Awesome, Awful Auto Fraud

It is by turns inspiring and deflating to witness the innovation, inventiveness and ingenuity of those whose sole purpose is to rip off others.

Such is the world of auto insurance fraud, a world inhabited by everything from the subtly sneaky to the downright brazen.

Perhaps the fraud revolves around fake brokers offering unsuspecting motorists too-good-to-be-true deals on insurance through recognizable companies; purchase of used vehicles on the cheap before faking their thefts and filing claims; staged collisions and false medical billing; or “wrongfully acquired” vehicles being resold after insurance money had been paid out.

These sorts of schemes can produce some big reactions. In fact, the aforementioned staged collision fraud in Ontario led to 142 charges against 46 suspects in connection with an estimated loss of $5 million, while defendants in the British Columbia reVINing case have been ordered to pay $850,000 (the Insurance Corporation of British Columbia alleges about $2 million in claims was honoured).

“The conspiracy defendants whom I have found liable, were involved to some degree or another in a well-organized and executed criminal enterprise to defraud the plaintiff of a significant amount of money,” Justice Austin Cullen of the Supreme Court of British Columbia wrote in his ruling. “The cost to the plaintiff is, of course, the cost to the motoring public,” he noted. And it is that simple caution that likely offers the greatest traction in the fight on auto insurance fraud. Transforming the public view of auto fraud as a cost for “them” – insurance companies – to a cost for “us” will provide both focus and fodder for plenty of questions. What is government doing to address the problem? Do regulators have sufficient authority? Do police have the resources to identify and knock down these fraud schemes? What can companies and motorists do?

In a recent report, Deloitte points out that auto insurance and workers’ compensation are the two biggest sources of an estimated $30 billion in insurance fraud south of the border. “Some companies have invested in improving data quality and adopting technology tools, but still lack the business processes, workforce competencies and organizational structure needed to act on the insights gained from data analysis.”

Getting a fix on fraud is well-advised in light of the associated costs.

A recent study by KPMG pegs the cost of auto fraud in Ontario at $769 million to $1.6 billion. Ernst & Young has suggested that the figure may not tell the whole story because it does not specifically address premeditated fraud, which could add another $130 million to $260 million annually.

The range is expansive, true, but the vagueness may serve as the vehicle for public complaint, if not public ire.

The Insurance Bureau of Canada (IBC) recently made its own bit of noise, taking to the airwaves September 2 with The Price is Wrong. Meant to explain how insurance policies work and why premiums are high – despite cars and roads being safer, and accidents being less severe – IBC points one of its fingers squarely at fraud.

Arguing that what people pay for insurance is based on claims cost, IBC says in many cases the costs are “through the roof” as a result of fraud and abuse in the system.

Until those costs are brought under control, the bureau cautions, Ontarians should expect to continue to see premiums that everyone would agree are too high.

Concern over effects on premiums is clearly not confined to Canada. Insurers in the United Kingdom, for example, have responded to a 5% hike in fraud last year by launching a register of insurance fraudsters. The register is meant to make it easier for insurers to prevent fraud by making details of known fraudsters available to insurers through a secure protocol.

Persistent messaging holds the promise of removing fraud from the shadows of balance sheets and thrusting it into the public spotlight.

Without doing so, fraud may be a matter of premium death by a thousand cuts.