Date: December 27, 2012 Regarding: Organized Group Activity in Insurance Fraud: 2008-June 2012 (External Dissemination) Prepared

By: Andrea McLain, Strategic Analyst Executive Summary According to NICB, organized crime group generate millions of dollars annually through fraudulent insurance schemes within the US. NICB defines organized crime groups as any specific group made up of entities and/or individuals who systematically and repeatedly conduct pre-planned activities for the purpose of generating fraudulent insurance schemes. In this NICB ForeCAST Report, a quantitative analysis of organized crime in insurance fraud was conducted with the use of the Organized Group/Ring Activity (OGA) Referral Reason. When NICB member companies refer claims to the NICB Questionable Claims, the submission may include up to 7 Referral Reasons. As the OGA Referral Reason is an indicator of the possible involvement of organized crime in insurance fraud, all Questionable Claims (QCs) that were referred between 2008 and June 30, 2012, regardless of Date of Loss (DOL), with OGA as any one of the seven potential Referral Reasons were pulled from ISO ClaimSearch. Results in which almost all fields were left blank were removed from this study. It is important to also note that ISO ClaimSearch is a multifaceted database where different insurance companies are continually inputting new information. Standards, procedures, or practices relating to the identification of fraud, the selection of referral reasons, and the submission of QCs in ISO ClaimSearch may not be completely uniform between NICB member companies. This ForeCAST is organized into 2 sections: The Scope of the Problem and Insurance Classifications. The Scope of the Problem includes analyses of OGA QCs by: Year, Month, Loss State, and Loss City. Insurance Classifications discuss the descriptive fields pertaining to insurance lines of business. Sections under Insurance Classifications include analysis of OGA QCs by: Policy Type, Loss Type, and OGA QC additional Referral Reasons. Throughout a majority of the tables, figures, and analyses of this report, totals are calculated from 2008 through June 2012 and appear in Red, all percentage changes are calculated from 2008 through 2011 (unless specified otherwise) and appear in Blue, and all information regarding the first half of 2012 is followed by an asterisk as a reminder that it is incomplete data. Also, all percents were rounded to the nearest whole number. Exactly 13,014 QCs were identified with the OGA referral reason in ISO ClaimSearch from 2008 through June 2012. In summary, the analysis of OGA QC referral submissions from 2008 through June 2012 yielded the following results: The number of OGA QC referrals per referral year has increased by 47% from 2008 to 2011, and is likely to continue on par from 2011 to 2012 despite a decrease from 2010 to 2011. OGA QCs were referred at a rate of 8 per day. Florida was the state with both the most OGA QC referral submissions by volume and the highest rate of OGA QCs per 100,000 persons. Notably, the city with the most OGA QCs was Los Angeles, CA, followed by New York, NY. The vast majority of OGA QCs were referred on personal automobile policies where the loss involved bodily injury, personal injury protection, or collision. Lastly, the Referral Reason that was selected in combination with the OGA referral reason most often was Staged/Caused Accident.

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The Scope of the Problem The Scope of the Problem provides a broad overview of organized crime as reported through the OGA QC Referral Reason, and discusses potential future trends. The first section analyzes OGA QCs by Referral Submission Year as well as the actual claims DOL Year. Then, DOL data was utilized again for an analysis of OGA QCs by month. The next section analyzes OGA QC referral submissions between 2008 and June 2012 by Loss State. For each Loss State, the rate of OGA QCs per 100,000 persons was calculated and displayed in a map. Finally, the last section analyzes OGA QC referral submissions by Loss City, including a map which displays the volume of OGA QC referral submissions by both Loss State and Loss City. OGA QCs: by Referral Year and DOL Year Figure 1 depicts the number of OGA QCs by Referral Submission Year from 2008 through 2011 with a trend line forecast for 2012. OGA QC referral submissions increased approximately 47% between 2008 and 2011. The year with the most OGA QCs was 2010, with 3,547 referral submissions. Although the overall trend of OGA QC referral submissions between 2008 and 2011 was positive, there was a decrease by approximately 11% between 2010 and 2011. Despite this recent decline, it is likely that the amount of OGA QC referral submissions for 2012 will come close to or exceed 2011, with a trend line projection of 3,847 OGA QCs. The full trend line forecast for 2012 is as follows: at 1 standard error of estimate (SEE) there is a 68% chance that the amount of OGA QC referrals will fall between 3,429 and 4,265, while at 2 SEE there is a 95% chance that OGA QC referrals will fall between 3,011 and 4,683.
Figure 1: OGA QCs by Referral Submission Year from 2008 2011

Of the 13,014 OGA QCs referred from 2008 through June 2012, only 1,719, or 13%, had a DOL prior 2008. These 1,719 OGA QCs, as well as 528 QCs that occurred in the first half of 2012, were removed from this portion of the analysis only as to only focus on OGA QCs that actually occurred from 2008 through 2011. Figure 2 displays the number of OGA QCs between 2008 and 2011 by DOL year with a trend line forecast for 2012. As of June 2012, OGA QCs increased overall by approximately 18% from 2008 through 2011, and are expected to increase further as additional OGA QCs with a DOL within this time frame will be likely referred after June, 2012. The trend line forecast of OGA QC incidences for 2012 was 3,029. At 1 SEE there is a 68% chance that OGA QC incidences will fall between 2,470 and 3,588, and at 2 SEE, there is a 95% chance that OGA QC incidences will fall between 1,911 and 4,147.

Figure 2: OGA QCs by DOL Year from 2008 2011

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OGA QCs: by DOL Month Month data was taken from the DOL field within the OGA QCs, and therefore represents the month in which an event leading to an OGA QC actually occurred. Figure 3 depicts OGA QCs per DOL month broken down by DOL years from 2008 through 2011. In figure 3, the average per DOL month is displayed in yellow, and the grand average, or the average of all the months throughout all 4 years, is displayed in orange. The averages for June, July, August, and October all exceeded the grand average, therefore these DOL months have a higher than average amount of OGA QC occurrences. Based on these findings, it is important to view the information provided throughout this report for half of 2012 with caution, as data from the months of July, August, and October have yet to be accrued. At 268 OGA QCs, the average per month for August deviates above the grand average the most. February had the lowest average per month, with 199 OGA QCs.

Figure 3: OGA QCs by DOL Month from 2008 - 2011

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OGA QCs: by Loss State Exactly 12,991 out of 13,014 OGA QC referral submissions between 2008 and June 2012 reported a Loss State within the US. Table 1 lists the US states, including the District of Columbia (DC), in descending order by the cumulative total of OGA QCs. Totaling 10,795 OGA QCs, the Top 10 Loss States comprised approximately 83% of all OGA QCs between 2008 and June 2012. The Loss State with the most OGA QCs was FL, with 3,530 referral submissions. The number of OGA QCs from 2008 through 2011 increased throughout all Top 10 Loss States, but MN had the greatest rise, with an increase of approximately 231%. The analysis of the Top 10 Loss States directly reflects current known trends regarding organized crime in personal injury protection (PIP) fraud. At a fraud summit in the fall of 2012 with the Insurance Federation of Minnesota, NICB detailed a reverse migration1 phenomenon recently observed in organized criminals who focus on PIP fraud. According to NICB, law enforcement agencies in the states of Florida and New York have placed such a heavy focus on combating PIP fraud that organized criminals are geographically displacing to other no fault states; especially Minnesota. As mentioned earlier, OGA QCs in Minnesota increased by approximately 231% between 2008 and 2011, while Florida only increased by 2% and New York increased by 27%. Michigan, another PIP state that made the Top 10 list in Table 4, also experienced a 178% increase in OGA QCs from 2008 through 2011. Table 1: OGA QCs by Loss State from 2008 June 2012
Loss State FL CA MI TX NY IL GA SC NC MN NV AZ KY OH MA LA MD PA NJ VA CO TN AL AR WA MO 2008 769 367 93 161 108 88 69 47 36 16 24 21 11 21 12 19 43 20 7 10 24 26 27 6 14 9 2009 760 494 104 215 213 148 108 44 38 51 44 40 12 38 25 39 9 19 14 25 13 16 9 15 24 8 2010 831 625 577 283 218 150 136 67 73 54 60 51 39 33 30 41 19 31 15 32 17 21 20 12 11 15 2011 781 770 259 235 137 117 82 57 66 53 46 43 70 31 33 19 37 20 45 16 25 13 7 25 12 20 %Change 08 - 11 2% 110% 178% 46% 27% 33% 19% 21% 83% 231% 92% 105% 536% 48% 175% 0% (-14%) 0% 543% 60% 4% (-50%) (-74%) 317% (-14%) 122% 2012* 389* 423* 47* 156* 89* 88* 27* 29* 23* 24* 17* 18* 29* 27* 30* 11* 15* 13* 11* 2* 3* 3* 5* 9* 6* 8* Total 3,530 2,679 1,080 1,050 765 591 422 244 236 198 191 173 161 150 130 129 123 103 92 85 82 79 68 67 67 60 Loss State IN CT WI MS OR UT OK DC WV RI KS NE DE NM IA ND HI ME AK NH WY ID VT MT SD Totals 2008 15 0 10 4 8 3 14 7 7 4 8 3 2 3 1 1 1 2 0 2 0 0 0 0 0 2,143 2009 8 7 19 4 8 11 3 2 2 5 4 1 6 4 1 3 4 1 1 0 1 1 1 0 0 2,622 2010 9 8 10 7 8 7 10 8 4 1 1 1 1 2 2 3 0 0 0 0 0 0 0 0 0 3,543 2011 13 29 3 19 6 9 2 8 9 3 1 7 3 2 4 1 1 0 1 0 0 0 0 0 0 3,140 %Change 08 - 11 (-13%) NC2 (-70%) 375% (-25%) 200% (-86%) 14% 29% (-25%) (-88%) 133% 50% (-33%) 300% 0% 0% (-100%) NC (-100%) NC NC NC NC NC 47% 2012* 2* 1* 2* 8* 3* 2* 1* 3* 1* 9* 3* 4* 0* 0* 0* 0* 1* 0* 0* 0* 1* 0* 0* 0* 0* 1,543* Total 47 45 44 42 33 32 30 28 23 22 17 16 12 11 8 8 7 3 2 2 2 1 1 0 0 12,991

Top 10 Loss States 1

The term reverse migration and all information on the 2012 fraud summit in MN was taken from the fall 2012 edition of NICB news viewable at: http://youtu.be/xqdqmiLtx2k?hd=1. 2 NC stands for not calculable

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Map 1 displays the rate of QCs with the OGA referral reason between 2008 and June 2012 per 100,000 persons3 by Loss State. The states are shaded in 5 classes of the rate of OGA QCs per 100,000 persons, and the classes are set by quantiles. The state with the highest rate was FL, with 19 OGA QCs per 100,000 persons, followed by MI, with a rate of 11 OGA QCs per 100,000 persons. CA and NV tied with a rate of 7 OGA QCs per 100,000 persons, DC, IL, and SC all tied with a rate of 5 OGA QCs per 100,000 persons, and then, GA, KY, MN, NY, and TX tied with a rank of 4 OGA QCs per 100,000 persons. The rates for DC, KY, and NV may be significant as these states did not even make the Top 10 list in Table 4 on the previous page, which lists the US states by the raw number of OGA QCs.

The 2010 US census was used for population counts by state.

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OGA QCs: by Loss City Exactly 12,036 out of 13,014 (approximately 92%) OGA QCs, between 2008 and June 2012, reported a Loss City, and 1,782 different Loss Cities were identified in the data. Figure 4 displays the Top 10 Loss Cities in descending order by the cumulative total of OGA QCs. The visual serves a dual function: it displays the number of OGA QCs per year as a bar graph in the gray color scheme which corresponds to the black axis on the left, and it also displays the cumulative total amount of OGA QCs from 2008 through June 2012 as red gantt bars that correspond to the red axis on the right. Totaling 4,749 OGA QCs, the Top 10 Loss Cities comprise approximately 36% of all OGA QCs. The Loss City with the most OGA QCs was Los Angeles, CA, with 752 referral submissions. Of the Top 10 Loss Cities, Detroit, MI had the greatest rise in OGA QCs from 2008 through 2011 with an increase of 185%. Detroit, MI also stands out in Figure 3 as it reached 290 OGA QCs in 2010, which was the highest level of OGA QCs throughout all Top 10 Loss Cities at any given year. The Top 10 Loss City that displayed the only decrease in OGA QCs was Orlando, FL, with a decline of 62% from 2008 through 2011. Other significant outliers in Figure 4 include Tampa, FL in both 2009 and 2010 and Orlando, FL in 2008. Figure 4: OGA QCs by Loss City from 2008 June 2012
Los New York, Angeles, CA NY Miami, FL Detroit, MI Tampa, FL Houston, TX Orlando, FL Chicago, West Palm Beach, FL IL Hialeah, FL

* * * * * * *
Legend
2008 2009 2010 2011 2012* Total

* * *

-Note: This is a dual axis chart, and the axes are not synchronized; therefore, the red gantt bar totals are not visually comparable to the gray bars of the individual years.

Map 2 on the following page displays the amount of OGA QCs by Loss State and Loss City. The Loss States are shaded in 5 classes of OGA QCs set by natural breaks (Jenks), which ArcGIS Desktop defines as natural groupings inherent in the data. The Loss Cities are categorized in 4 classes, also set by natural breaks, but the ranges for Loss Cities are differentiated by increasing sizes as opposed to color.

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Insurance Classifications Insurance Classifications refer to descriptive fields from insurance lines of business. The identification of patterns within these classifications can ultimately highlight certain preferences that organized crime groups may have utilized when perpetrating insurance fraud. The first 2 sections analyze OGA QC referral submissions from 2008 through June 2012 by the Top 10 Policy Types and the Top 10 Loss Types. The final section looks at the Top 10 Referral Reasons that were coupled with the OGA Referral Reason in OGA QCs from 2008 through June 2012, which brings to light other insurance related fraudulent activities typically associated with potential organized crime in insurance fraud. OGA QCs: by Policy Type Exactly 34 different Policy Types were identified in the OGA QC referral submissions from 2008 through June 2012. Table 2 lists the 34 Policy Types in descending order by the cumulative total of OGA QCs from 2008 through June 2012. Totaling 12,869 OGA QCs, the Top 10 Policy Types comprised approximately 99% of all OGA QCs. The Policy Type with the vast majority of OGA QCs was Personal Automobile, with 10,658 referral submissions. Of the Top 10 Policy Types, Other Personal Property had the greatest rise in referral submissions, with an increase of 2,700% from 2008 through 2011; although it should be noted that the overall annual numbers for Other Personal Property were relatively low. The only Top 10 Policy Type that displayed a decrease in the amount of OGA QCs was Accident & Health with a 75% decline in referral submissions. Table 2: QCs with the OGA Referral Reason by Policy Type: 2008 June 2012
Policy Type Personal Automobile Commercial Automobile Personal Property: Homeowners Commercial Liability: General Liability Worker's Comp and Employers Liability Accident & Health Other Personal Property Commercial Multiperil Other Liability Commercial Liability: Business Owners Personal Property: Inland Marine Commercial Property: Business Owners Commercial Property Other Personal Property: Fire Cargo Personal Property: Mobile Home Commercial Inland Marine Commercial Liability: Multi-Peril Commercial Property: Fire Boat Commercial Property: Crime/Burglary Farmowners Personal Automobile: General Personal Liability: Marine Professional Liability Commercial Farm Policy Commercial Marine Fidelity & Surety Life Medical Malpractice Mobile Equipment Personal Property: Marine Umbrella Unscheduled Watercraft 2008 1,831 166 58 44 11 4 1 7 1 6 0 2 4 2 0 0 1 1 0 0 0 1 0 0 1 0 0 0 1 0 0 0 1 0 2009 2,074 204 94 119 15 66 5 10 9 7 0 10 7 2 0 2 2 1 2 2 1 0 0 1 0 0 0 0 0 0 0 0 0 0 2010 2,934 220 145 116 2 0 28 9 19 7 27 3 5 7 7 5 2 1 0 0 1 1 2 0 1 0 1 1 0 1 0 1 0 1 2011 2,549 233 160 80 47 1 28 9 6 7 0 5 2 4 3 4 1 0 2 1 1 0 0 1 0 1 0 0 0 0 1 0 0 0 % Change 08-11 39% 40% 176% 82% 327% (-75%) 2,700% 29% 500% 17% NC 150% (-50%) 100% NC NC 0% (-100%) NC NC NC (-100%) NC NC (-100%) NC NC NC (-100%) NC NC NC (-100%) NC 2012* 1,271* 122* 49* 30* 27* 1* 9* 19* 3* 7* 0* 0* 1* 1* 1* 0* 1* 1* 0* 0* 0* 0* 0* 0* 0* 0* 0* 0* 0* 0* 0* 0* 0* 0* Total 10,659 945 506 389 102 72 71 54 38 34 27 20 19 16 11 11 7 4 4 3 3 2 2 2 2 1 1 1 1 1 1 1 1 1

Top 10 Policy Types

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OGA QCs: by Loss Type Exactly 44 different Loss Types were identified in the OGA QC referral submissions from 2008 through June 2012. Table 3 lists the Top 10 Loss Types in descending order by the cumulative total of OGA QCs, and Figure 5 visually displays the disparity between these totals in a bar graph. Totaling 12,104 OGA QCs, the Top 10 Loss Types comprised approximately 93% of all OGA QC referral submissions. The Loss Type with the most OGA QC referral submissions was Bodily Injury, with 4,401 OGA QCs. Of the Top 10 Loss Types, Smoke had the greatest increase, up 1,425% from 2008 through 2011; although it should be noted, the overall annual numbers for Smoke were relatively low compared to the other Top 10 Loss Types. The Top 10 Loss Type with the greatest decrease was Comprehensive which went down 40% over this same time frame. Table 3: OGA QCs by Loss Type from 2008 June 2012 % Change 08 - 11 2012* Total 54% 549* 4,401 22% 287* 2,818 22% 148* 1,390 104% 118* 1,041 74% 157* 1,002 4% 485 46* (-23%) 423 64* (-40%) 227 37* 342% 173 16* 1,425% 144 7*

Loss Type 2008 2009 2010 2011 Bodily Injury 714 853 1,186 1,099 Personal Injury Protection 507 480 926 618 Collision 256 336 338 312 Other Auto 145 195 287 296 Property Damage 143 208 245 249 Theft 83 116 154 86 Medical Payments 103 102 75 79 Comprehensive 57 41 37 55 Vandalism & Malicious Mischief 12 44 48 53 Smoke 4 1 71 61

Figure 5: Total OGA QCs by Loss Type from 2008 June 2012 Totals

Property Damage

Personal Injury Protection

Vandalism & Malicious Mischief

Medical Payments

Bodily Injury

Other Auto

Comprehensive

Theft

Collision

Smoke

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OGA QCs: by Referral Reason One OGA QC referral submission may contain up to 6 additional Referral Reasons, as such, exactly 70 additional Referral Reasons were identified within the 13,014 OGA QCs from 2008 through June 2012. Table 4 lists the Top 10 additional Referral Reasons in descending order by the cumulative total of OGA QCs, and Figure 6 visually displays the disparity between these totals in a bar graph. The referral reason coupled with the OGA Referral Reason in the most QCs was Staged/Caused Accident, as it was identified in 4,346 OGA referrals. Of the Top 10 Referral Reasons, Extensive Loss History had the greatest rise in OGA QCs from 2008 through 2011 with an increase of 136%. The only Top 10 referral reason that displayed a decrease in OGA QCs was Billing for Services Not Rendered with a decline of 7% from 2008 through 2011.

Table 4: OGA QCs by Additional Referral Reasons from 2008 June 2012
Referral Reason Staged/Caused Accident Medical Provider Faked/Exaggerated Injury Fictitious Loss Medical Provider/Attorney Relationship Extensive Loss History Excessive Treatment Billing for Services Not Rendered Attorney Activities Lack of Cooperation from Insured 2008 547 812 469 349 622 240 460 537 253 214 2009 923 660 653 670 430 412 392 346 311 384 2010 1,186 1,147 851 799 722 531 444 390 612 474 2011 1,105 865 930 711 625 566 482 501 435 472 % Change 08 - 11 102% 7% 98% 104% 0% 136% 5% (-7%) 72% 121% 2012* 586* 436* 467* 371* 255* 303* 201* 177* 291* 250* Total QCs 4,347 3,920 3,370 2,900 2,654 2,052 1,979 1,951 1,902 1,794

Figure 6: Total OGA QCs by Additional Referral Reasons from 2008 June 2012 Totals

Staged/Caused Accident

Faked/Exaggerated Injury

Medical Provider

Medical Provider/ Attorney Relationship

Fictitious Loss

Billing for Services Not Rendered

Attorney Activities

Extensive Loss History

Lack of Cooperation From Insured

Excessive Treatment

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Conclusion As previously stated, the analysis of OGA QC referral submissions from 2008 through June 2012 yielded the following results: The number of OGA QC referrals per referral year has increased by 47% from 2008 to 2011, and is likely to continue on par from 2011 to 2012 despite a decrease from 2010 to 2011. OGA QCs were referred at a rate of 8 per day. Florida was the state with both the most OGA QC referral submissions by volume and the highest rate of OGA QCs per 100,000 persons; although the city with the most OGA QCs was Los Angeles, CA, followed by New York, NY. The vast majority of OGA QCs were referred on personal automobile policies where the loss involved bodily injury, personal injury protection, or collision. Lastly, the Referral Reason that was selected in combination with the OGA referral reason most often was Staged/Caused Accident. In the fight against organized crime in insurance fraud, NICB proposes that detection is the first line of defense. This first line of defense, as well as the possibility if this entire report, is held up by the insurance professionals who, day by day, detect OGA in claims, and then to refer those claims to the NICB QC database with the OGA referral reason; all of which takes place while NICB continues to collaborate with the insurance industry and law enforcement to lead in the detection, prevention, prosecution and the overall fight against organized group insurance schemes.