Canada's insurance market is being exploited by fraud artists who are orchestrating an increasing number of deliberate car accidents designed to prey upon innocent drivers, according to a confidential nationwide alert sent this week to insurers.
Citing evidence gathered in recent investigations, the Insurance Bureau of Canada is warning insurers in a memo obtained by The Globe and Mail that it has become aware of "a concerning trend" in staged collisions in the past few months.
The alert, which went to insurers across the country, comes after government reforms in Ontario were introduced last month to stem a growing tide of fraud and abuse. There has been a rise in crashes that are orchestrated to claim lucrative no-fault insurance payouts and, to avoid detection, perpetrators are increasingly involving innocent drivers in their pre-planned collisions.
Staged accidents occur across Canada, but investigators say Southern Ontario – the largest insurance market in the country – has become a virtual haven for fraudsters as jurisdictions in the U.S. beef up their ability to crack down on fraud.
Toronto is the hotbed, with organized crime being linked to several staged accidents. Insurance industry investigators involved in a recent probe, dubbed Project 92, say they've identified more than 40 staged car accidents carried out by one particular crime ring alone, 17 of which have already been criminally investigated. Police have laid 291 charges against 39 individuals in the sting, 20 of whom have been convicted.
However, a more recent spate of staged accidents shows the problem has persisted since then. "Credible sources and collision investigation evidence have indicated that current schemes increasingly include 'target and bullet' tactics, which involve an innocent and unsuspecting driver in orchestrated events," the alert says.
Target-and-bullet schemes are those in which an unsuspecting car is intentionally hit. Evidence unearthed in Project 92 and other recent investigations shows that crime rings profit by involving questionable medical clinics and "victims" to bill insurers hundreds of thousands of dollars from a single car accident to cover assessments and treatments that in some cases don't even take place. Organizers will also pay thousands of dollars to the individual who intentionally crashes a car, or to a tow-truck driver to haul cars to a specified repair shop.
Ontario's problem has flourished due to a combination of relatively rich benefits and rare or light punishments. The insurance industry lost more than $1-billion over the past two years from selling auto coverage in Ontario, despite drivers paying $9-billion in premiums. More than $1.3-billion of the claims paid out annually in the province are now going to fraudsters or people abusing the system, according to industry estimates.
The issue has serious consequences for the country's property and casualty insurance industry as a whole, which is already suffering because of difficult financial markets. Insurance companies say fraud inevitably pushes up premiums.
Ontario made a large number of reforms to its auto insurance rules, effective Sept. 1, that sought to curb fraud and abuse of benefits. For instance, it cut the minimum amount of basic medical and rehabilitation benefits that all drivers must hold from $100,000 to $50,000, and minor injury benefits are now capped at $3,500. Yet both government and insurers acknowledge that premiums are not expected to fall in the near future.
Canadian investigators say they have tracked insurance fraudsters from other jurisdictions to Canada. In 2004, FBI investigators cracked what they called the BORIS case – short for Big Organized Russian Insurance Scam – in New York and surrounding areas. That case saw more than 500 individuals and businesses indicted in 2003 in relation to more than 1,000 car accidents.
"Some of those participants, some of those targets, some of those people who were identified as suspects in that investigation, have and continue to have affiliations to operations here in Ontario," said Kirk Quinn, an injury ring investigator with the IBC.
In addition to the target and bullet, the most common scenarios include the "swoop and squat" where a driver slams on a car's brakes in order to get an innocent driver to rear end the vehicle.
Staged collisions are hard to catch so jurisdictions lack good statistics on their efforts to stop them.
Insurance Corp. of British Columbia, the province's public auto insurer, has also seen problems. "We've had cases, notably in the last two years, where we've civilly sued people that we believe are responsible for staged collision rings," said Steven Tripp, senior manager of ICBC's special investigation unit.
In Ontario, two people caught in Project 92 are in jail. But this crackdown results from a temporary test project, and the industry says that this crime ring is only a drop in the bucket. The convictions stem from an unofficial joint task force that's developed between Toronto Police Services, the IBC and two dedicated prosecutors. "We're trying to prove how effective prosecution can be against those involved in organized crime," Mr. Dubin said.
Ontario Finance Minister Dwight Duncan said the reforms are aimed at stemming the rise in benefit claims. "This is all about ensuring that honest motorists out there who don't [abuse]the system don't get penalized."
However, Garry Robertson, national director of investigative services for IBC, said the reforms won't stop criminals. "Will it stop them from going after a smaller amount? No, it won't," he said. "There have to be penalties, there have to be insurers going after them through civil litigation. They need to know that if they get caught, something serious will take place."