legitimate claimants who don’t want to be tarnished by the actions of defrauders.

That having been said, insurance fraud does exist and it costs insurers, and therefore policyholders, millions of dollars every year. The exact cost of insurance fraud across the country and across lines remains unknown, but Insurance Bureau of Canada (IBC) intends to find out in a study to be launched in 2011.

There is little doubt that all insurance fraud — and prevailing attitudes towards it — must be addressed if the problem is to be corrected. Insurance fraud is costly, cheats honest policyholders and erodes confidence in the industry. However, some types of insurance fraud are not just costly, but also dangerous. Such is the case with organized staged collision rings.

STAGED COLLISIONS

Staged collisions are well-orchestrated events that willfully endanger public safety. Participants deliberately create auto collisions in order to file false auto insurance claims and collect generous accident benefits. Often, innocent motorists are tricked into participating.

Given the richness of Ontario’s auto insurance system, it’s no wonder that organized staged collision rings are flourishing in the province, particularly around the Greater Toronto Area. Add to this the fact that staging collisions is a low-risk (for the criminals), high-profit crime and it’s not hard to see why it has become a multi-million dollar industry.

In order to stage a collision, an organizer is required. Like the director of a play, the organizer hires the players, assigns various roles and supervises the action.

First, the organizer must find participants willing to stage a collision, file false reports and submit false insurance claims. In addition to the driver — or drivers, in situations in which multiple vehicles are used — cars are often stuffed with passengers who are also willing to file false serious bodily injury claims. Some of these “passengers” may not even be in a vehicle at the time of a collision. Nevertheless, they will claim that they were, by reading from a carefully prepared script. A conveniently placed eyewitness may also be recruited.

Along with these key players, the scheme also relies upon the participation of crooked supply chain providers. These may include tow truck operators instantly appearing to tow vehicles to certain auto body shops; auto body shop owners or employees willing to submit phony invoices. They may also include health care practitioners or clinic owners also willing to submit invoices for exaggerated medical services or for services never rendered. In the latter instance, some legitimate health care providers have found their identities stolen and used by clinic owners who submit false billings under their name. Sometimes it’s hard for investigators to determine who is in on the action and who has been duped.

The staged collision players all receive money for their participation. However, the real money is made when the “victims” file claims for their injuries. Even though a staged collision may have occurred at low speed, those involved routinely claim for severe soft tissue injuries that are difficult to disprove and can generate a flood of examinations and assessments.

A quick look at the state of Ontario auto over the latter part of this past decade clearly reveals the damaging effect of such crimes on the system. Although accident benefit costs steadily increased in all areas from 2004 to 2009, costs for assessments and treatment plans nearly quadrupled. In fact, the problem of over-assessment was a key contributor to the near-crippling of the system.

Trimming Ontario’s overly-generous auto insurance accident benefits is a good first step, but will only go so far in curbing abuse of the system by organized criminals. Many of these individuals are as clever as they are greedy and have already found ways to milk the reformed system. The only thing that will truly stop them is tougher penalties and a greater risk of getting caught.

RESPONSES TO FRAUD

Penalties for those found guilty of insurance crime are traditionally weak. This fact is as frustrating to individual insurers as it is to IBC’s investigative services staff who have been battling the bad guys for decades.

Insurance crime involving staged collisions and accident benefits (or personal injury) fraud is more than an insurance issue: it’s a serious policing and public safety issue. Fortunately, IBC’s investigative services department has a history of cooperative partnerships with law enforcement and community safety organizations across the country.

Earlier this year, one of those collaborations, dubbed Project 92, resulted in unprecedented criminal charges against participants involved in an organized staged collision ring in Ontario. For the first time in relation to any insurance crime investigation, six individuals were charged with committing and/or directing offences for a criminal organization. This represents an important step forward in publicly recognizing the sophisticated level of criminal involvement in certain areas of insurance crime.

Project 92 uncovered 50 staged collisions with insurance exposure totaling more than $10 million. To date, with the support of two dedicated prosecutors, nearly 300 criminal charges have been laid and 22 individuals convicted. The action of assigning dedicated prosecutors is also significant: it reduces unreasonable delay in the prosecution of a case and shows the Crown acknowledges the seriousness of the offences.

To repeat the success of Project 92, IBC is working towards the establishment of a permanent Ontario Joint Task Force made up of police, IBC investigators and dedicated prosecutors to address organized staged collision rings and accident benefits fraud.

Organized insurance crime is costly and endangers public safety. Insurance fraud of any kind weakens the system, but the actions of organized criminals deliver the worst blow. Insurers, government and law enforcement must work together and strike back to ensure that accident benefits are there for honest policyholders when they need them.

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Project 92 uncovered 50 staged collisions with insurance exposure totaling more than $10 million. To date, nearly 300 criminal charges have been laid.