Nationally, according to the Coalition Against Insurance Fraud, insurance fraud costs insurance companies an estimated $80 billion a year -- a tab ultimately passed on to consumers in higher premiums. Nationwide, industry experts say insurance fraud costs the average household $200 to $300 in insurance premiums each year.
It's not yet clear if fraud is actually on the rise or it's just a matter of a new statewide task force investigating more cases that lead to arrests. Either way, the face of the criminal committing insurance fraud is changing, says Sgt. Allen Carpenter, a member of the Louisiana State Police Fraud Unit. Often, today's insurance fraud suspect comes with a rap sheet rife with drug arrests. The LSP's unit has arrested groups in New Orleans, Shreveport and Natchitoches led by drug dealers trying to avoid the stiff sentences that come with drug-related prosecutions. "Because of the ease of [perpetrating insurance fraud] we're also finding ... drug traffickers are moving into the staged accident realm because the likelihood of getting caught is far less," says Carpenter.
Though much of that fraud is hard to nail down, companies are filing more fraud claims with the state Department of Insurance in hopes of jailing offenders. In fiscal year 2003, the number of fraud claims filed with the state grew to 1,025 from 504 just two years earlier. Those numbers represent a small percentage of actual fraud cases being perpetrated, state officials and industry experts say, but it is telling.
Insurance Commissioner Robert Wooley says the reason behind the increase in Louisiana fraud claims is two-fold: companies are cracking down on offenders because the costs are rising so rapidly, and those companies have more faith in the system's ability to root out offenders. "We get more complaints because people feel like they get results when they file complaints," says Wooley.
A joint task force -- including employees of the insurance department, the state attorney general's office and Louisiana State Police -- formed in 2000, a year after legislation funding the effort was passed. Last year, the state spent $2.2 million on the task force. Sgt. Allen Carpenter is one of the charter members of the Louisiana State Police Insurance Fraud Unit, which receives 75 percent of the task force's $2.2. million. When he joined the unit in 2000, he was one of three investigators. Today, that unit has 30 detectives working fraud cases. By December 2003, Carpenter's unit had already made 150 arrests, more than double the 71 made in 2000.
In addition, his unit confirms about $2.8 million paid to fraud suspects, a pittance compared to what he says is likely hundreds of millions statewide. "That's just what I see in the referrals," says Carpenter.
The high-profile cases his office works -- those that grab headlines with multiple arrests and allegations reaching into the hundreds of thousands if not millions of dollars -- include organized crime rings staging accidents. Stephen Street, who heads up the state Attorney General's fraud unit, says organized insurance fraud in Louisiana is a growing problem. Often it is Street's office, manned with just three investigators, that decides whether to prosecute fraud cases referred by state police and other agencies. "It's a very serious problem, especially with regards to staged accidents," says Street, adding that insurance fraud is "a relatively low-risk crime."
Carpenter says the insurance industry is partly to blame for the burgeoning business. "We're seeing an increase in staged accidents and that's primarily due to the way the insurance industry is set up," says Carpenter, referring to what's known as "first-call settlements" in which insurers offer $1,000 to $1,500 per passenger almost immediately after an auto accident claim is filed.
Such settlement offers, according to Carpenter and industry experts, are fueling organized rings whose primary modus operandi is to pack a car with as many passengers it can hold, head out to a major roadway and force a motorist to rear-end their vehicle. Recently, the LSP arrested a 26-year-old Thibodaux man and his mother, among others, who had allegedly finagled some 34 such accidents in about three years. "What we're finding is [insurance companies are] trying to stay away from the large-scale injuries and lawsuits," says Carpenter.
Street says his office has recently worked fraud cases in which two or three vehicles, each with five or six occupants, staged an accident. "What happens is you see the same names coming up again and again," says Street.
Dan Bonin, vice president of operations for Rosenbush Claims Service in the New Orleans area, helped identify such a crime a few years ago. Bonin, a claims veteran of 30 years, recalls coming across a customer who had filed two reports for the same accident with two different insurance companies. Bonin consulted with officials with the National Insurance Crime Bureau (NICB) about the multiple claims, and eventually an arrest was made. The suspect had 30 or more aliases, three separate addresses and had filed more than 90 claims in recent years. "He ended up with $50,000 before we caught up with him," Bonin says.
Dave McCann, a special agent for the NICB's New Orleans office, says the incidence of bogus auto theft claims is also on the rise. Agents such as McCann work together with insurers and law enforcement to identify and prosecute those who perpetrate insurance fraud. "The biggest trend now is people are reporting vehicles stolen when they're actually not stolen. Sometimes they'll go burn it somewhere and get the money back so they can go buy a new one, and some people report their vehicles stolen, then they'll be located after they've been paid off," he says.
McCann helps identify stolen cars -- in particular those that were burned in an effort to hide their vehicle identification numbers or VINS. "We help the [NOPD] identify [many of the] 500 to 700 burn vehicles a year," McCann says. On average, about 50 percent of all vehicles found burned were destroyed to collect on an insurance claim, he says.
In the mid-1990s, McCann, a retired New Orleans police officer, investigated a series of staged accidents in the area. He recalls that members of the Russian mafia would go shopping for real-life crash dummies willing to go along for the ride for a few hundred dollars. "They would go to housing projects and get people to get in the car, pay them so much to get in the car, then pull in front of people and hit their brakes," McCann says.
Street, of the attorney general's office, says he's seen it all during his time investigating fraud. In one case, a suspect took a ball peen hammer to his car, then filed a claim, alleging his car was damaged in a hailstorm. "The only problem is that hail is not always one size and in that case there was a two-foot area across the top of the car that wasn't touched. He didn't have the sense to climb on the car or get a ladder to reach the top of the car," says Street.
In another case, Street recalls a Rapides Parish man who would hop on a public bus after it had been involved in an accident, then claim he was injured. His jig was up when a video camera proved he was not on board when one wreck occurred, Street says. Another perpetrator filed nine slip-and-fall claims in 14 days.
Greg Tramontin, president and CEO of Baton Rouge-based U.S. Agencies Casualty Insurance Company, says such blatant fraud cases are driving up the state's insurance rates. "That's what's killing Louisiana," says Tramontin, who estimates that 60 percent to 70 percent of all soft tissue injury claims that U.S. Agencies faces each year are fraudulent. "We have a ridiculous amount of claims being made because we're such an easy mark. There are cases where there's a 5-mile-per-hour [crash] and everyone in the car is injured for life," he says.
But, McCann acknowledges, most of the money that insurance companies lose to fraud stems not from exotic crime rings, but from ordinary citizens looking to score a few more bucks on a legitimate claim. Padding insurance claims is a pastime for many Louisianans and a costly one for insurers, agrees Carpenter of the LSP: "My concern is, don't get caught up looking at your [big] cases; it's these small things that you have to worry about, the everyday people who feel it's OK to do it because they've been paying insurance premiums for years."
Bonin of Rosenbush Claims Service says his company's primary focus these days is conducting investigations into fraudulent claims, leaving lawyers to negotiate settlement amounts. "My business has changed totally in the last couple of years," says Bonin, whose company handled more than 1,000 claims last year. "There's a lot of opportunity fraud out there, where somebody gets in an accident and the attorney encourages them to go the doctor," he says.
Insurance Commissioner Wooley says people need to step back and take a look at their behavior. "We've somehow lost that sense of personal responsibility," Wooley says. "People feel like, 'Well, everybody else is doing it, so I'm going to do it to so I'm not missing out on my piece of the pie.'"
While police and prosecutors wrestle with preventing and prosecuting fraud, industry experts question why so many otherwise honest citizens perpetrate insurance fraud. A recent study by the Insurance Research Council shows that about one in three Americans think it's acceptable to pad their claims. "The public's attitude is very disturbingly tolerant toward insurance fraud," says Jim Quiggle, spokesman for the Coalition Against Insurance Fraud.
Claims adjuster Bonin says consumers exaggerate their claims more readily nowadays because they see the insurance companies as multi-million dollar industries not affected by the loss of a thousand-dollars here or there. "They think it does not hurt them," he says.
While new technology arms claims adjusters with the tools to track criminals, other developments -- such as the Internet -- may be fueling a citizenry that doesn't much care about insurance companies. No longer is one's insurance agent a neighbor who personally handles their accounts. Increasingly, a person making a claim is only interviewed over the phone and not in person, another change in the business that encourages fraud, industry experts say.
"In my opinion, the way insurance companies have contributed in the past is making it too easy to steal," says Street, referring to the first-call settlement offers and the protection that comes with never having to face your adjuster in person.
"It's reflected in my end of the business, where a lot of the time you're dealing with an insurance adjuster in Dallas, Atlanta or Nashville," Bonin says. "Years ago companies would handle the entire [claim]; we would have face-to-face meetings with the people involved in accidents. Nowadays everything is handled over the phone and you can't eyeball a person over the phone."
Wooley says that tackling the problem comes down to insurance companies spending their own money to fight fraud and trusting the state to investigate suspects. "When companies decide that it's hurting their bottom line, they start to put resources into it," says Wooley.
Insurance company owner Tramontin says the state should take another look at laws that put few insurance claims before juries. He says some judges tend to be more liberal in their rewards than juries. Thirty-six states have zero-dollar thresholds for insurance claims that go before a jury. Here in Louisiana, a claim must exceed $50,000 to be heard by a jury as opposed to a judge. "How about a zero-dollar threshold? Take the system out of the judge's hands," Tramontin says.
Quiggle says educating consumers on how fraud affects them has worked in other states. "Fraud is still clearly a very widespread, very profitable crime. Eliminating it starts with education," he says.