The auto fraud squad: How Canadian insurance companies are trying to crack down on fake claims
Friday, Apr. 17, 2015
Aviva Insurance SIU adjusters (FROM LEFT TO RIGHT) Paul Miller, Tracy Harrop, Gordon Dalgarno and Alex Moore at their Scarborough office. Peter J. Thompson/National Post
TORONTO – “We know of some entities who have about 50 different ways to defraud us,” says claims investigation supervisor Dave Nolan of Aviva Canada Inc. “They try something new every day,” he said.
Nolan is but one supervisor of many crack teams in insurance companies across Canada, who have to sniff out the elaborate fake claims that are made after an accident. The business is lucrative for those who prevail – the “entities” often being body shops, tow-truck operators and health practitioners these days, not just your “Slippin’ Jimmy” (the fake fall in front of a car) any more.
That hits you right in your pocketbook. The website insurancehotline.com says an estimated 15 per cent of insurance premiums go toward covering fraudulent auto insurance claims. In real numbers, this means $225 on an annual average auto insurance premium of $1,500 covers the cost of auto fraud for the insurer.
No dedicated auto fraud investigation unit exists within law enforcement, so auto insurers and the Insurance Bureau of Canada have to do their own legwork and then take their discoveries to the police. Convictions don’t always follow, because of the backlog of insurance disputes once it gets to court.
According to Nolan, some other ways in which Aviva is defrauded are: adding extra tolls, overcharging for storage, or purposely removing salvageable parts like the airbags or catalytic converters before the salvage company comes to recover those parts for Aviva. “They’ll add an extra toll, or, rather than charging us a reasonable amount for storage, say $60 per day, they’ll charge us $100 per day,” he said.
Personal injury fraud and staged collisions are where things get interesting, and two high-profile cases highlight the issue. In the first example, in 2013, a judge ordered a B.C. couple to pay the province’s insurance provider over $200,000; the couple’s friend had willingly lied about witnessing a collision they caused by running a stop sign.
More significantly, in 2012, Toronto Police arrested 37 people and laid 130 charges in Project Whiplash, involving staged accidents, bogus rehab clinics and fake tow-truck operators. Auto insurers lost an estimated $4 million to $5 million.
According to insurancehotline.com. smaller scams that involve an unsuspecting driver are both common and hard to detect. Consider the Swoop-and-Squat, in which the “swoop” vehicle participating in the fraud suddenly speeds up and cuts off a “squat” vehicle (also participating in the fraud), forcing the “squat'” vehicle to slam on its brakes. The unsuspecting driver in the car behind the “squat” vehicle has no time to brake, rear-ending the “squat” vehicle and looking like the at-fault driver for failing to keep the proper distance, according to Claims Canada.
Other variations include the Wave-and-Hit, a friendly gesture from the scamming driver to another driver, indicating that it’s safe to change lanes, except it isn’t. Instead of giving the right-away as the fraudster indicated they would, they hit the car, denying later they ever signalled to the victim. In the Sideswipe, a manouevre played where there are two left-turning lanes, the fraudster deliberately sideswipes a car that’s drifting a little, then claims it was the drifting car’s fault, according to insurancehotline.com.
Ben Kosic, president and CEO of CANATICS, a not-for-profit organization that analyzes pooled auto insurance industry data collected from its nine auto-insurer members, said these kinds of staged collisions create confusion about how they get reported. “When the police officer arrives on the scene, there is a lot of finger pointing going on about who did what and who hit who,” Kosic said.
Organized crime groups are targeting innocent people… They are making collisions look
more real and therefore harder to detect
Recently, CANATICS launched an analytic tool to help their members, including Aviva, identify suspicious claims, such as staged collision scams.
The tool uses pooled data to track patterns among the people, vehicles, locations and other entities involved in dubious claims from all of its members and can then give the members a broader set of data to better alert them to fraudsters and elaborate schemes.
“In the past, fraudsters have been able to subtly change their identity and move from one insurer to another and it was hard for the insurers to pick that up,” Kosic said. “Our data will provide really amazing leads to our member insurers on claims that they might not have otherwise seen as fraudulent,” he said.
Despite these efforts, scammers are relentless in the desire to keep one step ahead.
Peter J. Thompson/National Post
“Organized crime groups are targeting innocent people,” says Kathy Metzger, outreach and education coordinator for the Insurance Bureau of Canada. “They are making collisions look more real and therefore harder to detect.”
While no nationwide data exists, a 2012 report submitted to the Ontario government by the province’s Auto Insurance Anti-Fraud Task Force included an estimate from KPMG saying fraud costs insurers in Ontario, reportedly the staged-collision capital of Canada, between $770 million and $1.6 billion in 2010. This would have amounted to between $116 and $236 per average premium in that year.
It’s interesting to note – in the “which came first” chicken-and-egg scenario of fraud costs vs premiums – that Ontario drivers may have overpaid insurance by $3 to $4 billion between 2001 and 2013 — $840 million in 2013 alone, says a recent study from Schulich School of Business commissioned by the Ontario Trial Lawyers Association.
“The more often fraud happens, the less money insurers have to pay for it,” said Christopher Lang, Aviva’s senior manager of fraud operations. “If we have a shortfall then we have to raise premiums to make up for the money we’ve lost and to cover for next year’s losses. It’s a vicious circle,” he said.
This is where anti-fraud teams come in. At Aviva for instance, “We have people who are former police detectives and data or online analysts who are savvy at using online tools,” said Gordon Rasbach, Aviva’s global fraud management leader.
Peter J. Thompson/National Post Aviva Insurance SIU adjusters Gordon Dalgarno (SECOND RIGHT) speaks at the company's Scarborough office.
“We would take the name of the people who have committed fraud against us and enter it into our database so that they don’t come back on our books,” says Tracy Harrop, investigative analyst.
But analytics is just one part of the puzzle. One recent example of how the team conducts a complex investigation began with a simple claim for accident benefits. That person and their passenger said they suffered injuries in a collision.
Pointedly, Aviva received the claim just days after the customer bought their policy. Also, the vehicle was towed to a body shop known to Aviva for having questionable practices.
After running a background check on the vehicle, the team discovered that it had been totalled in a previous collision and rebuilt. When the field investigators met with automotive engineers for an inspection, they found it had seized brakes, indicating it had not been driven for some time. The engineers also believed the reported injuries were not caused by the collision, based on how the vehicle was struck.
When the anti-fraud team contacted the customer to explain what their investigation found, the person immediately withdrew their claim. “Quite often people will open a claim thinking Aviva will go ahead and pay it,” said Gordon Dalgarno, a field investigator with the anti-fraud team.
“When they know they’ve been caught, they often abandon their claim,” he said – a win-win for insurer and your premium.