Crash for Cash Scams. Admiral on Demand Whitepaper

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1 Crash for Cash Scams Admiral on Demand Whitepaper Document protection 2014 Optilab d.o.o. Author: Vanja Žižmond All rights reserved. Reproduction by parts or in whole in any way and in any media is prohibited without written consent of the author. Violations are sanctioned according to international laws against copyright violations and trademark infringement. Document author & owner: Optilab d.o.o.

2 Crash for Cash Scams Warning Fraud is defined as deliberate deception with the intention of unlawful gain, but many fraudsters sincerely believe they are doing nothing wrong by causing traffic accidents. When an accident occurs and we see the warning sign accident ahead, we are usually worried about people s lives, never thinking about the financial abuse that could lay behind such an event. While we should be careful not to allow fraudsters to make us cynical when we come across an accident site, it is important to realize that they are indeed the ones that regularly endanger the innocent public and drive up insurance costs. Dealing with insurance fraud is an increasingly challenging task, as several factors affect the increase in fraudulent motor insurance claims. The Insurance Fraud Bureau (IFB) is constantly drawing attention to the fact that scams are becoming more and more innovative, even extreme in some cases, therefore an equal measure of creativity is required from insurers! In order to manage this phenomenon, insurers must be aware of the wide variety of scams fraudsters are resorting to in their criminal activity. Crash for Cash scams are a commonly used method where car accidents are staged or deliberately caused for the purpose of financial gain. Typically, a vehicle is hit from behind or damaged before the accident. In many cases, people go to the doctor pretending to be injured after the staged or deliberately caused accident. According to IFB data, as many as one in seven personal injury claims can be linked to a suspicious organized Crash for Cash scam. Professionals can be complicit to the scam by issuing false reports. Even greater risk is carried by those at the bottom of the chain, who risk their lives and the lives of bystanders by creating real accidents. Therefore, a typical Crash for Cash network involves multiple participants (from motor engineers, care hire organizations, lawyers, motor repairs, doctors, to claimants) forming a highly-organized crime group - a complex social network of interconnected entities that is not always visible at a glance. In the IFB report, presented at the th Annual Insurance Claim Management Conference in Berlin, E. Lunn emphasized the risk versus reward paradigm in Crash for Cash schemes. Her attention was especially drawn towards relatively low risks in terms of getting caught (in a Crash for Cash scam) and the severity of penalties handed out for those who were. The maximal perceived punishment is simply a rejection of the fraudulent claim. In addition, these events are not particularly newsworthy (they get no attention from the media), are difficult to detect in an early stage, and can result in a high pay-out. The fact that it is a criminal offence to allow a car to be used for insurance fraud is of minimal importance in most decisions to commit such fraud. Page 2

3 The methods most commonly adopted by fraudsters in their Crash for Cash scams are the following: INDUCED TRAFFIC ACCIDENTS OR SLAM-ON CONTRIVED OR GHOST TRAFFIC ACCIDENTS STAGED TRAFFIC ACCIDENTS 1 Induced Traffic Accidents or Slam-on Induced accidents or slam-on are most commonly adopted methods in Crash for Cash scams. Causing an accident for which the other driver can be blamed is a common characteristic of such accidents, but there are other indicators, usually not visible at first sight, that fraud fighters at insurance companies must be aware of. The key to efficient fraud prevention is a profound understanding of typical induced accident scenarios. These occur when a randomly selected vehicle is forced to crash into another vehicle (these are usually properly insured low value vehicles in the hands of fraudsters), in order for them to submit fraudulent injury claims and claims for caused damage, vehicle recovery, storage, vehicle damage reports, car hire costs etc. Popular targets include commercial vehicles and innocent motorists. Relying on acceptance of liability by the innocent driver s insurer, fraudsters adopt various innovative methods for inducing crashes: Fraudsters typically disable their brake lights and stop sharply in front of the target. A second vehicle that overtakes at speed and cuts them off is also common to provide a cover story for the sudden breaking. Accomplices in the third vehicle often distract the target by performing unexpected actions such as flashing headlights or horn signals, giving the target vehicle little chance to stop in time. Stopping at busy roundabouts (or road junctions) is also a common practice by fraudsters. After a potential victim pulls into the roundabout behind the fraudster and focuses their attention on incoming traffic, the fraudsters stop in the roundabout. The driver who is focusing on merging into the moving intersection inevitably collides into the stationary vehicle in front of them. When driving, beware of vehicles which navigate the same roundabout several times. More audacious fraudsters reverse crash into the target vehicles behind them in queues, and then deny it. Witnesses appearing from nowhere corroborating the target s liability for the accident are also a common practice. This practice is Page 3

4 increasingly used in Eastern Europe, which has led to a sharp increase in dashboard camera sales. In such cases, video is often the only evidence which can exonerate the fraud victim. Failure to stop after the collision and returning to the scene of the accident on foot is also a common scam scenario for induced accidents. Estimations of actual levels of damage to the fraudsters vehicle are thus impossible, as well as the establishment of the identity and number of present passengers. Pre-filled accident reports with personal and insurer details are also a suspicious practice. We can see that the fraud types in which the target vehicle is forced into rear-ending of the fraudsters car, the surprise element is essential. Such pre-planned operations focus on the driver s acceptance and admission of liability at the scene of the accident, which means that such accidents are rarely reported to the police. Fewer records and weaker evidence of the accident (photographs of the scene, extent of damage, record details of the location, passengers details etc.) are also a welcome advantage, preventing detailed investigations of the events at a later time. 2 Contrived or Ghost Traffic Accidents Contrived or ghost traffic accidents consist of the fabrication of evidence for on accident that simply did not happen. For this reason, public witnesses are not welcome and locations distant from the public eye are carefully selected. Nevertheless, we should not underestimate the seriousness of such practices, even if, compared to staged or induced accidents, public safety is not equally threatened. The submission of fraudulent claims for sustained injuries, vehicle recovery, storage and damage caused, and even bogus passenger claims, remain the main goals of these practices. Still, when these payments slip through, they do come at a cost. Such fraudulent claims are indirectly affecting the whole population of honest drivers, devastatingly affecting their annual insurance premiums. All policyholders ultimately pay the increased premiums covering the costs of fraud. Insurance investigators who are analyzing potentially fraudulent claims should be aware of the common characteristics of scams, which involve contrived or ghost traffic accidents: The most commonly adopted scenario in such scams is the transportation of predamaged vehicles to an accident black-spot. Fraudsters are thus creating the impression that a real accident has occurred there by providing actual evidence for the submission of fraudulent claims. Pictures of the damaged vehicle and the crash scene are common, as well as false medical reports confirming the sustained personal injuries. Paper-based ghost accidents are also a possible scenario where fraudsters do not bother crashing cars at all. They make up a collision story relaying on completely Page 4

5 fabricated information (behind the desk) in order to submit claims for accidents, which never took place. Accidents occurred in remote locations, during late night hours, involving insured low-value vehicles (or even fictional vehicles) and multiple passengers (passengers details are not reported), with no police reports available, no fire brigade or ambulance attendance and with no witnesses, where the entire claim procedure is done through a paper trail, might indicate elements of fraudulent activity. Fraud investigators must carefully analyze such claims, even if a minority of incidents with such characteristics are identified as fraudulent. In the process, the investigators may uncover corrupt witnesses or medical staff, and stopping their activity may prevent several new cases of fraud in the future. 3 Staged Traffic Accidents Staged accidents are a growing problem since they includes a high degree of premeditation, making them increasingly difficult to identify. They usually involve two or more individuals who deliberately crash their vehicles into each other, resulting in elaborate insurance claims for damage caused, sustained injuries, car hire costs, vehicle recovery, storage, etc. Depending on the complexity of the fraud, the network often includes very organized professional crashes who know exactly what a genuine claim should look like. However, staged accidents have several common characteristics that we must be aware of: Late night hours and non-urban areas are often selected for a crashing scene, in order to reduce the probability of real witnesses. There are many passengers in the vehicles, but babies, kids or elderly passengers are almost never involved. Drivers are usually younger males who like to take pictures of the scene of the crash or even call the police to the scene to make the subsequent claim resolution more credible. Passengers multiple (serious) injuries confirmed by (fraudulent) medical reports are usually not in line with the damage reported on the vehicles. The use of insured low-value, pre-damaged vehicles is also a common practice. From time to time, fraud fighters get help from security cameras (see an example of fraud foiled by security cameras, reported on CBS News), but this is not always the case. Large and complex networks of highly organized fraudsters are usually very difficult to identify, and fraud investigators must consider all possible Crash for Cash scenarios Page 5

6 Conclusion Crash for Cash scams such as induced accidents or slam-on, contrived or ghost, and staged traffic accidents are indirectly affecting the whole population of honest policyholders. They ultimately pay the increased premiums to cover the costs of fraud. Fraud investigators in insurance companies must be aware of the wide variety of scams used by fraudsters, in order to successfully manage this threat. Combatting such fraud requires technologically supported and systematic approaches based on advanced big data analysis. Social Network Analysis (SNA) with integrated fraud indicators can assist with sophisticated visualizations of networks and allow for early fraud detection read more about SNA in our whitepaper about Social Network Indicators. This is why more and more insurance companies are deciding to manage their fraud losses by combining their knowledge and skills of investigators with sophisticated fraud detection intelligence like our cloud-hosted fraud detection solution Admiral on Demand. Knowing what we are dealing with and having the right tools to deal with it is the first step towards our final goal eliminating fraud once and for all. We protect insurance companies from fraud t: Optilab Headquarters Optilab d.o.o. Dunajska cesta Ljubljana Slovenia Optilab Ajdovščina Optilab d.o.o. Župančičeva Ajdovščina Slovenia