Some people might call a car accident a bit of bad luck.
Others see it as a meal ticket to a brand-new life.
While there are no precise numbers on the amount of auto insurance fraud committed each year, the Insurance Information Institute (III) estimates that about 10 percent of all property and casualty industry losses are due to fraud. Those cases range from the guy who gets in an accident and claims he injured his back -- when he actually strained it taking out the trash -- to organized gangs that stage wrecks and then milk auto insurance companies for every penny they can.
"There's always going to be people walking among us that follow a different path," says Frank Scafidi, a former FBI agent who now is spokesman for the National Insurance Crime Bureau (NICB). By committing insurance fraud, "it's easier for them to strike pay dirt."
"Insurance fraud is very low risk and very high gain," Scafidi says, particularly compared with robbing a liquor store or selling a kilo of cocaine on the street, where crooks run the risk of being shot or being sentenced to significant prison time.
'Soft' fraud shades the truth
The III classifies fraud as "hard" or "soft." When it comes to auto insurance, hard fraud is a deliberate attempt to stage or invent an accident or other type of incident that results in a loss. Soft fraud is the exaggeration of a legitimate claim or the misrepresentation of facts to pay lower auto insurance premiums.
David Reiss, a California psychiatrist who has examined more than 10,000 workers' compensation and personal injury claims for insurers, says those who fraudulently claim to be injured run the spectrum. The majority exaggerate their injuries because they want to "put their best foot forward to make a case."
Others aren't just exaggerating their injuries. They exhibit "a significant degree of entitlement," Reiss says, and their claims are "unrealistic and don't make sense."
Often those who try to manipulate the system see a claim as a ticket out of their tough financial situation, he says. They may feel like they've been a victim their entire lifetime, and have a "feeling of being taken advantage of that was never really dealt with."
A dozen states have no-fault laws that guarantee medical treatment up to a certain amount. Florida's limit, for example, is $10,000. In many states, scam lawyer- and accident-referral services and pain clinics have sprung up to make sure victims spend every dime of that amount. (See "Where car insurance fraud is a sport.")
Often those who are legitimately involved in an accident will contact a referral service, thinking they'll receive $10,000. In reality, they receive only token care, and the bulk of the money goes to those ostensibly providing it.
'Hard' fraud is organized crime
That guarantee of care tempts organized fraud rings to game the system in states with no-fault insurance laws, such as Florida and New York.
The kingpins of these rings tend to "prey on folks within certain minority groups," who may not know the language and laws very well, Scafidi says. People from within these groups are paid to stage or cause accidents. For example, they may say a wreck occurred when it never did. Or, they may use their cars to force an innocent driver to hit a vehicle that is occupied by a driver and passengers on the fraudsters' payroll. After the accident, these "victims" claim they are injured and demand compensation.
Other fraud rings simply bribe victims of genuine accidents to exaggerate their injuries.
A single, huge fraud ring busted earlier this year in New York allegedly cheated the state's no-fault system of as much as $275 million. Authorities say dozens of Russian immigrants pointed accident victims with nonexistent or mild injuries toward pain clinics and attorneys who milked the claims and trial system for every nickel of the state's $50,000 no-fault limit.
The accident victims got $500, authorities say, but the masterminds got rich -- groomed for their task by decades of Soviet bureaucracy.
"This is the Russian mind-set, and this is why it's endemic in the system," one law-enforcement official told the New York Times. "If you're not scamming the system, if you're not scamming the government, you're not doing what you're supposed to be doing -- you're looked upon as a patsy."
The culprits might be Russian in New York, but they might easily be Hispanic in Florida, Scafidi says, or South Asian in Toronto.
The price? You're paying it already
The victims of phony accidents "could be anyone who looks like a good target," Scafidi says. It's typically someone who is driving a nice car and is likely to have good insurance.
But you don't have to be involved in a "swoop and squat" to pay the price for fraud. Every one of Florida's insured drivers pays about $58 a year to line scammers' pockets, the III calculates.
And in the end, injured drivers wind up cheated as well. Florida's no-fault law is supposed to cover lost wages and burial expenses, but the pain clinics and referral services instead make sure medical costs use up the entire amount.
"This is money that would have gone directly to the insured but by function of the medical provider exhausting those benefits, the consumer receives nothing," a report by the Office of the Insurance Consumer Advocate states.
The 12 no-fault states are Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah. The Florida Legislature recently passed reforms it hopes will cut fraud -- chiefly by lowering the amount of care guaranteed in nonemergency cases. Reform bills are on the agenda in Michigan and New York as well.