Canada: Automobile Insurance Fraud: Prevalence, Prevention, And Response

Insurance fraud is a tale as old as time. The earliest recorded incident occurred in Ancient Greece, around 300 BC. Hegestratos, a merchant, took out an insurance policy which required payment (with interest) upon his ship's safe arrival to its destination. Failing to repay the loan would result in repossession of the ship and its cargo. Hegestratos conspired to commit insurance fraud by sinking his empty ship and selling the cargo, thereby keeping the loan. For the record, he was unsuccessful, as he drowned trying to escape his crew who caught on to his plans.¹

Since then, transportation methods have evolved, and so have opportunities for fraud.

Prevalence and Methods

The Final Report of the Ontario Automobile Insurance Anti-Fraud Task Force revealed the high cost of insurance fraud: between $766 million to $1.56 billion dollars in 2010. In the four years preceding the report, the number of accidents and injuries reported to the police decreased, yet the number of accident benefit claims increased.²

There are typically three types of automobile insurance fraud: (1) staged accidents, (2) claims for accidents that have not occurred, and (3) inflated damages from an actual accident. Our firm has written previously on responding to suspected staged accidents,³ so this article focuses on adjusters facing potentially fraudulent claims via inflated, exaggerated or faked injuries.

Automobile insurance fraud often requires the efforts of third parties and is, therefore, a form of organized crime. Tow truck operators are often the first on the scene and most eager to make introductions to facilitate the claims process. In turn, they receive finder's fees from body shops, healthcare practitioners and/or legal professionals. Once the process begins, these individuals may coach claimants through their claim and perhaps even advise them to commit fraud.⁴

An undercover operation by Aviva Canada in 2016 revealed the effort that goes into defrauding insurers. Two undercover investigators brought a hidden camera into a Toronto clinic suspected of fraudulent activity based on a tip from a policyholder. They indicated they were involved in a collision, were not injured, and were seeking compensation anyways. The videos taken throughout the course of the operation caught evidence of clinic staff members and a paralegal from a nearby office coaching the investigators on how to milk the system. They were encouraged to declare injuries despite repeatedly admitting to not having any. They were also asked to sign attendance forms for treatments they never received. They even used different coloured ink to create the illusion that these forms were signed on different days.⁵ Aviva contacted the Toronto Police, who charged a chiropractor, paralegal, and receptionist with fraud-related offences.⁶

Prevention

In our view, the best defence is a good offence. While insurers rely on defence counsel to identify and aggressively respond to fraud during the litigation process, insurers can take steps to pre-empt fraud and protect themselves.

1. Adopt a multi-layered approach

Adopting a multi-layered approach to fighting fraud is critical, as fraud is complex and no single method could detect all types of fraud in all circumstances. For example, with suspected staged accidents, the investigation may focus on the circumstances surrounding the collision. Adjusters should consider retaining experts to determine whether the collision occurred as claimed and whether such a collision would result into the injuries claimed. However, with inflated, exaggerated or faked injuries, the investigation should focus on past fraudulent activity, and the claimant's condition, in addition to the circumstances surrounding the collision.

2. Have a long memory

Every claim consists of several parts. There is the accident, the claimant and those involved in the claim (i.e. healthcare practitioners and legal professionals). While the merit of a current accident benefits claim cannot be measured by the veracity of past claims, it is still advisable to have a long memory.

For accident benefits, fraudulent acts committed by healthcare practitioners should be remembered. They may serve as yellow "warning" flags about the veracity of a claim where services were ostensibly rendered at that clinic. For example, clinics that have issued invoices without the knowledge or consent of a medical practitioner (yet while using their signature), may have no qualms about doing so again in the future. This should be remembered. Once the yellow flags add up, an adjuster could investigate further and respond accordingly.

Since litigation is inherently adversarial, defence counsel can challenge the plaintiff's credibility by bringing forward prior instances of fraud. Adjusters play an important role in ensuring defence counsel has the information they need to do this.

Staff turnover may result in unintended clean slates for fraudsters. Employee training and vigilance are critical to ensuring there is extra scrutiny where needed, and that nothing falls between the cracks. The key to success is consistency and good timing.

3. Seek strength in numbers

Knowledge is power. So long as insurers operate individually and do not share information, fraudsters will thrive and go undetected. They will use these operating procedures to their advantage, swinging from insurer to insurer and starting fresh each time.

It is imperative to collaborate with other insurers to fight fraud as a collective. Sharing information about service providers who have been known to engage in fraudulent activity may prevent an insurer from paying out a phony claim. Knowledge-sharing need not be complex. It could be as simple as maintaining a database with names of service providers, a pooled resources of yellow flags gathered by various insurers.

The same logic applies equally within an insurance company. We encourage our clients to flag suspicious activity and publicize it internally within the company so other adjusters, managers and claims handlers can keep an eye out for similar names.

Likewise, insurers should be willing to cooperate with reputable healthcare practitioners, clinics, and legal professionals. Medical practitioners' signatures do get stolen and used without their knowledge or consent. The College of Psychologists of Ontario conducted a Pilot project, which revealed that 14% of psychologists participating discovered their credentials were used without their knowledge or consent, by clinics they did not recognize.⁷

If a claim involving a reputable medical professional seems suspect, then it is worth confirming they (1) are aware of the claim, and (2) rendered the services so claimed.

4. Be mindful of changing market conditions

Changing market conditions may result in an increase in fraudulent claims. The Final Report of the Ontario Automobile Insurance Anti-Fraud Task Force revealed an 83% increase in accident benefit costs in Ontario during the Great Recession.⁸

Insurers should be aware of the market conditions that policyholders face, and be prepared to adapt accordingly.

5. Focus on public perception

The Coalition Against Insurance Fraud conducted a survey on public attitudes towards insurance fraud in 2007.⁹ The study reflected the following possible reasons for committing insurance fraud: to save money or reduce costs, to get expensive work done that could otherwise not be afforded, and to "get back" at insurance companies. Some justified the latter as their right to "take back" the premiums they've paid over the years.

People have more negative attitudes towards insurers than they did in the past. Twenty years ago, 72% of those surveyed had a positive attitude towards insurers. Ten years ago, only 62% held those attitudes. A current study may reveal even lower figures. One of five adults surveyed (approximately 45 million people) indicated they would commit insurance fraud via padded claims under the right conditions or have few qualms when others do it.

While insurers cannot control peoples' financial motives for committing fraud, they can help control the public's perception of them. Good customer service, as well as rewards for loyalty and "good" behaviour (i.e. awarding credit for not filing claims over a period of time), could help improve insurers' image and discourage financially-motivated fraudulent claims.

Response

While the insurer relies on defence counsel once the litigation process has begun, they can still gather information to confirm suspicions of fraud, and should that information become evidence thereof, proceed accordingly.

Insurers can request an insurer's examination or examine the claimant under oath to inquire about injuries prior to the examination for discovery. They can also conduct surveillance on the claimant to ascertain their injuries are as claimed. Peoples' online footprint can be very telling. Prior to proceeding to the traditional route of physical surveillance, insurers should search for the claimant on social media. For example, a claimant may claim they are no longer able to run long distances, yet their Facebook account may have a recent picture of them running a marathon, evidencing otherwise.

If suspicions of fraud are confirmed, insurers should inform defence counsel so they may take next steps.

Conclusion

Automobile insurance fraud is prevalent as while the number of accidents and injuries reported to the police has decreased, the number of accident benefit claims increased. While considered a "soft" form of insurance fraud, inflating and faking injuries often requires the efforts of many in the industry.

Insurers can count on defence counsel to identify and respond to fraud during the litigation process, yet it is still imperative that they pre-empt fraud before it happens. This can be achieved by adopting a multi-layered approach to address different types of fraud in varying circumstances, remembering prior fraudulent acts, collaborating with industry stakeholders, paying attention to declining market conditions, and improving their public image.

Footnotes

^{1 Andrew Beattie, "The Pioneers of Financial Fraud", Yahoo Finance (21 July 2013), Erlend Clouston, "Secrets and lies", The Guardian (28 March 2009)}

^{2 Ontario Automobile Insurance Anti-Fraud Task Force, "Final Report of the Steering Committee", Ontario Ministry of Finance (16 October 2012).}

^{3 Van Krkachovski, "A Defence Lawyer's guide to Investigating Modern Insurance Fraud", McCague Borlack (Publications) (October 2013)}

^{4 Michele Henry, "Shady Clinics Bilk $1.3 Billion in Bogus Car Insurance Claims Scam", Toronto Star (13 July 2011)}

^{5 Paul Bliss, " Undercover Investigation Captures Alleged Car Insurance Fraud", CTV News (11 March 2016)}

^{6 Ron Fanfair, "Insurance Fraud Charges", Toronto Police Service News (8 February 2016)}

^{7 Task Force, supra note 2.}

^{8 Ibid.}

^{9 Coalition Against Insurance Fraud, "Four Faces Study: Why Americans Do-and Don't-Tolerate Insurance Fraud" (2007)}

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.