Fraud and other Faux-pas

Identity theft of health care practitioners, taking advantage of an insurer’s desire to settle small claims quickly and theft of ATVs, “homemade” trailers and marine craft were all the subject of discussion at an ISB-U Education Series Event held in London, Ont. on July 26.

The seminar focused on industry efforts to identify auto insurance fraud trends, ‘red flags’ and successful efforts in combating auto insurance fraud.

Identity fraud and HCAI

Representatives of the Insurance Bureau of Canada (IBC) and the Ontario Provincial Police (OPP) expressed concern at the conference that fraudsters are using identity theft to gain access to the province’s new electronic claims administration system, Health Claims for Auto Insurance (HCAI).

Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), requires that all of the province’s health care providers submit their OCF treatment plans to insurers through HCAI.

As HCAI notes on its web site, the Ontario government commented in its 2011-12 budget that the province and its insurers could use HCAI as a tool for identifying potentially fraudulent claims activity in the system.

But HCAI itself may be the target of fraud, according to conference speakers representing IBC and the OPP. Kathy Metzger, an investigator for the Ontario injury rings unit of the IBC investigative services, said fraudsters have already tried to gain access to the HCAI system in order to submit fraudulent treatment plans. The key is obtaining a health care practitioner’s name and call-to-registration number.

Under the old regime, in which doctors submitted paper OCF treatment plans to insurers, the health care practitioner’s signature was required, Metzger said. “With HCAI, they don’t even need that signature anymore,” Metzger said. “Everything is done electronically. So the invoices, the treatment plans, the requests for assessments and the invoices are all submitted to the insurance companies electronically and all [fraudsters] need is a name and call-to-registration number. And they can get that anywhere. They can get it from a report they happen to read, they can get it from a résumé that’s come into the clinic if someone has applied for a job.”

Metzger said a health care provider must sign a signature agreement in order to access the HCAI system. But she said evidence exists that fraudsters have attempted to forge doctors’ signatures in these agreements.

“Last year alone, we interviewed over 40 health care practitioners who were victims of identity theft,” Metzger said. “Not all of them decided to pursue it, because they were afraid for their safety.”

Doctors can be victims of extortion in efforts to obtain their registration numbers, observed Sergeant Stephen Boyd of the OPP’s organized crime enforcement bureau.

“How else do I get a doctor’s registration number and license number?” Boyd asked. “I go to Club Supersexe in Montreal, call some doctors, and send the two prettiest girls from Quebec to the ugliest doctor in the bar. And he thinks, ‘Wow, this is . . . ‘ Probably looks like a Casino Rama commercial, right? ‘How can I be so lucky?’ She prostitutes the doctor, making out in the hotel room, and then says to the doctor, ‘I want your registration number, your name, your clinic and everything from you. If you don’t, there’s a video that’s going to go on YouTube.’ What does the doctor do? Lose the house in [Toronto’s] Rosedale [neighbourhood] and the BMW? He’s going to give them what they want. Extortion.”

Taking advantage: Settling small claims without investigation

Insurance companies settling small claims (under $10,000) without any investigation may in fact be emboldening fraudsters to commit more serious forms of fraud in the future, a claims investigator warned.

Jordan Legg of Cunningham Lindsey spoke about the ongoing debate all insurers face related to the enormous cost and time required to prove fraudulent claims.

Legg said most vehicle claims are anywhere between $10,000 and $15,000. “Countless times,” he said, insurers are opting to pay out claims worth $10,000 or less rather than rack up the time and money required to undertake a thorough investigation.

“One of the biggest debates we have is the ethics and economics (debate),” Legg said. “The question always is, ‘How much do we pay before paying out?’ Is it more economical just to pay the $10,000 rather than incur investigation expenses?

“What we say is, what you pay now, you get later. Because criminals start at a low level, a couple of $10,000 thefts. They realize they can get away with it, they see how easy it is to pull an insurance fraud and they start to do bigger things. Basically it’s just a snowball in the industry. People just continue to perpetrate these frauds, and then they get bigger and bigger, because insurance companies are paying out with no investigation.”

Legg recommended insurers proceed with a staged approach to claims investigations. He suggested insurers allow investigators to do some preliminary work on a file, say four to five hours, which is “not going to cost you a lot.” This initial investigation would at least determine whether or not there are any ‘red flag’ indicators of fraud.

“If there are any indicators, if there is any indication of discrepancies, you will be able to make that assessment at that time and proceed accordingly,” he said.

Emerging trends in fraud

Car theft may be grabbing headlines these days, but frauds involving other types of vehicles have emerged recently on the radar screens of Ontario police.

These include insured ‘homemade’ trailers, watercraft and all-terrain vehicles (ATVs).

“Homemade trailers, this is probably the hottest thing going on right now in the province [of Ontario],” said Boyd. “Do you know how many how many homemade trailers are registered in the province each year? We have had over 400,000 homemade trailers [registered] in Ontario over the last five years.

“All of these trailers are ‘homemade.’ Do they look homemade?”

Boyd’s rhetorical question accompanied a slide presentation of ‘homemade’ trailers, some of which were clearly commercially manufactured trailers. He noted people obtain licenses for the trailers, obtain insurance for them, report them stolen and then re-register for a new homemade trailer license.

“We’ve lost 11,000 already in our jurisdiction [in 2011],” Boyd noted, adding that up to $300,000 to $400,000 worth of other property can easily go missing along with the trailer. One trailer, for example, went missing along with an expensive watercraft.

Speaking of watercraft, marina chop shops are coming into vogue, Boyd observed. As in scams involving auto chop shops, boats are reported stolen, an insurance claim is made, and the ‘stolen’ boat is actually carted to a marina, where the boat is stripped for parts that are re-sold.

ATV thefts are also an emerging trend. “ATVs are the number one stolen [item] in OPP jurisdictions” across the province, Boyd said.

One group of thieves stole a number of ATVs, sold them, and then stole them from the buyers to whom they had just sold them. They proceeded to re-sell them a second time for $1,000 per ATV. “That was entrepreneurial,” Boyd said caustically.

David Gambrill is the editor of Canadian Underwriter magazine.