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An auto insurance fraud primer and more

Using social network analysis to catch fraudsters

Auto insurance fraud is a global fraud phenomenon with billions in losses. This primer will cover the basics plus an innovative way to combat it: social network analysis (SNA). SNA tracks claims patterns among individuals, vehicles, and locations involved in accidents, as well as supports entities such as repair shops, law firms and medical clinics. The result? Evidence discovery.

Here's one way to make money. Members of a California auto insurance ring would drive into each other's cars and then submit false claims. The fraudsters received settlements ranging from $5,000 to $52,000 by claiming that they'd lost control of their vehicles because they spilled hot coffee on themselves. They used the same vehicles, addresses and phone numbers, and sometimes the same names. Most made their claims shortly after buying new auto insurance policies. Pretty good scam, for a while — until the Santa Clara County caught up with them in July of 2015 and arrested 33 ring members. (See 33 Arrested in Major South Bay Insurance Fraud Ring, by Alan Wang, KGO-TV, ABC, July 16, 2015.)

Automobile insurance fraud can be divided into three major categories. In opportunistic fraud an individual claimant uses an actual accident as an opportunity to generate illegitimate profits by deliberately overstating the extent of damage related to an accident. A fraudster commits a premeditated scheme by repeatedly charging insurance carriers inflated sums for the costs of goods and services required for car repairs and/or medical expenses. However, the third type of automobile insurance fraud, the organized crime scheme, causes car insurance carriers in the U.S. and Canada the largest claim fraud losses (involving, for example, prearranged car crashes and allegedly spilled coffee). (See Ontario Auto Insurance Anti-Fraud Task Force - Interim Report, December 2011.)

Financial losses attributable to fraudulent auto insurance claims fraud extend beyond the borders of the U.S. According to insurancehotline.com, up to 15 percent of the typical Canadian auto insurance premium of CAD$1,500 — or $225 — in 2014 might have been attributed to fraudulent auto insurance claims. According to Statistics Canada, the nation had more than 21 million registered vehicles (less than 4,500 kilograms — about 9,900 pounds) in 2013. As such, fraudulent automobile insurance claims may be costing Canadian drivers as much as CAD$4.7 billion dollars annually. (See Auto Insurance Fraud: Was That Auto Accident Really An Accident? Aug. 11, 2014, and Statistics Canada.)

In February of 2012, the Toronto Star published a story about Project Whiplash, a joint investigation conducted by the Toronto Police and the Insurance Bureau of Canada, which led to the exposure of a sophisticated auto insurance ring in Toronto's GTA Tamil community. (See Car insurance scam: 37 arrested in Project Whiplash raids, by Wendy Gillis and Josh Tapper, Feb. 23, 2012, thestar.com.)

Project Whiplash resulted in dozens of arrests and a total of 130 charges that revolved around 77 staged collisions. According to Toronto Police, 10 individuals from Markham and Toronto were considered the ringleaders of this large operation. State Farm Canada was one of the first companies to suspect the Canadian fraud scheme, which caused the company about CAD$4 million in fraudulent claims payments.

A successful insurance fraudulent claims ring has a facilitator who directs a network of players including white-collar professionals with high credibility who know the intricacies of the insurance industry, law and finance. The Toronto ring included paralegals, and medical and physiotherapy practitioners from several clinics.


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