Managing Auto Fraud

Canadian Underwriter talked to Chris Rain (CR), vice president of claims at ARCH Insurance, and Kadey B.J. Schultz (KBJS), partner at Hughes Amys LLP, asking for their opinions on applying risk management principles to accident benefits claims in Ontario. The province is currently undertaking a number of measures to prevent fraudulent auto insurance benefits claims.

Q: How do you apply risk management principles to accident benefit claims?

CR: Our goal is to pay benefits to people who are legitimately injured, while protecting the insurer from opportunistic exaggeration of claims or outright fraud. I cannot stress enough that our goal is to rehabilitate those who are legitimately injured in a timely fashion. However, in the past, tight timelines have not allowed for a reasonable investigation before payment was due, exposing the system to exaggerated and fraudulent claims. Now we are in a position to investigate matters efficiently before confirming coverage. For instance, if we move quickly from the outset of the claim and receipt of the initial OCF-1 and OCF-3 claims forms, we are able to conduct an examination under oath (EUO) and withhold specified benefits pending the claimant’s submission to an EUO. Where appropriate, we are able to withhold all benefits if a claimant fails to submit to an EUO. We are able, if not obligated, to obtain a statutory declaration and to review original documents from purported service providers in order to ensure that the accounts and invoices which are submitted are legitimate.

Q: Why are people in the process of criminal activity entitled to payment of accident benefits?

KBJS: A recent priority case, Minister of Finance and Lombard Insurance Company, involved a man on a bicycle who was being pursued by mall security for suspected shoplifting. He collided with a parked car in the mall lot. As a result of his sustained injury, he received benefits. Police attending the scene took no action. The claimant would be excluded from entitlement to IRBs, NEBs or benefits under ss. 21, 22 or 23 of the Statutory Accident Benefits Schedule (SABS) if he was charged and convicted of a criminal offence, including criminal offences not related to the operation of a motor vehicle, by application of s. 31(d) of the SABS. A person who is convicted of a criminal offence remains entitled to medical/rehabilitation benefits, due to the idea that OHIP is otherwise responsible for payment and, therefore, the Ontario taxpayers pay.

Q: What are considered “best practices” when adjusting an accident benefit claim?

CR: Whether a claim is handled by an independent adjuster and overseen by an examiner (as happens with many of our AB claims at ARCH) or handled by an in-house adjuster, best practices always begin with knowing your file, knowing the claimant and paying particular attention to all the details. Strong technical skills (knowledge of SABS’s intricacies) and an ability to keep an open mind while thinking strategically — i.e. what impact could this adjusting decision have on the claim in the short and long terms both positively and negatively? — are critical to accurate, efficient and cost-effective adjusting.

KBJS:One challenge is the cost associated with proactively adjusting a file. On files in which the circumstances of the loss or legitimacy of the claims is suspect, an adjuster can use numerous tools to investigate the matter quickly and prevent further leakage. Unfortunately, AB claims are often not handled proactively: it costs money to conduct surveillance, investigate documents and corporate relationships and to conduct an examination under oath. However, without that early effort, we see many files reach tens of thousands of dollars worth of cost of assessments and insurer examinations, with benefits being paid all the while, only to end up in dispute at the Financial Services Commission of Ontario or before the courts. Often in these instances, front-end loading the file might have shut down the entire illegitimate claim. The first six months are critical.

Q: On what basis can an adjuster deny a claim in which fraudulent activity has taken place?

KBJS: There must be more than the presence of a few ‘red flags,’ or a feeling that it is fraud, before an insurer can deny a claim without facing bad faith consequences. This regulation is in place to pay benefits to individuals injured in an accident; it is a peace of mind contract. Claimants who have legitimately been involved in a motor vehicle accident — whether by colliding with a vehicle or by hanging upside down on a ‘stripper pole’ in a party bus (yes, there is a very broad definition of ‘accident’) — deserve to be paid benefits to which they are entitled. That being said, a huge difference exists between an accident and a staged collision. If an adjuster can obtain evidence through reconstruction reports, forensic information and witness statements supporting the theory that the accident did not occur as described — or at all — then they are in a strong position to deny a claim. My recommendation is always to serve a Notice of Examination to submit to an examination under oath under s. 33 under these circumstances; insurers can, thus, obtain sworn evidence from claimants themselves prior to denying the claim.

CR: One big challenge for adjusters is to take their impressions or intuitions of a claim and work strategically to obtain objective evidence to confirm (or refute) the veracity of said claim. It is one thing to see red flags, but it requires quite a different skill set altogether to investigate further and either confirm coverage or put together supporting materials to deny an accident benefits claim.

Q: To you both, what would you recommend to any AB adjuster or insurer?

This is really about teamwork. It involves work between the adjuster, the examiner, the insurer’s agents — lawyers, private investigators, police and the Insurance Bureau of Canada — and, in the case of third-party claims, the insured, to ensure what is covered under the policy is paid. We need to protect injured people, our shareholders and the public at large, because they pay premiums based on how much we pay out. We need to make sure that payments for “harvested” claims are minimized and payments for legitimate claims are as accurate as possible