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Date: December 27, 2012Regarding: 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 fraudulentinsurance schemes within the US. NICB defines organized crime groups as any specific group made up ofentities and/or individuals who systematically and repeatedly conduct pre-planned activities for the purpose ofgenerating fraudulent insurance schemes. In this NICB ForeCAST Report, a quantitative analysis oforganized 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, thesubmission may include up to 7 Referral Reasons. As the OGA Referral Reason is an indicator of the possibleinvolvement of organized crime in insurance fraud, all Questionable Claims (QCs) that were referred between2008 and June 30, 2012, regardless of Date of Loss (DOL), with OGA as any one of the seven potentialReferral Reasons were pulled from ISO ClaimSearch. Results in which almost all fields were left blank wereremoved from this study. It is important to also note that ISO ClaimSearch is a multifaceted database wheredifferent insurance companies are continually inputting new information. Standards, procedures, or practicesrelating to the identification of fraud, the selection of referral reasons, and the submission of QCs in ISOClaimSearch may not be completely uniform between NICB member companies.

This ForeCAST is organized into 2 sections: The Scope of the Problem and InsuranceClassifications. 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 OGAQC 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 calculatedfrom 2008 through 2011 (unless specified otherwise) and appear in Blue, and all information regarding thefirst half of 2012 is followed by an asterisk as a reminder that it is incomplete data. Also, all percents wererounded to the nearest whole number.

Exactly 13,014 QCs were identified with the OGA referral reason in ISO ClaimSearch from 2008through June 2012. In summary, the analysis of OGA QC referral submissions from 2008 through June 2012yielded the following results: The number of OGA QC referrals per referral year has increased by 47% from2008 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 referralsubmissions by volume and the highest rate of OGA QCs per 100,000 persons. Notably, the city with the mostOGA QCs was Los Angeles, CA, followed by New York, NY. The vast majority of OGA QCs were referred onpersonal 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 wasStaged/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 theOGA QC Referral Reason, and discusses potential future trends. The first section analyzes OGA QCs byReferral 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 andJune 2012 by Loss State. For each Loss State, the rate of OGA QCs per 100,000 persons was calculated anddisplayed in a map. Finally, the last section analyzes OGA QC referral submissions by Loss City, including amap 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 byReferral Submission Year from 2008 through 2011with a trend line forecast for 2012. OGA QC referralsubmissions increased approximately 47% between

2008 and 2011. The year with the most OGA QCswas 2010, with 3,547 referral submissions. Althoughthe overall trend of OGA QC referral submissionsbetween 2008 and 2011 was positive, there was adecrease by approximately 11% between 2010 and2011. Despite this recent decline, it is likely that theamount of OGA QC referral submissions for 2012 willcome close to or exceed 2011, with a trend lineprojection of 3,847 OGA QCs. The full trend lineforecast for 2012 is as follows: at 1 standard error ofestimate (SEE) there is a 68% chance that theamount of OGA QC referrals will fall between 3,429

and 4,265, while at 2 SEE there is a 95% chance thatOGA QC referrals will fall between 3,011 and 4,683.

Of the 13,014 OGA QCs referred from 2008through June 2012, only 1,719, or 13%, had a DOLprior 2008. These 1,719 OGA QCs, as well as 528QCs that occurred in the first half of 2012, wereremoved from this portion of the analysis only as toonly focus on OGA QCs that actually occurred from2008 through 2011. Figure 2 displays the number ofOGA QCs between 2008 and 2011 by DOL year witha trend line forecast for 2012. As of June 2012, OGAQCs increased overall by approximately 18% from2008 through 2011, and are expected to increasefurther as additional OGA QCs with a DOL within thistime frame will be likely referred after June, 2012. Thetrend line forecast of OGA QC incidences for 2012was 3,029. At 1 SEE there is a 68% chance that OGAQC incidences will fall between 2,470 and 3,588, andat 2 SEE, there is a 95% chance that OGA QCincidences will fall between 1,911 and 4,147.

Figure 2: OGA QCs by DOL Year from 2008 2011

Figure 1: OGA QCs by

Referral Submission 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 inwhich an event leading to an OGA QC actually occurred. Figure 3 depicts OGA QCs per DOL month brokendown 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 monthshave a higher than average amount of OGA QC occurrences. Based on these findings, it is important to viewthe 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 deviatesabove 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 aLoss State within the US. Table 1 lists the US states, including the District of Columbia (DC), in descendingorder by the cumulative total of OGA QCs. Totaling 10,795 OGA QCs, the Top 10 Loss States comprisedapproximately 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 increasedthroughout 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 crimein personal injury protection (PIP) fraud. At a fraud summit in the fall of 2012 with the Insurance Federation ofMinnesota, NICB detailed a reverse migration1 phenomenon recently observed in organized criminals whofocus on PIP fraud. According to NICB, law enforcement agencies in the states of Florida and New York haveplaced such a heavy focus on combating PIP fraud that organized criminals are geographically displacing toother no fault states; especially Minnesota. As mentioned earlier, OGA QCs in Minnesota increased byapproximately 231% between 2008 and 2011, while Florida only increased by 2% and New York increased by27%. Michigan, another PIP state that made the Top 10 list in Table 4, also experienced a 178% increase inOGA QCs from 2008 through 2011.

Table 1: OGA QCs by Loss State from 2008 June 2012

LossState 2008 2009 2010 2011

%Change08 - 11 2012* Total

LossState 2008 2009 2010 2011

%Change08 - 11 2012* Total

FL 769 760 831 781 2% 389* 3,530 IN 15 8 9 13 (-13%) 2* 47CA 367 494 625 770 110% 423* 2,679 CT 0 7 8 29 NC 1* 45MI 93 104 577 259 178% 47* 1,080 WI 10 19 10 3 (-70%) 2* 44TX 161 215 283 235 46% 156* 1,050 MS 4 4 7 19 375% 8* 42NY 108 213 218 137 27% 89* 765 OR 8 8 8 6 (-25%) 3* 33IL 88 148 150 117 33% 88* 591 UT 3 11 7 9 200% 2* 32GA 69 108 136 82 19% 27* 422 OK 14 3 10 2 (-86%) 1* 30SC 47 44 67 57 21% 29* 244 DC 7 2 8 8 14% 3* 28NC 36 38 73 66 83% 23* 236 WV 7 2 4 9 29% 1* 23

MN 16 51 54 53 231% 24* 198 RI 4 5 1 3 (-25%) 9* 22NV 24 44 60 46 92% 17* 191 KS 8 4 1 1 (-88%) 3* 17

AZ 21 40 51 43 105% 18* 173 NE 3 1 1 7 133% 4* 16KY 11 12 39 70 536% 29* 161 DE 2 6 1 3 50% 0* 12OH 21 38 33 31 48% 27* 150 NM 3 4 2 2 (-33%) 0* 11MA 12 25 30 33 175% 30* 130 IA 1 1 2 4 300% 0* 8LA 19 39 41 19 0% 11* 129 ND 1 3 3 1 0% 0* 8MD 43 9 19 37 (-14%) 15* 123 HI 1 4 0 1 0% 1* 7PA 20 19 31 20 0% 13* 103 ME 2 1 0 0 (-100%) 0* 3NJ 7 14 15 45 543% 11* 92 AK 0 1 0 1 NC 0* 2VA 10 25 32 16 60% 2* 85 NH 2 0 0 0 (-100%) 0* 2CO 24 13 17 25 4% 3* 82 WY 0 1 0 0 NC 1* 2TN 26 16 21 13 (-50%) 3* 79 ID 0 1 0 0 NC 0* 1

AL 27 9 20 7 (-74%) 5* 68 VT 0 1 0 0 NC 0* 1AR 6 15 12 25 317% 9* 67 MT 0 0 0 0 NC 0* 0WA 14 24 11 12 (-14%) 6* 67 SD 0 0 0 0 NC 0* 0

MO 9 8 15 20 122% 8* 60 Totals 2,143 2,622 3,543 3,140 47% 1,543* 12,991

1The 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=1.2NCstands for not calculable

Top10LossStates

http://youtu.be/xqdqmiLtx2k?hd=1http://youtu.be/xqdqmiLtx2k?hd=1http://youtu.be/xqdqmiLtx2k?hd=1

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Map 1 displays the rate of QCs with the OGA referral reason between 2008 and June 2012 per 100,000persons3 by Loss State. The states are shaded in 5 classes of the rate of OGA QCs per 100,000 persons, andthe classes are set by quantiles. The state with the highest rate was FL, with 19 OGA QCs per 100,000persons, followed by MI, with a rate of 11 OGA QCs per 100,000 persons. CA and NV tied with a rate of 7OGA 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 theprevious page, which lists the US states by the raw number of OGA QCs.

3The 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 aLoss City, and 1,782 different Loss Cities were identified in the data. Figure 4 displays the Top 10 Loss Citiesin descending order by the cumulative total of OGA QCs. The visual serves a dual function: it displays thenumber 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 redgantt bars that correspond to the red axis on the right. Totaling 4,749 OGA QCs, the Top 10 Loss Citiescomprise 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 from2008 through 2011 with an increase of 185%. Detroit, MI also stands out in Figure 3 as it reached 290 OGAQCs 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 andOrlando, FL in 2008.

Figure 4: OGA QCs by Loss City from 2008 June 2012

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

Miami,FL

LosAngeles, CA

Tampa,FL

Detroit,MI

Houston,TX

Orlando,FL

Chicago,IL

New York,NY

West PalmBeach, FL

Hialeah,FL

-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 theindividual years.

*

**

**

*

*

*

**

2008 2009 2010 2011 2012* Total

Legend

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Insurance Classifications

Insurance Classifications refer to descriptive fields from insurance lines of business. The identificationof patterns within these classifications can ultimately highlight certain preferences that organized crime groupsmay 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 finalsection looks at the Top 10 Referral Reasons that were coupled with the OGA Referral Reason in OGA QCsfrom 2008 through June 2012, which brings to light other insurance related fraudulent activities typicallyassociated 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 2008through June 2012. Table 2 lists the 34 Policy Types in descending order by the cumulative total of OGA QCsfrom 2008 through June 2012. Totaling 12,869 OGA QCs, the Top 10 Policy Types comprised approximately99% of all OGA QCs. The Policy Type with the vast majority of OGA QCs was Personal Automobile, with10,658 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 theoverall annual numbers for Other Personal Property were relatively low. The only Top 10 Policy Type thatdisplayed a decrease in the amount of OGA QCs was Accident & Health with a 75% decline in referralsubmissions.

Table 2: QCs with the OGA Referral Reason by Policy Type: 2008 June 2012

Policy Type 2008 2009 2010 2011% Change

08-11 2012* Total

Personal Automobile 1,831 2,074 2,934 2,549 39% 1,271* 10,659Commercial Automobile 166 204 220 233 40% 122* 945Personal Property: Homeowners 58 94 145 160 176% 49* 506Commercial Liability: General Liability 44 119 116 80 82% 30* 389Worker's Comp and Employers Liability 11 15 2 47 327% 27* 102

Accident & Health 4 66 0 1 (-75%) 1* 72Other Personal Property 1 5 28 28 2,700% 9* 71Commercial Multiperil 7 10 9 9 29% 19* 54Other Liability 1 9 19 6 500% 3* 38Commercial Liability: Business Owners 6 7 7 7 17% 7* 34

Personal Property: Inland Marine 0 0 27 0 NC 0* 27Commercial Property: Business Owners 2 10 3 5 150% 0* 20Commercial Property Other 4 7 5 2 (-50%) 1* 19Personal Property: Fire 2 2 7 4 100% 1* 16Cargo 0 0 7 3 NC 1* 11Personal Property: Mobile Home 0 2 5 4 NC 0* 11Commercial Inland Marine 1 2 2 1 0% 1* 7Commercial Liability: Multi-Peril 1 1 1 0 (-100%) 1* 4Commercial Property: Fire 0 2 0 2 NC 0* 4Boat 0 2 0 1 NC 0* 3

Commercial Property: Crime/Burglary 0 1 1 1 NC 0* 3Farmowners 1 0 1 0 (-100%) 0* 2Personal Automobile: General 0 0 2 0 NC 0* 2Personal Liability: Marine 0 1 0 1 NC 0* 2Professional Liability 1 0 1 0 (-100%) 0* 2Commercial Farm Policy 0 0 0 1 NC 0* 1Commercial Marine 0 0 1 0 NC 0* 1Fidelity & Surety 0 0 1 0 NC 0* 1Life 1 0 0 0 (-100%) 0* 1Medical Malpractice 0 0 1 0 NC 0* 1Mobile Equipment 0 0 0 1 NC 0* 1Personal Property: Marine 0 0 1 0 NC 0* 1Umbrella 1 0 0 0 (-100%) 0* 1Unscheduled Watercraft 0 0 1 0 NC 0* 1

Top10Policy

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 throughJune 2012. Table 3 lists the Top 10 Loss Types in descending order by the cumulative total of OGA QCs, andFigure 5 visually displays the disparity between these totals in a bar graph. Totaling 12,104 OGA QCs, theTop 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, theoverall annual numbers for Smoke were relatively low compared to the other Top 10 Loss Types. The Top10 Loss Type with the greatest decrease was Comprehensive which went down 40% over this same timeframe.

Table 3: OGA QCs by Loss Type from2008 June 2012

Loss Type 2008 2009 2010 2011% Change

08 - 11 2012* Total

Bodily Injury 714 853 1,186 1,099 54% 549* 4,401Personal Injury Protection 507 480 926 618 22% 287* 2,818Collision 256 336 338 312 22% 148* 1,390Other Auto 145 195 287 296 104% 118* 1,041Property Damage 143 208 245 249 74% 157* 1,002Theft 83 116 154 86 4% 46* 485Medical Payments 103 102 75 79 (-23%) 64* 423Comprehensive 57 41 37 55 (-40%) 37* 227Vandalism & Malicious Mischief 12 44 48 53 342% 16* 173Smoke 4 1 71 61 1,425% 7* 144

Figure 5: Total OGA QCs by Loss Type from2008 June 2012 Totals

BodilyInjury

PersonalInjury

Protection

Collision

Vandalism&

M

alicious

Mischie

f

OtherA

uto

PropertyDamage

Theft

MedicalPay

ments

Comprehensive

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 70additional Referral Reasons were identified within the 13,014 OGA QCs from 2008 through June 2012. Table4 lists the Top 10 additional Referral Reasons in descending order by the cumulative total of OGA QCs, andFigure 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 OGAreferrals. Of the Top 10 Referral Reasons, Extensive Loss History had the greatest rise in OGA QCs from2008 through 2011 with an increase of 136%. The only Top 10 referral reason that displayed a decrease inOGA QCs was Billing for Services Not Rendered with a decline of 7% from 2008 through 2011.

Table 4: OGA QCs by Additional Referral Reasons from2008 June 2012

Referral Reason 2008 2009 2010 2011% Change

08 - 11 2012* Total QCs

Staged/Caused Accident 547 923 1,186 1,105 102% 586* 4,347

Medical Provider 812 660 1,147 865 7% 436* 3,920Faked/Exaggerated Injury 469 653 851 930 98% 467* 3,370

Fictitious Loss 349 670 799 711 104% 371* 2,900Medical Provider/Attorney Relationship 622 430 722 625 0% 255* 2,654Extensive Loss History 240 412 531 566 136% 303* 2,052Excessive Treatment 460 392 444 482 5% 201* 1,979

Billing for Services Not Rendered 537 346 390 501 (-7%) 177* 1,951Attorney Activities 253 311 612 435 72% 291* 1,902Lack of Cooperation from Insured 214 384 474 472 121% 250* 1,794

Figure 6: Total OGA QCs by Additional Referral Reasons from2008 June 2012 Totals

Staged/Ca

usedAccident

MedicalP

rovider

Faked/ExaggeratedInjury

FictitiousLos

s

MedicalProvider/

AttorneyRelations

hip

ExtensiveLoss

History

Excessive

Treatment

BillingforServices

NotRendered

AttorneyActivities

Lackof

Cooperation

FromI

nsured

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Conclusion

As previously stated, the analysis of OGA QC referral submissions from 2008 through June 2012yielded the following results: The number of OGA QC referrals per referral year has increased by 47% from2008 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 referralsubmissions by volume and the highest rate of OGA QCs per 100,000 persons; although the city with the mostOGA QCs was Los Angeles, CA, followed by New York, NY. The vast majority of OGA QCs were referred onpersonal 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 wasStaged/Caused Accident. In the fight against organized crime in insurance fraud, NICB proposes thatdetection is the first line of defense. This first line of defense, as well as the possibility if this entire report, isheld up by the insurance professionals who, day by day, detect OGA in claims, and then to refer those claimsto the NICB QC database with the OGA referral reason; all of which takes place while NICB continues tocollaborate with the insurance industry and law enforcement to lead in the detection, prevention, prosecutionand the overall fight against organized group insurance schemes.