Prime Time Crime


(Prime Time Crime exclusive June 19, 2015)


Insurance Fraud is Serious Business


By Eve Field

Insurance fraud is a serious crime that costs serious money: in Canada alone, fraudulent insurance claims may have a value of up to $2.6 billion every single year. As a result of these heavy losses, insurance companies charge more for their insurance policies - up to 10% to 15% more - and many are also responding by toughening up their approach to investigating and prosecuting fraudulent claims.

Small-scale insurance fraud can take many forms: it may be something as simple as claiming on the loss of an item that the claimant never actually owned, or misrepresenting the true value of an item, for example by claiming that a stolen 40 inch five-year-old TV was actually the newest 55 inch model. It may be the inclusion of pre-collision damage to a car when making an auto insurance claim, making a claim for a collision that didn't happen, or making a claim for non-existent injuries after being involved in a crash. Another increasingly common insurance scam is called address manipulation, which occurs when a person misrepresents their home address, or the address of the location where insured items are stored, to take advantage of reduced premiums.

And, of course, there are the insurance scam rings: elaborate crime rings that typically involve faked car crashes and fraudulent claims relating to the damaged vehicles and injuries supposedly sustained in the crash. These rings can involve dozens of people and incidents, and potentially hundreds of thousands of dollars. Some can even cost millions, such as the notorious Toronto case known as Project Whiplash, which involved a total of 37 arrests, 130 charges, and an estimated $5 million lost as a result of staged auto crashes and bogus insurance claims. 

Many people say that insurance fraud is a victimless crime, because the only people who lose money on fraudulent claims are the insurance companies - faceless corporations that aren't really harmed by the fraud. There are two problems with this. First, while it's true that fraudulent claims are paid out by insurance companies, it's not true that people themselves aren't hurt when insurance crimes are committed. There have been cases, for example, where car crash insurance scams have resulted in people sustaining severe injuries, and even dying, when faked crashes go wrong. And those car crash scams almost always involve innocent bystanders who may sustain injuries, but also end up suffering stress as a result of their involvement in the incident. Many of these scams also involve other kinds of crime, such as identity theft. 

Another fact that many people don't realize is that insurance companies take fraud into account when they assess premiums for their customers. The premiums you pay for insurance are based on risk assessment, but when you get an insurance quote, it's not just your own risk you're paying for. Insurance company premiums are quoted based on the amount of the customer's risk the company is willing to assume, but they do also take into account their own level of risk of being defrauded. As the Insurance Bureau of Canada explains, the more money insurance companies lose as a result of fraudulent claims, the higher they consider their risk to be, and the more they charge in premiums. 

Far from being a victimless crime, everyone who has insurance is a victim of insurance fraud, because they're paying higher premiums than they would if insurance companies didn't suffer such extensive fraud losses. So when people say they're committing insurance fraud precisely because of the high premiums they pay, they're not getting their revenge, they're just perpetuating the cycle. Insurance companies charge more to cover their losses, and when their losses cost more as a result of fraud, what's essentially happening is that all of their customers are paying more to cover the crimes committed by a few dishonest people.

All of this goes to explain why the ICBC strongly promotes fraud reporting. Reducing insurance fraud helps to keep premiums down for those majority - for those people who pay and claim honestly - and it also ensures that people who do commit fraud are brought to justice. Hopefully, it may also make people think twice in the future, when they consider making a fraudulent claim under the mistaken belief that nobody's getting hurt.

        Prime Time Crime                              Contributing 2015