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'Linked in' -- but in a suspicious way

There are few states less fond of insurance companies than Florida. The Sunshine State has been pummeled by hurricanes, then punished by skyrocketing property insurance rates as a result.

But this year the Florida legislature reversed course and gave insurers a gift. It passed a law extending the time limit to pay off auto claims from 30 days to three months and provided more tools to fight insurance fraud.

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Why the change of heart?

Floridians found out that insurance fraud is not a "victimless crime," but instead a crime in which they are the victims. Criminals were "staging" more dangerous accidents on their roadways than anywhere in the nation. And when fraud rises, so do car insurance rates. No-fault premiums have almost tripled in the Miami area during the last five years as fraud rings, including doctors, lawyers and illegal immigrants, bilked insurance companies, which in turn charged residents higher rates. Fraud costs Florida alone about $1 billion a year, according to the American Insurance Association.

Insurance fraud links20 percent!

Everyone from lawmakers and law enforcement to insurers is now taking fraud seriously. A recent survey by FICO, a company known for predicting credit card behavior, shows that nearly a third of insurers believe they pay 20 percent of their claims to fraudsters. And more than half of the insurers expect an increase in fraud this year.

"We are now seeing carriers engaged in ways we haven't seen before to solve this problem," says Russ Schreiber, who heads FICO's insurance practice.

Happy hunting grounds

But insurers have a tough job because 12 states, including some with the biggest populations, such as New York, allow "no fault." This means that when a claim is filed an insurer is supposed to pay it quickly and not find fault. Failure to pay the claim, usually within 30 days, results in the insurer being fined, oftentimes more than the cost of the claim.

"No fault" states are viewed as happy hunting grounds for crooks. These criminals set up phony clinics to treat uninjured patients in fake accidents, while scam repair shops "fix" their undamaged cars.

Shady lawyers use "runners" in poor neighborhoods to find "crash dummies" to take part in "squat and bump" accidents on freeways where two cars box in an unsuspecting motorist. The car in front jams on the brakes and is bumped from behind by the victim. Those involved in the staged accident see a pre-chosen chiropractor and run up several thousand dollars in "soft tissue treatments."

"These guys aren't knuckle-draggers," says former FBI agent Frank Scafidi, who now serves as spokesperson for the National Insurance Crime Bureau, which shares its claims data with insurers. "They are street-smart, and they hit pay dirt every time."

The usual suspects

But these fraud rings have a weakness: They commit the same crime with the same people. So FICO and others developed a "linkage" system to identify them.

One fake accident claim could slip through the net, but repeated claims get noticed and "linked," particularly if, as many do, the crackups occur just after the insurance is purchased or just before the car is sold. This scenario is "scored" higher as a red flag, which doesn't bode well for the claimant.

Once a suspicious claimant is on the radar, insurers look at all his connections. Did this person see a doctor? If so, they will check the doctor's record for other accident victims treated. If they witnessed the accident their names will be run through a computer to find out if they've been involved in other accidents as plaintiffs or victims.

Crooks can change or modify their names, but other identifying data, such as aliases and addresses, are also looked at. Some addresses don't even pan out. Fraudsters rent post office boxes and change them frequently. All of this raises "flags" on a claim and goes into computing a score.

Insurers can't refuse to pay a claim which appears legitimate on the surface. But, based on the links they find with fraudsters, they can put a hard-nosed and experienced adjustor on the case. Florida has given insurers an extra 60 days to investigate if there's any evidence of fraud.

'Stomping them out'

California and New York are also cracking down. These two states announced prosecutions against multimillion-dollar fraud rings, with California awarding grants to Ventura County -- among others -- for its dedicated insurance fraud unit.

"We have been aggressive in stomping them out," says Ventura Senior District Attorney Mickye Coyle. But when she looks across the county line to Los Angeles, where gang violence is endemic, prosecutors won't file a case which involves less than $100,000.

The odds still favor the fraudsters who know how to keep their claims under the monetary threshold where they won't be noticed. And a doctor or lawyer who comes before the court for this kind of fraud knows that the penalty usually involves a just a fine, restitution and possibly parole for repeat offenses.

A slap on the wrist doesn't discourage the bad guys, says FICO's Schreiber. It simply makes them go elsewhere. And if Florida follows through on tougher penalties, the fraudsters might migrate to another no-fault state like Minnesota. Putting these crooks in jail generally isn't an option. But linking them in, and denying or delaying their claim until it can be investigated, is.

So if you've committed insurance fraud, or submitted questionable claims, your name, address and contact information are in a database where insurers can see it. This is one instance in which there's no benefit to being "linked in."

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