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Canada Becomes Haven for Staged Accident Fraudsters

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Until recently, the ring leaders in major car insurance fraud schemes worked mainly out of the United States. Readers may recall a landmark case uncovered in 2002 involving thousands of "accidents" -- all expensive to process, and all meticulously arranged. Here's how the scam was described in today’s Globe and Mail:

In 2002, the largest staged accident ring in the U.S. was uncovered in New York by Peter Smith, then an assistant district attorney on Long Island. Starting with a confession from a man arrested in a staged crash that seemed like an isolated case, Mr. Smith unravelled a web of insurance fraud that spanned more than 1,000 accidents. It was like nothing the insurance industry had ever seen before.

Using a task force of local and federal police, Mr. Smith’s team was able to establish something more significant: The ring used a network of medical clinics to submit hundreds of claims a week to insurance companies, billing them for costly treatments that were never administered, from x-rays to acupuncture.

The investigation led to the indictment of more than 400 people and 112 New York area medical corporations. The losses totalled more than $200-million, including $50-million for insurance giant State Farm. “For the first time, we were able to show how organized it was,” Mr. Smith said.

The case changed the auto insurance industry across the U.S., prompting several states to set up task force teams, which in turn prompted the fraudsters to look north, to Canada. In provinces like Ontario, faking fender-benders has turned into a cottage industry, with criminals finding easy marks in presumably otherwise honest people who agree to become accident-scene actors – no actual acting ability required. The Globe provides the scenario:

It was easy money for Harris Ahmed. All he had to do was find people willing to take part in a fake car accident.

The man who approached him in Toronto about “doing accidents” told Mr. Ahmed he would get $1,000 cash for every passenger and driver he could recruit for the insurance scam. Each person would claim they were hurt in the crash.
Mr. Ahmed went right to work. A few weeks later, a car driven by one of his recruits collided with a Jaguar while driving through a north-Toronto suburb. The three people in the luxury car were also in on the plan, using vehicles purchased from a salvage yard.

Read how the rest of the drama played out, here.

What might be most alarming to Canadian drivers is news that the cost of this fraud is built into the current auto insurance model. Because many insurance companies don't have the ability to prosecute criminals, they simply settle in court, paying 40 or 50 cents on the dollar rather than spending more to challenge the claims. Consumers end up paying higher fees, supplying a kind of salary for those faking car damage, whiplash and other injuries.
Back in America, meanwhile, more people are saving money by driving without any insurance at all -- or not enough. According to research cited in the New York Times last week, the percentage of uninsured drivers rose to 18.1 percent in 2009, from 17.4 percent a year earlier.

Blame the hard economic times, says Michael McShane, a risk management professor at Old Dominion University. He told the Times that a percentage point increase in the unemployment rate leads to a rise of 0.75 percentage point in the number of uninsured drivers.

Many people have responded-- wisely, one might add -- by taking out uninsured or under-insured motorist policies. These will pay the doctor’s bills should someone be injured by a driver who’s on the road without coverage.

Then again, there's always mass transit.
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