Fraud Fight Saves Half Billion Dollars: Auto Task Force Report Outlines Success

A two-car accident almost two decades ago showed auto insurance fraud was a big problem in Lawrence.

"It was a staged accident that occurred on Common Street around 1989 or 1990," said Daniel Johnston, head of the Insurance Fraud Bureau of Massachusetts.

One car hit a parked car at 6 a.m. Remarkably, six people claimed to be in each car. Even more remarkably, 11 of the 12 "victims" went to the same chiropractor and the same attorney.

"It was a red flag of all red flags," said Johnston, a native of Lawrence. "We referred it to the Attorney General's Office. But they never prosecuted anything. It was then that we decided we needed to do something."

In 1991, the Insurance Fraud Bureau was created.

But it was not until 2003 and another staged accident in Lawrence that the fight against fraud really took off.

Now a new report shows that the crackdown that began in Lawrence and spread to a dozen other Massachusetts cities has saved insurance policy holders a half billion dollars over the last five years.

The joint study by the Insurance Fraud Bureau and the Automobile Insurers Bureau documents how putting pressure on crooked drivers, chiropractors and lawyers has eased the fraud epidemic in a relatively short time, resulting in massive savings.

Here are some of the key findings:

Lawrence residents alone saved $40 million between 2003 and 2008, largely due to the work of a special Police Department task force that has charged 369 people with insurance fraud and dismantled a cottage industry that thrived on staged car accidents and bogus injury claims.

Investigations by the task forces in 13 communities resulted in charges against a total of 1,189 people. Boston's task force charged 312 with fraud, second only to Lawrence.

Billings by "high-volume" chiropractic and physical therapy clinics have dropped by $48 million in cities with task forces, including by more than $8 million in Lawrence. The high-volume clinics are those billing for more than $100,000 a year. Many were suspected fraud mills that closed when the heat was turned up. In Lawrence, there were 22 such clinics five years ago. Now there are four.

The rate of injuries per 100 accidents -- a leading indicator of fraud -- dropped dramatically in Lawrence, from 141 per 100 accidents at the time the task force was set up to 48 last year. The statewide average dropped from 38 injuries per 100 accidents to 26 over the last five years.

"These task forces have been the catalyst in the four year, steady reduction of auto insurance premiums in the Commonwealth," the report said.

"Staged accident activity in Massachusetts has reduced dramatically as people around the state who used to be involved in fraudulent activities have taken notice of the crackdown and altered their activities," it concluded.

Fatal crash sparked crackdown

For years, insurance premiums in Lawrence ranked among the highest in the state -- and nation -- because of astronomical injury claims that fueled a multimillion dollar-a-year business that earned the city the nickname of "the auto insurance fraud capital of Massachusetts."

But a fatal car crash on Sept. 4, 2003, touched off the biggest auto insurance fraud investigation in the state's history.

Altagracia Arias, a 65-year-old Lawrence great-grandmother, died in a staged accident that police say she helped plan to scam insurance companies.

"This tragic event led to the creation of a unique and unprecedented task force dedicated to combating insurance fraud in the city, and eventually to the unraveling of a network of staged accident participants and facilitators that spanned ordinary citizens, runners, chiropractors, physical therapists and lawyers," the report noted.

Within weeks, Lawrence police Chief John Romero reached out to the Insurance Fraud Bureau and assembled a special unit in Lawrence that included a handful of Lawrence detectives and fraud bureau investigators working with investigators of several insurance companies, prosecutors of Essex County District Attorney Jonathan Blodgett's Office and the state Attorney General's Office.

Blodgett later called for an investigation by a special grand jury that returned indictments against 16 -- including two lawyers and a millionaire chiropractor who later went to jail after being convicted of fraud.

The task force also assisted the state attorney general's office in its own grand jury investigation, leading to criminal charges against an Andover lawyer and a North Andover chiropractor.

"I've been in police work for 40 years, and this is the most successful work I've ever been a part," Romero said.

"Through a persistent and collaborative effort involving the IFB, DA Blodgett, the attorney general and investigators of several insurance companies, we've shut down the cottage industry that was making millions off scams that were a major reason for high insurance bills."

Johnston lauded the Lawrence effort as "a model for other communities."

"The Lawrence success was so dramatic that beginning in 2004, the task forces were replicated in 12 other communities across the state and in each one, similar reductions of fraudulent claims, along with dramatic reductions in premiums, have been achieved," Johnston said.

Key fraud indicator

Johnston credited the Automobile Insurance Bureau with playing a key role in advising the fraud bureau on how to use claims data to determine why efforts in Lawrence were so successful.

The AIB discovered that one statistical measurement -- the injury-to-accident ratio -- was a whopping four times the state average in Lawrence back in 2003. Fraud investigators knew that the planners of staged crashes try to pack as many passengers into multi-car crashes as possible to maximize the payoffs from injury claims.

The fraud bureau used the injuries-per-accident benchmark to identify fraud-rich cities that would benefit from a task force.

In every community where a task force is operating, there has been a reduction in the injury-to-accident-ratio. The task force study noted it's "a sure sign the problem is waning."

Reducing the ratio translated into a reduction in the number of injury claims and ultimately in the cost of auto insurance.

"In Lawrence, as fraudulent claims were taken out of the system ... premiums started to reduce dramatically. Over the past four years, auto owners in Lawrence have saved $40 million in premiums," the study concluded.

Word is spreading quickly throughout the state about the success of all the task forces.

Instead of opening up new ones, Johnston said, existing units are expanding their scope to assist neighboring communities.

For instance, the Lawrence task force and the fraud bureau have worked with Methuen police and Haverhill police to efforts to eliminate fraud in both communities, Johnston said.

Going national

Johnston, who is has been in charge of the fraud bureau since its inception, is also the longest-serving fraud bureau director in the country. Several colleagues have sought his advice on how to set up auto fraud-fighting task forces in their states.

"We have been sharing it with fraud bureaus around the country and saying it's a good way to deal with a local fraud problem," said Johnston, who will attend a national conference this fall. Forty-two states have fraud bureaus.

Johnston said the fraud-fighting efforts have led to four consecutive years of reduced insurance premiums. He believes they also paved the way for the state to switch to a competitive insurance market, further reducing the price of auto insurance for Massachusetts drivers.

He notes that several new companies are now selling car insurance in the state. Many companies had pulled out due to heavy regulation and high risk.

"One of the real benefits of this program was allowing the state to go to a competitive environment," Johnston said.

"It doesn't mean it wouldn't have happened without the reduced premiums. But I think it would have been more difficult to go to a competitive system."

State Sen. Susan C. Tucker called the report "a great summary of what can be accomplished with team work and tenacity."

"The bottom line is that drivers across Massachusetts -- and especially in Lawrence -- have saved hundreds, if not thousands, of dollars in car insurance," said the Andover Democrat, who was elected to the Senate in 1998 on a campaign promise to fight for lower auto insurance rates.

"To me, the best part of the story is that in the beginning of the fight, we were told over and over that it couldn't be done because fraud was a built-in part of the system. And we proved the naysayers wrong," Tucker said.

Tucker was the architect of key fraud-fighting laws, including one that made auto insurance fraud a felony and another that made it a crime to act as a "runner" or pay a "runner" for the purpose of defrauding an insurance company. Runners are the middlemen who solicit accident victims for personal injury lawyers and medical clinics in return for a fee.

Tucker cited the latest insurance industry report as "a great tool to share" with officials in other states so they can better understand the Lawrence success story. She said she has already received inquiries from a senator in Michigan on how to fight auto insurance fraud.