State investigators knew that Monday's arrest of a Baltimore lawyer for alleged insurance fraud represented the tip of the iceberg in their undercover operation. But they couldn't have known the number of irate consumers ready to spur them on.
"Phones rang off the hook with people wanting to rat on lawyers. Everything from plain citizens to doctors from [Johns] Hopkins," said Norman L. Smith, assistant attorney general in charge of the case. "Everybody has a story."
Fraud, especially auto insurance fraud, might well be the bane of the good and honest driver. Motorists pay 10 percent to 25 percent more for insurance every year because of money paid to fakers, and swindlers, insurance analysts say.
But only in the past three years has Maryland started to think again -- after a similar campaign in the mid-1970s -- about how to solve the problem.
"This is in an embryonic state," Mr. Smith said yesterday. "People are saying, 'We don't like these high rates. What can we do to bring them down?' "
This latest probe by the Maryland Attorney General's office began with complaints by three of the 1,400 insurance companies in the state, including the Maryland Automobile Insurance Fund, the state-chartered insurer of last resort. At least several dozen investigators including postal inspectors and insurance company executives, have worked on the case, authorities say.
According to Broderic Kinkead, head of investigations for Geico Insurance Co. and a former Baltimore police officer, his company investigated 1,200 suspicious claims and reported at least 400 to law enforcement agencies last year.
In addition, the industry has been sharing data on suspected fraud through the National Insurance Crime Bureau, an industry group created in the late 1960s to help investigate fraud.
The first product of the 14-month-old state probe was Monday's arrest of lawyer Nelson R. Kandel, indicted on charges of theft and fraud in connection with filing false claims. The probe centers on the practices of lawyers, doctors and other professionals handling auto insurance claims.
It could result in as many as a dozen more indictments. Mr. Kandel was released yesterday on $25,000 bail after surrendering his passport to the attorney general's office.
Insurance fraud costs Marylanders at least $1.3 billion a year, or about 10 percent of all claims, said Joseph Kelly, deputy insurance commissioner and the chair of a new state task force to combat fraud.
Some studies show that number could be as high as 25 percent, which could bring the cost in Maryland to more than $3 billion a year.
Nationwide, the problem costs consumers at least $17 billion a year. Of that, $8 billion is related to bogus auto insurance claims, according to data compiled by the National Insurance Crime Bureau.
The most common kind of bogus claims are from staged accidents, accounting for 24 percent, and false medical claims, which make up 20 percent of claims, studies show.
In Maryland, the high cost of premiums -- sixth-highest in the nation -- parallels an extraordinarily high number of claims by people represented by lawyers. The state ranks first in the country in the percentage of claims filed by people who have hired lawyers and say they were hurt in accidents, according to a study in 1989 by an insurance industry research group.
"It is quite striking," said Timothy Dove, regional manager of the Insurance Information Institute, an insurance company funded group. "No one has quite figured out the right reason. There is some speculation it might be attorney advertising."
Indeed, MAIF officials say that 50 percent of the auto insurance claims in the Baltimore metropolitan area are filed with lawyers' names already attached, compared with 30 percent for the rest of the state.
A typical fraudulent claim works this way, according to a state official familiar with the probe: A driver in an accident finds a lawyer. The lawyer sends the driver to a certain doctor. The doctor orders 30 therapy treatments worth a total of $1,000. Historically, the driver gets back about three times the amount of medical bills -- or about $3,000 in this case -- from the insurance company to settle the case out of court. The lawyer takes a third, or $1,000.
The result of such claims is higher insurance costs for consumers, because companies base their rates on how much they pay in claims.
In December 1990, a state government panel recommended creation of a fraud unit in the state's insurance division and a number of other changes to deal with the problem.
Insurance companies were required to prepare anti-fraud plans for the first time this year. Maryland Insurance Commissioner John A. Donaho said yesterday that a proposal to create a fraud unit in his department, now before the General Assembly, would ultimately save money for all state residents.