The red flags of fraud Sometimes insurance investigators find indicators that show fraud lurking where it doesn?t exist




March is fraud prevention month. And while we must be vigilant to protect ourselves from fraud, it’s also important to be cognizant of wrongful allegations of fraud. With the heightened publicity surrounding insurance fraud, it’s all too easy for innocent victims to be accused of fraud.

On August 27, 2009, police responded to a report of a collision between a 1998 Honda Civic and a van at a Markham intersection. Nelson Gnanam was the driver of the car. With him were his wife, a niece and her husband. The van had been driven by Jeunelle Humphrey with an unrelated passenger.

At the scene no one claimed to have been injured in the accident, and aside from Gnanam, none of his passengers seemed upset. Indeed they appeared to be rather relaxed. Both vehicles had damage not related to the accident. Gnanam had purchased comprehensive insurance coverage on the Honda shortly before the accident.

Following the accident, Gnanam appeared at the police station with a legal representative and advised the police officer, who had attended the accident scene, to change his report to indicate that in fact he and his passengers had suffered injuries as a result of the accident.

Anyone could see the obvious red flags. Surely the accident deserved further investigation to determine if it had been staged. Gnanam’s insurer, Economical Mutual Insurance Company, hired an engineering firm to investigate the accident. The engineer concluded that “the damage sustained by the vehicles was inconsistent with the reported sequence of events.”

Hence Economical concluded the accident had been staged and Economical denied all claims for accident benefits submitted by Gnanam and his passengers. But further investigation would have revealed that the occupants of the two vehicles were unknown to each other and it was Humphrey who had innocently provided the information that created the inconsistency reported by the engineer. Also, neither Humphrey nor her passenger had applied for accident benefits.

So this couldn’t have been an accident staged by the two vehicles. Undeterred, Economical argued the accident must have been staged by Gnanam alone. But in his decision released last month, Arbitrator Jeffrey Rogers rejected Economical’s argument pointing out the obvious; “he (Gnanam) risked serious injury, or worse, by driving his car into the path of an oncoming, unknown vehicle, appearing from over a hill, at unknown speed, and allowing it to plow into his vehicle, close to where he sat, for the chance of economic gain. He also put his wife and family members in the same position. He, and all of his co-conspirators, then neglected to mention to the police officer, the most important aspect of their plan; the fact that they were injured. That sequence of events seems most unlikely.”

I’m not saying staged accidents never occur. Certainly, insurance companies must use red flags or indicia of fraud to inform their investigations. But at some point common sense must win the day.

Of course, with all of the emphasis on insurance fraud it’s very easy to find fraud lurking where it doesn’t exist. It’s called false positives.

Insurers use modelling systems to provide points for various red flags. Some of the red flags include three or more occupants in a vehicle, an older vehicle being in a collision, subjective injuries, minor impact, an unemployed claimant, whether the claimants use the same doctor, lawyer or medical facility. Add up the red flags and you reach a finding of fraud.

But how many are false positives and how many of these cases wind up with a criminal conviction, let alone a civil finding of fraud?

Very few if you go by the reported cases. Making an allegation of fraud is easy; proving it isn’t so easy.

That’s a major reason why I have trouble accepting the industry’s claim of up to $1.6 billion of car insurance fraud per year. 


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