Copyright held by The John Cooke Fraud Report. Reprint rights are granted with attribution to The John Cooke Fraud Report with a link to this website.
By Leslie Kim
Buenos Aires, Argentina September, 1999
The sights: The city is often called the Paris of the Western hemisphere. Ultra modern highways run alongside cobblestone streets, an urban blending of the old and the new. Fresh-fruit vendors, newsstands and artisans dot the sidewalks. Leather clothing is everywhere; soft, sleek, pricey.
The sounds: Horns beep incessantly. Cars accelerate, often passing within less than an inch of one another as they maneuver through the narrow European-like streets of the city. The word most used to say goodbye is ciao (pronounced “chow”) because it means “goodbye only until we meet again.”
The smells: Empanadas, baked fresh and filled with meat, onions and a delicious blend of spices. Perfumes and colognes from around the world. Fresh flowers available on every street corner.
The people: Smart, efficient and appreciative. The women are lithe, athletic and sport Ally McBeal (short!) skirts. The men tend toward formality, greeting the ladies – and often each other – with a kiss on the cheek.
The problem: The birth of endemic fraud.
Argentina is a blending of the old and the new. Buenos Aires combines the cosmopolitan mood of New York City with the laid back ambience of the Latin people. One hundred and forty thousand taxi cabs dart and swerve through the city, ferrying passengers from place to place for fares that are cheap by North American standards. The meter starts at $1.12 (a peso and a dollar are one-for-one) and climbs slowly. A fifteen or twenty minute ride is seldom more than a five spot.
Insurance companies occupy large buildings amidst the hustle and bustle of the city. Some write only risks within Argentina; others are part of world-wide conglomerates, quoting premiums in the hundreds of millions dollars range. Computers are everywhere, and many underwriters and claim adjusters have earned multiple advanced college degrees. For the most part, business is conducted in Spanish, although companies dealing in the global market often require employees to be bi- or trilingual.
In the recent past, a distressing trend has begun to emerge. Fraud. Like a virulent bacteria, it has taken hold of the system and is spreading at an alarming rate. South American companies are ill-prepared for the onslaught. Countries in this area of the world do not have legislation in place to deter the criminals. For the most part, the most a company can achieve by identifying and proving a fraud is the denial of the claim. Even a minor slap on the hand is rare. Insurance fraud – as a crime – slips through the cracks of the system.
Perhaps the largest obstacle, however, is the inherent lack of trust between companies and the refusal of any information exchange. There are 142 companies writing insurance in Argentina. Ten of these companies account for 50 percent of all written premium, and the other 132 companies account for the other 50 percent. The lack of company to company communication and/or cooperation serves as a license to steal for those intent on perpetrating insurance fraud.
No matter the global location, fraud appears to follow predictable pathways. Argentina, Brazil, Costa Rica, Paraguay, Chile and other countries are in the early stages of fraud scheme development and, in essence, the predictability becomes a benefit. The hope is that by learning where the road leads, in advance of the trip, roadblocks can be set up to deter the would-be criminals. A fluctuating economy is at the root of some of the recent fraud trends. When a car becomes too expensive to maintain (gasoline costs in excess of four pesos – equal to four US dollars – a gallon), has too many miles, has major mechanical problems or the loan amount exceeds the value of the vehicle, fraud becomes a way out for the owner. Cars may be “stolen” (via an agreement between the owner and the thief) or they may mysteriously catch fire and burn. In either case, the insurance company is on the hook.
Mention of the All Claims Data Base accessible by US insurers provoked a look of surprise and disbelief from the 50 executive South American insurance company representatives who attended a recent fraud seminar in Buenos Aires. While the concept was appealing, the implementation logistics may prove difficult because the communication between the carriers is zero. A few years ago an individual attempted to set up a cooperative data-base system; but the privately owned company was allegedly motivated by profit and charged high fees. This caused the already distrustful insurers to become even more so … and the cooperative database died a very premature death.
The concept of the National Insurance Crime Bureau, as an entity that serves as a bridge between insurance companies and law enforcement agencies, was of great interest to the South American company representatives. Presently, the level of communication between insurers and police agencies is almost nonexistent and law enforcement authorities do not “police” in the sense of the US word. The idea of a deputized Department of Insurance (DOI) investigator, as is the system in some of the US states, is incomprehensible to the South Americans.
Part of working in an advisory capacity with foreign company management includes ascertaining the parameters of the system currently in effect in their country.
Q: Do you have national, state or local laws in effect to criminalize insurance fraud?
A: No, none.
Q: Then how can you put someone in jail if he is found to have committed insurance fraud?
A: We can’t.
Q: What can you do to the person?
A: If we can prove that his claim is a fraud, we can refuse to pay him.
Q: And then what will that person do?
A: Usually, he will try to do the same thing to another company.
Q: Do you keep a database of questionable claims?
A: No.
To get a picture of Buenos Aires traffic on an average afternoon, imagine a New York City taxicab driver who has been offered a $500 tip to transport a frantic rush-hour passenger from downtown Manhattan to JFK in 40 minutes. Impossible? Not for the cab driver who ignores stop signs, makes his own lanes by moving around and through other traffic (often passing within an inch of the other vehicle), turns right from a left lane or left from a right lane and uses his brake pedal only when he arrives at the JFK terminal. Now imagine the same driving habits being used by every single driver navigating the streets of this city of ten million people, and you have a picture of Buenos Aires traffic. In short, Mario Andretti would come in fourth in a four-car Buenos Aires race … trailing a 68-year-old grandmother, a 45-year-old tourist from Istanbul (who already knows how to drive exactly like an average Argentinean), and Antonio Bunader, our gracious South American host and driver.
In the US, traffic begins to clear before 7:00 PM. Cars are parked in driveways and remaining traffic is light. Not so in South American (and many European) countries. In Argentina, 7:00 PM marks the starting gun of the Indy 500 as vehicles navigate the streets, looking for elusive parking spaces and/or staking out a popular restaurant for a 10:00 or 11:00 PM dinner. Traffic remains heavy through midnight on the most average of days.
Words such as malingering, upcoding and unbundling (their Spanish equivalents) are just being introduced to workers’ compensation adjusters. What once was an unusual occurrence is fast becoming a trend. Certain doctors and law office combinations are noted to be working together – over and over in claim after claim – and the most a company can hope for after uncovering a flagrant fraud is to deny a portion of the claim or, in the best possible scenario, the entire claim. A malingerer, if caught, will receive only the money he was originally entitled to. A doctor submitting unbundled bills or bills with a more expensive code for a less expensive procedure will receive the money for the corrected bill. In short, criminals who get away with fraud are rewarded and criminals who are caught lose only the amount of the fraud. Prosecutions are, for the most part, nonexistent.
Workers’ Compensation companies are also uncovering large amounts of premium fraud. But when they find a construction company claiming 99 secretaries and one hard hat, there is nothing to be done except a correction of the premium. And when that happens, the company may commonly cancel their coverage and seek replacement coverage from the next insurer, again stating they employ 99 secretaries and one hard hat. With no company-to-company communication network and no penalties to be levied against the fraudster, there is no adequate deterrent. Remises (pronounced reh-mee-says) are another high-cost problem plaguing the insurance companies. Basically, remises are cars for hire, driver included, that rent by the hour, day or more. Remise agencies dot corners throughout the city, and car owners will “register” their car with an agency which heavily advertises the availability of cars. Remises tend to be immaculately clean and the driver behaves like a chauffeur rather than a cab driver. This form of transportation is very popular with executives, 5-star hotels and the wealthy. A call is made to the agency and the car shows up to collect the passenger. Rental is accomplished via account, so there is no cash exchanged during the actual transport period.
When the car owner finds money is tight, registering the vehicle with a remise agency is a fast way to earn some extra money. The problem is that the auto is rarely premium rated as a for-hire vehicle, and the courts are unwilling to enforce exclusionary policy endorsements when an “innocent” person is injured. And it’s easy to understand that a remise ferrying paying passengers an estimated 70,000 kilometers a year poses a far greater level of risk exposure than a personal use vehicle being driven 20 kilometers a year.
The answer is four-fold.
Cooperation – One way or another, companies must form an alliance and work together for system reform.
Communication – There is currently no information exchange taking place between South American companies. A central database is a must.
Education – Evolving fraud follows a predictable pathway. A wealth of information from the US, Canada and certain European countries is available and should be requested and passed throughout the claims and underwriting areas.
Legislation – A system of zero penalties is an encouragement for fraud. Acts of fraud or attempts to perpetrate fraud must be legislatively criminalized and enforceable punishments must be set.