This document discusses an insurance fraud scheme involving collusion between an auto body shop owner and claims adjuster. The shop owner would inflate repair estimates and kick back half the profits to the adjuster. Motivations for the fraud included financial pressures and greed. Statistics show insurance fraud, including inflated repairs and staged accidents, is on the rise. Preventive actions recommended include vetting employees, oversight of claims, and educating customers on reporting suspicions.

1. Perfect Fraud ByHaiThan Lee

2. DESCRIPTION of FRAUD Collusion between insurance claims adjuster & auto body shop owner Inflation of repair estimates Kickback ½ profit of repair to claims adjuster

3. FRAUD INVOLVEMENT: AUTO SHOP AAA Auto Body of New Britain Owner: Rick, 38 years old Wife, 2 children Inherited shop from father Pressure to provide for family Unsatisfied with low profits from insurance claims Low volume of customers via word-of-mouth and advertising

4. FRAUD INVOLVEMENT: AUTO SHOP Inflates repair estimates Includes new parts in estimates Substitutes salvage parts, or Includes parts in estimate that are not needed After estimate approved Provide repair at cost lower than estimate Invoice lists phantom parts and inflated labor hours Split profit 50/50 with claims adjuster

5. Faulty Repair Shops being Recommended Unsafe Auto Body Repair- Connecticut Example

6. FRAUD INVOLVEMENT: CLAIMS ADJUSTER Adjuster found a local body shop that is approved by his company. He made an agreement with the owner to inflate estimates. He uses pictures of different cars (same make and color) that has had worse damage. He writes checks for rental cars never requested the business set up through the auto body shop to receive payment

7. MOTIVATIONS for COMMITTING Personal life pressures Greed for the potential profits The opportunity exists because it’s not taking place where a supervisor is constantly present The thought that the insurance company has too much money

8. MOST LIKELY PERPETRATORS An established auto body shop in the community who has already built trust An adjuster who has been in the field long enough to know how to manipulate papers and estimates.

9. RELEVANT STATISTICS There are 42.7% of corruption cases are related to a bribery scheme. Approximately 29% of all frauds are involving collusion between employees and others

10. RELEVANT STATISTICS Top 15 Questionable Claims Referred to NICB 85,000 reported 2009 – 14 % increase 6 out of 15 related to auto insurance #4 Hail damage to vehicle ↑ 47% #5 Auto glass fraud ↑ 47% #7 Phantom accident ↑ 43% #11 Inflated repairs ↑ 33% #12 Suspicious hit while parked ↑ 33% #14 Unperformed repairs ↑ 31%

11. RELEVANT STATISTICS Coalition Against Insurance Fraud Study October 2009 37 state insurance fraud bureaus participated Survey of volume of referrals and cases reported in 15 fraud areas Change in department resources

12. Create a culture of honesty and openness Focusing on hiring honest people Developing a code of ethics Having an effective internal audit department Having a proper system of authorizations Prosecute “the claims adjuster”, in order to discourage future perpetrators PREVENTIVE ACTIONS

13. PREVENTIVE ACTIONS Make insurance customers aware of rights Right to use shop of choice Insurance “recommended shops” are not mandatory Notify customers of state insurance department How to report suspicion of fraud http://www.ct.gov/cid/lib/cid/FraudReferralForm.pdf

14. DETECTION METHODS Having independent checks on claims transaction such as supervisor reviews Examining documents and records to determine if there are anomalies that represent fraud Providing ways for people to report suspicious of fraud, for example: Whistle-blowing systems Performing a net worth calculation to determine the extent of unknown income Conducting vertical and horizontal analysis on income statement to see unexplained changes

15. CASES or EXAMPLES http://www.theautofinder.com/news/july07/agentfraud.htm http://www.carinsurancequotes.com/articles/new-york-car-insurance-agents-penalized-for-accepting-kickbacks.html

16. RELEVANT ARTICLES or RESOURCES “Confessions of an Auto Claims Adjuster” (http://www.edmunds.com/advice/insurance/articles/161707/article.html) Fraud examination, 3rd Edition Coalition Against Insurance Fraud (http://www.insurancefraud.org/) National Insurance Crime Bureau (https://www.nicb.org/)

17. REFERENCES “Insurance Fraud.” Insurance Information Institute, April 2010. http://www.iii.org/media/hottopics/insurance/fraud/ “Insurance agents, brokers fined for accepting kickbacks.” Automotive Body Repair News, 19 October 2009.