A crash course in fraud

Car accidents can be frustrating occasions. Between the hassles of dealing with compensation and fixing the car, most wish they had just avoided crashing in the first place.

A few, however, treat car accidents as an opportunity, or worse, they go out of their way to cause an accident.

Local police in Changzhou, East China's Jiangsu Province, recently cracked a number of fraud cases where auto insurers were allegedly bilked out of 13 million yuan in compensation by 95 suspects who were said to have faked car accidents, the Legal Daily reported on Monday.

An insurance company told Jiangsu police in May that the owner of a Honda Odyssey was suspected of fraudulently claiming 58,000 yuan after crashing into a tree in a local village. The insurer said that they had carefully studied pictures of the accident scene and concluded that it might have been faked.

Police interrogated the car owner, a man surnamed Li, who admitted he had colluded with the Jiangnan Garage, a local business, to receive insurance money.

The owners of Jiangnan Garage confessed they had been involved in more than 20 cases of auto insurance fraud that had deceived insurers out of 1.8 million yuan ($285,000) over the previous two years. They also revealed that two other local garages had also committed similar fraud.

These were far from isolated cases. In Qingdao, Shandong Province, a total of 21 people were charged late last month with defrauding car insurance companies out of more than 2 million yuan, local reports said.

Creative con men

In recent years, garages across the nation have tried various tactics to create accidents and defraud insurers.

Drivers of cars with faulty parts and no insurance intentionally crash into other cars that have insurance, so the insurance policy of that car will cover both vehicles and replace the worn-out parts with new ones.

In another strategy, drivers of cars that only have some parts insured, crash their car in order to damage insured parts of the car. With insurance companies often providing inflated payouts, the money received is often enough to cover the costs of repairing both the insured and uninsured parts.

Also, some garages forge fake invoices with higher expenses in order to extract extra money from insurance companies.

Car owners who lack experience often ask for help from garages, police said.

"Usually, a staff member from the garage will drive the car out, create a fake car accident and ask the car owner to contact the insurer to request payment for the repairs," Han Changjie, a local policeman, told the Legal Daily.

"I drove the cars to remote areas and crashed into trees or telegraph poles," a suspect who gave his surname as Zhang told the paper.

"Creating fake car crashes is a hidden practice. Garages, especially small-sized garages, cannot make high profits if they don't resort to causing crashes to deceive insurance companies," Hu Jian, a salesman from a Volkswagen 4S store in Fengtai district, told the Global Times.

Garages benefit from the price difference between the insurance payouts and the actual cost of the repairs. "Insurance payouts are sent to the garages, instead of the insurance applicants. By using these loopholes, garages ask a high price for repairing the car and suggest to car owners who are reluctant to pay for the repair expenses that they deceive insurers to cover all the expenses," Hu said.

A 26-year-old owner of a gray Volkswagen Sagitar in Beijing, who asked to remain anonymous, had his tires changed using insurance payouts last year, even though tire repair and maintenance was not covered under his policy.

"I'd rather pay for tire maintenance (than have a policy for it). So, the garage suggested creating some scratches on my car door with sharp items, saying I could make an insurance claim for the scratches and use the money to change my tire instead," the man, who agreed with the proposal, told the Global Times.

With the 1,000 yuan ($158) in compensation, he had his tires changed at a price of 700 yuan and spent the rest of the money on the scratches.

Compared with cars made in the Western world, it is more profitable for garages to create car accidents for Japanese cars, as the components of Japanese cars are always much more expensive than those of the European and American cars, Hu said.

Industry built on fraud

This rampant insurance fraud has created a complete industry chain involving car owners, garages, intermediaries and insurance company assessors.

Intermediaries introduce the car owners to other garages if the first garage refuses to comply in insurance fraud.

"The competition is fierce. If you refuse to help car owners cover repair fees by defrauding insurers, the intermediary will introduce them to other garages, which would be a loss for us," the suspect surnamed Zhang in Changzhou told the Legal Daily.

Some garages routinely bribe those who assess losses and ask them to set a much higher compensation payout than the actual repair costs.

"As a rule, we pay 30 percent of the insurance payout as a commission for insurance company assessors," Hu said.

Aside from the practical costs of the car and the commission for assessors, the rest of the money goes to the garage.

Although authorities have reinforced their supervision of insurance fraud in recent years, there are still many fraud cases being reported.

At least 70 cases of insurance fraud that deceived insurers out of over 100 million yuan were reported in Jiangsu from 2008 to 2011, the Legal Daily reported.

According to the law, anyone who commits insurance fraud should be fined, and minimum prison terms begin from five years, with no upper ceiling in serious cases.

"Cracking down on auto insurance fraud has acted as a deterrent," Han from the Changzhou police station said.

Many car owners called insurance companies and dropped claims after the case was exposed, Han said.

"To prevent auto insurance fraud, the insurers should dispatch staff members to make assessments on insurance losses at the scene of the accident quickly, and complete the insurance claim procedure on the spot," Zhang Qingfeng, a senior manager from a Beijing insurance company, told the Global Times.