Canadian Underwriter

Pandemic insurance fraud: What to watch for…

May 25, 2020   by Greg Meckbach

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Inflated auto towing and storage claims and arson are among the risks the industry faces from the economic downturn and social distancing arising from the pandemic, a fraud and data analytics expert warns.

“A legitimate accident may happen and [a towing firm goes] and picks up the vehicle and they charge $1,000 or $2,000 to disinfect it, and then they put it into storage to have it quarantined for 14 days using COVID-19 to build up those charges,” said Dennis Toomey,  Boston-based global director of counter fraud analytics and insurance solutions for BAE Systems Applied Intelligence.

Toomey is not aware of any specific instances in Canada of auto towing and storage fraud, but suggests it is probably happening here.

“If it is not, then be prepared for it,” Toomey said of inflated auto towing and storage claims. “That is something Canadians should be watching out for.”

The novel coronavirus was declared a pandemic Mar. 11 by the World Health Organization. Since then, social distancing precautions and mandatory business closures have resulted in layoffs in Canada. In Ontario alone, it is estimated that 1.1 million employees have lost their jobs, and another 1.1 million have seen their hours sharply reduced, The Canadian Press reported May 15.

“Whenever we have an economic downturn, even if it is just a cyclical economic downturn, we usually see a spike in suspicious claims reported to [insurance] industry organizations,” Toomey said May 22 in an interview with Canadian Underwriter.

An example is home and garage fire claims.

“In the last week of March of this year, Google reported the number of users looking for information on how to start a fire grew by 125%,” said Toomey.

“During an economic downturn, some people try to use the insurance industry as an ATM to try to help them with their financial crisis. They should not do that. They should use it for what it’s for. Insurance fraud is not a victimless crime. Everybody pays for it through taxes and the cost of living.”

The technology available to detect insurance fraud is stronger than it has ever been, Toomey reports.

BAE Systems was formed in 1999 by the merger of British Aerospace with Marconi Electronic Systems. Perhaps better known as the maker of military equipment like the Panavia Tornado ground attack airplane and the Bradley Fighting Vehicle, Farnborough, England-based BAE Systems has several other lines of business, including cybersecurity and fraud detection systems that use artificial intelligence and machine learning.

“Carriers are using a lot of different technology-enabled systems to identify suspicious activity and do that really quickly,” said Toomey. “You may not think you are going to get caught, and you may not get caught right away, but you will get caught.”

Canada’s largest property and casualty insurer, Intact Financial Corp., has told investors of the potential for “moral hazard” arising from the coronavirus.

During a recent “virtual fireside chat” Intact CEO Charles Brindamour was asked by Mario Mendonca, managing director of equity research at TD Securities, if the pandemic is affecting some business units more than others.

“People are at home and could maybe catch claims faster, but you have moral hazard building up,” Brindamour said at the time.

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