According to the Insurance Bureau of Canada (IBC), insurance fraud is one of the most costly white collar crimes in Canada. The IBC has stated: "Insurance companies, policyholders, taxpayers, and the general public pick up the tab through increased insurance rates."
What exactly is insurance fraud and is it different from insurance crime?
Insurance Fraud is an attempt to obtain insurance proceeds to which you are not entitled. Insurance Crime is any criminal activity which results in an insurance claim. For example, if a thief steals your vehicle and you claim against your auto policy, you are a victim of an insurance crime. If you arrange to have your vehicle stolen so you can collect the insurance, you have committed an insurance fraud.
Who commits insurance fraud?
The IBC website specifically focuses on auto-related fraud such as inflated repair invoices or faked accidents. Insurance fraud is much more insidious than this and is committed at all levels, including by those within or employed by the insurance industry. It would be wrong to think that fraud is exclusive to certain unsavoury types of individuals, as it truly is a white-collar crime.
What claims are considered to be fraudulent?
You can view what the IBC considers to be the top ten worst insurance crimes, published annually, at www.ibc.ca, which also includes fraud claims
Insurance companies may classify a claim as being fraudulent although there was no payment; for example, when a policyholder falsifies information, gets caught, and withdraws the claim. Other frauds include false or inflated property claims, false or inflated injury claims, padded invoices, and similar activities. False-injury claimants, with the help of certain members of the legal and medical profession, make a good living by collecting tax-free insurance proceeds. Savvy con-artists frequently target Ontario Accident Benefits, which are easy to collect for those who know how to work the system.
How much does insurance fraud cost the system?
For many years fraud was pegged at $1.3 billion annually or 10% -15% of every claim paid . Recently it has been suggested that 10%-15% of every premium dollar collected is paid to fraud. This is a huge difference and if correct, suggests that fraud has increased from $1.3 billion to $5 billion in less than three years. This is highly improbable as the number of claims reported has dropped significantly during this same period. To be fair, the insurance industry has not actually said that fraud has reached $5 billion, but their representation naturally leads to this conclusion.
Is insurance fraud really a problem?
Any fraud is a problem if the cost is passed onto the policyholders.
Do insurers combat fraud effectively?
The Insurance Corporation of British Columbia, a public insurer, is frequently in court charging and convicting individuals with insurance crimes or announcing the break-up of another fraud ring. Very little is heard from private insurers in Ontario and Quebec, where fraud is said to be the highest. Although the types of fraud activities have changed very little in the past several decades, private insurers have arrived at few effective solutions because they lag behind other industries in their use of technology and the sharing of information. To their credit, they have mounted an aggressive stand against auto theft which costs insurers over a billion dollars annually. However, car theft is not classified wholly as insurance fraud per se as it is the innocent victim of the crime (policyholder) and not the thief, who usually makes the claim.
Should you report insurance fraud?
Yes, although the information cannot always be used due to Privacy Act regulations or the insurers' inability to verify the information. We can all help fight insurance fraud.
Should insurers be required to disclose their individual fraud statistics?
Yes. If, as the insurance industry alleges, fraud increases premium, they should reveal their own success or failure rate in reducing the financial impact to their policyholders.
Next Week: What is Broker E&O?
Susan Saksida, CIP is an insurance consultant who has held senior positions within the insurance companies and brokers. She is currently conducting research into the root cause of consumer misunderstanding of the insurance industry. If you have an auto accident related story please email this to insurancecompliancematters@rogers.com .
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