NICB: PIP Systems Vulnerable to Insurance Crime

Criminals who rely on staging auto accidents, forging medical documents and other types of illegitimate claims-related activity center their activity on locations where policyholders are required to purchase personal injury protection (PIP) coverage, according to a study of insurance claims data released Tuesday by the National Insurance Crime Bureau (NICB).

PIP, required as a part of no-fault car coverage systems in some states in the U.S., compensates policyholders for collision-related medical expenses regardless of who was at fault for the crash.

A breakdown of states and cities showed that three of the five states that had the highest numbers of claims the NICB found questionable because they indicated “organized group/ring activity” (OGA) were where PIP coverage is required.

The top five states generating the most OGA claims between 2008 and June 2012 were:

— Florida: 3,530
— California: 2,679
— Michigan: 1,080
— Texas: 1,050
— New York: 765

Of those states, Florida, Michigan and New York require PIP coverage at various levels; it is also offered in Texas but the policyholder can waive it at the time of purchase.

Florida showed the highest rate of OGAs (19 per 100,000 people) and Michigan followed with the next highest rate (11 per 100,000 people).

In addition, four of the top five cities generating the most OGA claims between 2008 and June 2012 were in states requiring some form of PIP coverage:

— Los Angeles: 752
— New York City: 595
— Miami: 575
— Detroit: 545
— Tampa: 545

New York, Florida Home to No-Fault, PIP Reform Efforts

The report also said that insurance criminals are adapting. States focusing recent legislative efforts on preventing misuse of their no-fault systems have seen a “reverse migration” of criminals, according to the NICB.

Florida and New York, for example, have made recent pushes to address such scams and have seen a less severe jump in OGA activity. The NICB said its report suggests that criminals are instead moving to other no-fault states like Minnesota and Michigan.

Between 2008 and 2011, the annual OGAs in Florida and New York increased by 2 and 27 percent, respectively, according to the NICB. Meanwhile, the number of OGAs in Michigan in 2011 was 178 percent higher than in 2008, and the annual number in Minnesota grew a whopping 231 percent during the same period.

Florida instituted a handful of PIP-related changes last year. After a long-running effort to reform the state’s no-fault system and shrink costs from PIP claims, Gov. Rick Scott applauded the introduction of those changes into law, saying PIP claims had “caused auto insurance premiums to burden Florida families.”

In New York City on Tuesday, councilmembers received a presentation from authorities fighting no-fault crime before passing a resolution supporting legislation combating such crimes.

One piece of legislation introduced in 2011, S7451, would criminalize both the recruitment and act of being a “runner,” which are people who refer phony patients to clinics where fake claims are generated; the proposal passed the Senate and is currently in an Assembly committee. Daniel Alonso, chief assistant district attorney, told the New York City Council that the law was necessary because the current setup of such operations makes it difficult for authorities to produce successful arrests and prosecutions.

“The entire enterprise is premised on the understanding that its participants will stick to a simple plan if questioned by police,”  Alonso told councilmembers at the meeting. “The patients know to say they were really injured, the doctors say they merely treated a patient who complained of injuries, the lawyers say they filed a claim for a client who had an accident report and medical records, and the runners run away.”

Instituting a law like the one proposed in S7451 targets the flow of patients to illegitimate clinics and is “simply being smart about crime prevention,” he said.

“The premise is simple: Once you dry up the supply of patients, you’ll take away the incentive to defraud insurance companies,” he said.

Generally, states set out to combat these criminal organizations because their illegitimate claims end up costing insurers more money, which in turn leads them to charge more for insurance and lessen access to cheap auto coverage.

Staged Crashes Most Common Reason for Shady Claims

For its report, the NICB reviewed a little more than 13,000 insurance claims it found were questionable and warranted closer evaluation.

Of those total claims, 33 percent were found to be based on staged accidents, the largest reason that claims were referred to investigators. Staged crashes also saw a relatively large increase of 102 percent between 2008 and 2011.

Such incidents are prized by organizations because they “set the stage” for further illegitimacy, according to the NICB.

“At each step in the process—from accident ‘victims’ to medical treatment—individuals are receiving payments to feign injuries and undergo expensive treatments in order to continue the flow of money coming ultimately from insurance companies,” the NICB said in a statement.

In terms of the type of loss cited in insurance claims reviewed by the NICB, bodily injury made up the biggest share, accounting for nearly 34 percent of the total.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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