NCPA - National Center for Policy Analysis

Insurance Companies Fighting Auto Fraud

July 30, 1997

Hot for a fraudulent medical claim, some dishonest motorists are arranging and causing accidents in order to collect big money from insurance companies. But the companies are fighting back against collusive clinics, doctors and lawyers.

Typically, 80 percent of the claimants in arranged accidents show up at the same group of clinics within 24 hours -- complaining of neck and back pain.

  • Last month, Allstate Insurance filed suit against 800 defendants alleged to be part of a $10 million fraud ring operating in northern New Jersey's Passaic County -- including one woman who was involved in ten accidents in seven months, some within days of one another.
  • The lawsuit claims that the frauds, based on arranged accidents, resulted in more than $75 million in false claims.
  • Analysts say that such scams cost consumers from $15 billion to $20 billion annually.
  • Industry experts estimate the frauds add up to $200 a year to the cost of a typical $1,100 average insurance policy for a late model medium-sized car.

No longer being able to rely on overburdened police and prosecutors -- who are too often tied up with drug cases, domestic disputes and violent crimes -- some insurance companies are beefing up their investigative resources and relying on powerful computer databases, along with other techniques.

Auto insurance scams involve arranging sudden-stop rear-end collisions, staged accidents in which drivers of two cars smash into each other in a remote location, and smashing together two cars which had been previously wrecked.

To combat these practices, State Farm Insurance hired several lawyers to bring a civil suit alleging a pattern of racketeering among a group of Chicago personal injury lawyers, medical clinics, and street-level organizers that the company claims arranged rear-end collisions.


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