It was easy money for Harris Ahmed. All he had to do was find people willing to take part in a fake car accident.
The man who approached him in Toronto about "doing accidents" told Mr. Ahmed he would get $1,000 cash for every passenger and driver he could recruit for the insurance scam. Each person would claim they were hurt in the crash.
Mr. Ahmed went right to work. A few weeks later, a car driven by one of his recruits collided with a Jaguar while driving through a north-Toronto suburb. The three people in the luxury car were also in on the plan, using vehicles purchased from a salvage yard.
On the surface it looked like a small-time problem: a few people trying to bilk the insurance industry for profit. But when fraud investigators pulled apart the operation, they found a complex ring of more than 40 fake accidents and at least $10-million of fraudulent claims.
It was the most sophisticated auto-insurance fraud ring ever uncovered in Canada, and the case has posed a new problem for the country's auto insurers.
What made it so striking was that the ring included a rehabilitation clinic, used to submit claims for expensive treatments that never happened. To investigators, that was the clearest evidence yet that organized crime, not merely street-level criminals, was exploiting the auto insurance industry.
Ontario is Canada's hotspot for auto-insurance fraud. In a province where consumers pay $9-billion worth of premiums each year, insurance companies estimate as much as $1.3-billion goes to cover fraud. The cost is shouldered by other drivers.
"It's a significant amount and, more importantly, it's a rising amount," said Kathy Honor, president of RBC Insurance.
But a Globe and Mail investigation has found that the way the industry and governments combat the problem may be contributing to its growth. Lax oversight, a dearth of legal and investigative support, and reluctance within the industry to co-operate on sharing crucial data are all hindering attempts to stop fraud.
Following a clampdown in the United States in recent years, there are signs Canada is becoming a haven for auto insurance fraud, and that people connected to the largest staged accident ring in the U.S. are now operating in Toronto.
But the problem is not merely an Ontario issue: Two other provinces - Manitoba and B.C. - have recently uncovered some of the biggest staged-accident cases they've ever seen.
It is a deceptive problem if judged only by its numbers. Fraudulent accidents amount to less than one per cent of the 160,000 car crashes reported in Canada each year - but the cost for consumers and the industry is high.
As auto-insurance fraud graduates from being a small-time problem in Canada to a large, sophisticated and lucrative business that is worth billions of dollars, the financial toll is increasing.
THE EVOLUTION OF FRAUD INC.
The new breed of auto-insurance fraud emerging in Canada comes after a major crackdown in the United States.
In 2002, the largest staged accident ring in the U.S. was uncovered in New York by Peter Smith, then an assistant district attorney on Long Island. Starting with a confession from a man arrested in a staged crash that seemed like an isolated case, Mr. Smith unravelled a web of insurance fraud that spanned more than 1,000 accidents. It was like nothing the insurance industry had ever seen before.
Using a task force of local and federal police, Mr. Smith's team was able to establish something more significant: The ring used a network of medical clinics to submit hundreds of claims a week to insurance companies, billing them for costly treatments that were never administered, from x-rays to acupuncture.
The investigation led to the indictment of more than 400 people and 112 New York area medical corporations. The losses totalled more than $200-million, including $50-million for insurance giant State Farm. "For the first time, we were able to show how organized it was," Mr. Smith said.
More importantly, the case changed the industry in the U.S. The majority of states now use a similar task-force approach, joining local and federal police with insurance industry officials to investigate fraud, and backing them up with prosecutors who are specialists in such cases.
But the unintended consequence of the U.S. crackdown is that it made Canada an easy target.
The same problems discovered in the New York investigation are now turning up in Ontario, suggesting gaps in oversight have turned Canada into a haven for insurance fraud migrating north.
Court documents outlining the Ontario case (dubbed Project 92 because each major investigation is numbered) show a level of complexity that is new to the auto insurance sector.
The documents suggest a highly efficient, well-planned operation: Months before an accident was attempted, members of the ring combed auto salvage dealers in Canada and the U.S. looking for specific upscale car models suitable for a crash. The vehicles would be purchased for a few thousand dollars then refurbished. But the repairs were mostly cosmetic - in one Toronto crash, parts were held together using duct tape - since the vehicles only needed to be driven once.
Cars were then fraudulently deemed road-worthy by a mechanic and reinsured with an inflated replacement value, often $30,000 or more. Brands like BMWs worked best because they held their value.
Again, the real money was made through a clinic, by submitting stacks of claims for false treatments under Ontario's no-fault insurance system that averaged more than $250,000 per accident.
But the increasing complexity of staged car-accident rings is not restricted to Ontario, nor is it limited to provinces that have private insurance as opposed to public insurance. B.C.'s Supreme Court is currently hearing a case where more than 20 people are accused of operating an elaborate and profitable staged-accident ring.
The sophistication of cases is also on the rise in Manitoba, where the province recently uncovered the largest auto insurance fraud operation in its history.
The scam was simple but effective; the criminal group purchased vehicles that were high-end, relatively new, but had high mileage. That mileage allowed the fraudsters to buy the vehicles cheap, usually at auctions.
They would then roll back the odometer to make the car seem newer, and insure the vehicle at an inflated value - often $20,000 more. Soon after, the car was written-off in a staged crash and the replacement value was collected. By the time Manitoba investigators caught on, the ring had collected $600,000 in payouts, not including another $150,000 of claims that were being processed.
But the key to the plan was how the ring covered its tracks. Each vehicle was sold at least five or six times before the accident, which created a long paper trail and put distance between the ringleaders and the owner listed on the claim.
It was a watershed case that resulted in organized crime charges being laid, a first in Manitoba for insurance fraud. It also showed the extent to which the crime has evolved.
A decade ago, "It would be perhaps just a vehicle owner and his buddy and they would go out and do one staged accident," said Brian Smiley of Manitoba Public Insurance. "Now we're seeing multiple people who are organized, conducting staged accidents for profit."
Ontario's Project 92 and the fraud ring detected in Manitoba both share a key ingredient - they involve investigation methods that are not widely used in Canada. They were successful because they are exceptions to the rule.
The task force used in Ontario, teaming insurance company investigators with law enforcement officers and two dedicated crown prosecutors, was an unusual co-ordinated effort.
Though common in the United States, Such resources are rarely expended here. The Insurance Bureau of Canada said Project 92 was a one-off situation. Instead, Canada is a patchwork of companies and jurisdictions where even trying to determine the extent of available investigative resources is difficult.
Though fraud is said to be a multibillion-dollar problem across the country there are no regulations requiring insurance companies to staff a certain number of investigators and nobody can say exactly how many there are in Canada.
Large private insurance companies have in-house investigators who are often former police officers, but they lack the legal powers that their counterparts in the U.S. have. Manitoba's insurance corporation has 15 investigators, and the Insurance Corporation of British Columbia has 24 investigators.
B.C.'s investigators hold quasi police powers and have a direct line to crown prosecutors to lay charges. But in most provinces, investigators employed by the insurance industry have little connection to police resources, which are already strained, or crown prosecutors to push cases forward.
Harris Ahmed pleaded guilty to fraud in Project 92, but investigators know they need more muscle to pursue the people at the top of the pyramid.
"We're a trade association, so we don't have the ability to lay charges or prosecute," said Kirk Quinn, who heads up Ontario investigations for the Insurance Bureau of Canada. "We have to rely upon agencies and authorities outside of our industry. But [Police]have other priorities - and appropriately so - for violent crimes and dangerous crimes."
Instead, the cost of fraud is built into the auto insurance business model. Investigating suspect claims is expensive, so what has emerged is a cost equation that the average consumer doesn't know about.
Rather than investigate, it is often easier - and less expensive - to settle a suspect claim, said Mr. Smith. Companies will settle bulk claims for 40 or 50 cents on the dollar rather than spend the funds needed to challenge them. That cost filters its way to other consumers.
"We recognize when there is abusive [medical]treatment in a claim… but it costs us money," said Ken Bowman, the head of RBC Insurance's claims team, in a presentation on insurance fraud this summer. "So we're spending money to not spend money."
The case in Manitoba also highlights the differences in how provinces track fraud, and the weaknesses in the system.
Manitoba was able to crack its fraud case somewhat quickly because of a province-wide database it operates on all auto claims. As a provincial Crown corporation, investigators were able to dig deep into all insurance records in Manitoba to quickly cross-reference the network of people that were flipping the cars between themselves and orchestrating the crash. "It's a huge advantage for us to have that database," Mr. Smiley said.
However, the effectiveness of Manitoba's database ends at its provincial boundary, pointing to one of the central weaknesses of the system: Sharing information between companies and jurisdictions across provincial borders is a problem in several jurisdictions across Canada.
A national database of insurance claims and other key information that would aid investigators across the country does not exist. It is something that Canada has yet to look at, even though investigators say it would be useful in speeding up investigations, while also give regulators an idea of the size of the problem.
Because provinces and insurance companies are reluctant to share data - due to privacy reasons or because they are worried about disclosing competitive information - fraud is nearly impossible to track.
RBC Insurance's Kathy Honor, speaking this summer, said the industry lacks even the same kind of screening systems used by banks and credit card companies to detect unusual purchases on debit and charge cards. "Right now there's no kind of intelligence like we have on some of the payment systems in Canada," Ms. Honor said.
HOW ONTARIO BECAME A HAVEN
Peter Smith remembers one of the suspects in the U.S. fraud ring telling him about Canada.
The man and several of his business partners had plans to move to Ontario and set up clinics that would handle insurance claims.
"He mentioned to me 10 new radiology facilities in Canada, that he was part of a group of investors that were doing it and how lucrative it was going to be," said Mr. Smith, the former assistant district attorney who is now a fraud consultant to U.S. insurers. "He was very excited… They charge $1,500 a scan and it's tremendously profitable."
As New York's problems increasingly turn up in Ontario, the rules concerning the ownership of clinics are surprisingly lax in the province.
For an initial fee of $500, any person - not necessarily a doctor - can register as the owner of a clinic, hire practitioners and bill insurers for claims. In order to file those claims, a doctor or registered practitioner's name, signature, and other billing information is needed, but this is sometimes forged.
Using confidential documents obtained from U.S. investigators, which were then cross-referenced with information gathered from court and corporate searches in Canada, The Globe and Mail has learned that at least one person indicted in the biggest auto insurance crackdown ever seen in the United States has since opened a rehabilitation business in Ontario, operating under the noses of regulators and lawmakers.
However, despite calls from the insurance industry and the medical community to fix the problem, there is lax scrutiny by government or regulators of clinic ownership. "There would certainly be benefits to carefully vetting who can own a health care clinic," said Michael Brennan, the chief executive officer of the Canadian Physiotherapy Association. He is upset that a small number of questionable clinics tarnish the rest of physiotherapists operating across the country.
"Certainly an area where we all should be taking a close look is just what is the process to allow a person to own a health-care clinic?" he said. "It should be at least as stringent as the process to obtain a licence to become a health-care professional."
For now it is left up to the insurance industry to go to the courts after problems are discovered.
In a separate case that emerged two weeks ago, State Farm Mutual Automobile Insurance Company launched a lawsuit against a group of Toronto-area medical clinics alleging they were filing fraudulent insurance claims.
In the suit filed in Ontario Superior Court, State Farm alleged it paid out at least $1.2-million for medical services that were never provided. Instead, the company alleges Vishnukanthan Sabapathy of Scarborough, Ont., was the de facto owner or manager of three clinics that were sending false treatment plans, disability certificates and invoices to State Farm since 2008. Mr. Sabapathy could not be reached for comment and none of the allegations have been proved.
Those documents were allegedly submitted under the names of six chiropractors, a kinesiologist and a registered massage therapist whose signatures were used, the suit alleges. However, the practitioners did not actually work for the clinic at the time, State Farm alleges.
"The clinics were held out to State Farm as legitimate service providers, when in fact they were vehicles for the personal defendants' wrongdoing," the statement of claim alleges.
The suit is a breakthrough for the insurance sector, since investigators have long been seeking to demonstrate that some clinics are set up to defraud the system. But it hasn't stopped the flow of claims. "Treatment plans and disability certificates have been and are still being filled out by the clinics," State Farm alleges.
WHAT THE U.S. HAS DONE
The lack of co-operation in Canada baffles investigators like Mr. Smith. After the New York case was uncovered, lawmakers in the U.S. formed a multi-state database where the industry shares information on suspect claims.
This allows investigators to use data-mining techniques that spot trends in accident reporting across company and state lines. Crashes that are linked to one person or group of people, however tangentially, or that show similar traits, can readily be spotted-even if they are spread throughout dozens of insurance companies.
Such steps have shown immediate results: In Massachusetts, the state reworked how it handles suspected fraud cases after a 65-year-old grandmother was killed in 2003 near the city of Lawrence during a collision with a driver trying to stage a fake accident.
The Massachusetts Automobile Insurance Bureau created a database to keep track of clinics that billed for an unusually high number of patients. Among its findings: Before the crackdown, the city of Lawrence had 22 chiropractors that were high-volume billers. Five years later, the number had dropped to four.
In Canada, it's difficult to tell how big the insurance fraud problem is exactly, since data is so hard to get. Regulators in several provinces including Alberta and Nova Scotia told The Globe and Mail they rely on the Insurance Bureau of Canada to inform them of fraud trends. Meanwhile, regulators in Ontario believe the $1.3-billion number the IBC uses to estimate fraud in Ontario may be overstated. However, the province doesn't have reliable numbers of its own to tell how big the concern actually is.
Despite his work cracking the biggest auto insurance fraud case in the U.S., Peter Smith figures not enough is being done to stop it.
"I would personally just like to see a reduction in rates based on somebody doing something about the fraud." said Mr. Smith.
"If people understood how their rates are as high as they are because of this reason, they would put pressure on the politicians and their insurance companies to do something about it." he said. "But people, even myself, will just continue to pay the higher rates and try to avoid being in accidents themselves. But if they actually knew, a lot more of them would get upset about it."