Los Angeles is the Auto Fraud Capital of the World
By Aaron Crowe
Criminals committed $120 million in auto insurance fraud in California in fiscal year 2012-13, and 1,500 people have been arrested for auto fraud since 2011, according to state statistics.
The fraud includes medical mills, organized crime, collision rings, fraudulent claims, and organized groups of thieves committing economic theft, according to the Fraud Division of the state’s insurance commissioner. The crimes aren’t unique to California and are seen throughout the country, says Patrick Storm, a spokesman for the state Department of Insurance.
“Los Angeles is the auto fraud capital of the world,” Storm says. L.A. makes up nearly 43 percent of all auto related insurance fraud in California.
While specific numbers aren’t available from the state on how often each different type of fraud is committed, it does list the most typical types of insurance fraud in auto collisions. And like chain restaurants that are everywhere, these types of fraud aren’t unique to California but can be found nationwide. Here are some of them:
Swoop and Squat
A “swoop” vehicle swerves in front of the “squat” vehicle, causing the “squat” vehicle to slam on its brakes and cause a rear-end collision with the victim’s vehicle.
This is similar to a “sudden stop” scam where the “squat” vehicle slows down to close the gap between their vehicle and the victim’s vehicle, then brakes suddenly to cause a rear-end collision with the victim.
The swoop and squat is the most common form of a staged collision in California, according to the state Department of Insurance. The collisions are commonly perpetrated by organized crime. Stagers target high value vehicles such as commercial vehicles, expensive luxury cars and vehicles owned by cities or counties because there’s a virtual guarantee of insurance coverage.
Red flags of fraudulent collisions include:
- The other car packed with passengers.
- The other driver has a relatively new insurance policy.
- The other car is in poor condition or has a “salvage” title.
- Traffic was flowing smoothly and the other driver stopped suddenly.
- The other driver or passengers made extra effort to avoid conversation about the other vehicles in the area.
- There’s a witness that substantiates everything the other driver says.
- The other driver and passengers all claim injury despite relatively minor collision damage to the vehicles.
An important step to take in any accident is to take photographs of the damage to your car, says Robert Passmore, senior director of the personal lines policy at the Property Casualty Insurers Association of America. Even if there isn’t much damage to your car, taking photos at the accident scene is important because they can show that it’s out of proportion to the injuries claimed by people in the other car in a faked accident, Passmore says.
Phantom and Paper Collisions
A paper collision is when people conspire to create the illusion of a legitimate accident using either pre-damaged vehicles or by intentionally and covertly inflicting damage to the suspect’s vehicle. Generally, law enforcement is called to the scene of the accident.
A phantom collision is a solo vehicle crash due to a vehicle of unknown origin or description.
In June in Los Angeles, an auto body shop owner and 19 others were arrested in an organized insurance fraud crime ring where phantom collisions were staged. Insurers recognized a pattern to insurance claims from the the main defendant and his friends and family. For a $500 bounty, they posed as insurance consumers and filed claims for collisions that were either staged or didn’t happen at all, according to investigators.
Up to 16 false claims were staged to receive more than $314,000 from seven insurance companies.
“This orchestrated phantom collision ring contributes to the multi-billion dollar drain on California’s economy due to insurance fraud,” state Insurance Commissioner Dave Jones said in a statement. “This is not a victimless crime. The cost of insurance fraud is borne by consumers who pay for it through higher premiums.”
Other Staged Collisions
These happen in various forms, such as when a victim’s vehicle collides with the suspect’s vehicle while backing out of the driveway or parking space in a parking lot.
There’s also the right of way auto collision where the suspect driver appears to give the right of way to the victim driver, usually in an intersection, causing the vehicles to collide. The suspect later claims no right of way was offered.
Some fraudsters stage a collision between each other. In June in Los Angeles, two people were arrested after allegedly staging a car collision and collecting $4,422 from three insurance companies. One person accidentally ran a red light, hitting the other co-conspirator’s car.
The same type of collision happened three months later at the same intersection with the same vehicles, though this time the car that was struck was the one that ran the red light. They filed another claim with another insurance company three months later using the same facts.
Auto insurance fraud is often viewed as a victim-less crime that only hurts insurance companies, or one of opportunity by people who may be having financial difficulties and need some quick cash. But it’s a crime that’s illegal and can end up costing all insurance policyholders in the long term with higher rates.
“When someone is stealing through insurance fraud, they’re stealing from everyone,” Passmore says.
Aaron Crowe is a personal finance writer who covers the auto industry for CheapCarInsurance.net.
