Chapter 2 - The Cost of Insurance Fraud Flashcards
How can insurance fraud victimize different parties?
- Economic loss to individuals and their families through direct physical parties
- Direct economic loss to communities when resources such as fire departments, police and other public services are used
- Indirect economic losses by enterprises that lose business because clients have suffered damage
- Can cause death or physical injury to public at large and public employees (innocent victims, firefighters, police, families)
- Indirect economic consequences eventually come to insurance consumers, higher premiums
- Emotional and psychological effects of fraud on victims
How is the insurance business like any other business?
They must focus on good service and make a profit
Outline the four different consumer attitudes
Realists
- Low tolerance, realize it occurs. Do not advocate strong punishment. Some behaviour justified depending on circumstances.
Conformists
- Tolerant of insurance fraud because they believe many people do it. Advocates for moderate forms of punishment.
Moralists
- Least tolerance for insurance fraud. Willing to punish severely because they feel there is no excuse.
Critics
- Very high tolerance for fraud. Ready to blame the insurance industry because they do not conduct business fairly. Little to no punishment.
When communicating to these attitudes, what are some other things to consider?
- Age, gender, level of education
- Cultural groups
Define opportunistic fraud
Also known as “soft” fraud is when an insured deliberately inflates a legitimate insurance claim. It is an unplanned act, and arises when the opportunity presents itself
Define premeditated or planned fraud
Also known as “hard” fraud involves the deliberate planning or inventing of claims of improper insurance benefits by an individual. It involves fabricating a claim for the purpose of defrauding the insurer
Define padded claims
Arise from an opportunity to submit an inflated claim when a legitimate loss has occurred. For example, your automobile has been broken into. The claim is for damages to the interior but you submit a claim for a broken tail light that occurred months before
Define mortgage fraud
Intentionally falsifying information on a mortgage loan application with the objective of receiving a larger amount than would have allowed if the application was honestly made. False information on an application can include claiming to make a higher income than actual real income to providing falsified proof of identification or a falsified appraisal of property
Define title fraud
A fraud that occurs when a criminal steals the identity of a homeowner and uses that false identity to steal the title of their home through false documentation filed at the land registry office. This could allow the criminal to sell the home or obtain mortgages to purchase other properties in the homeowner’s name
What is a common example of opportunistic fraud?
A legitimate accident or claim happens, but then they overstate the loss
What are common examples of premeditated fraud?
Staging an accident or committing arson
Service provider submits claim for something that did not happen
Duplicate insurance and claim twice
False appraisals
What is real estate fraud a combination of?
Mortgage fraud and title fraud
Who could be involved in insurance fraud typically?
- Third party claimants
- Insureds
- Agent or broker personnel
- Insurance company staff
- Any other professional or insurance professional
- Service providers
- Anyone remotely involved in the insurance transaction
What did Carter v. Boehm (1766) expand on?
Good faith and the vulnerable position of the insurer
What is the difference between utmost good faith and good faith?
Some would argue nothing, however utmost good faith is a higher standard
What key tool is used to raise awareness about fraud?
Education
Which organizations combats insurance fraud?
Canadian Coalition Against Insurance Fraud
What are the two techniques to control insurance fraud?
Prevent and reduce
What are the strategies to restrict insurance fraud?
- Promoting fraud awareness
- Teamwork
- Communication skills
- Consumer hotline
- Detection
- Reward
- Train
- Verify information
- Data banks
- Evaluate service providers and experts
- Analyze the scope and cost of repairs or treatments
- Security systems and practices
- Penalties for fraud
How might brokers, companies and other utilize promoting fraud awareness?
Broker
- Send out newsletters wit renewals
- Brochures in office for clients to read on recent fraud and effects
Companies
- Advertising through marketing, radio, TV, online
- Newsletters to brokers informing them of latest fraud and how it could have been prevented
- Training on recent fraud happenings and how it could have been prevented
Other
- Kiosk in mall showing the effects of fraud
- Insurance institute doing research and analysis on fraud happenings and sharing information with companies and brokers
How might brokers, companies and other utilize teamwork?
Broker
- Communicate with company, employees share info
Company
- Share info between departments, u/w, claims, SIU
Other
- Shared info on fraud occurrences w/ diff companies
How might brokers, companies and other utilize communication skills?
Broker
- Training on good communication skills for CSRs, brokers
Company
- Training in communication skills for u/w and claims
Other
- Insurance institute offers seminars on communication skills
How might brokers, companies and other utilize consumer hotlines?
Broker
- Crime stoppers
- Ensure clients aware
- Websites/emails to report fraud
Company
- Make sure brokers are aware of the hotline
Other
- Awareness to public in kiosks in malls all about Crime Stoppers
How might brokers, companies and other utilize detection?
Broker
- CSRs develop cheat sheets for new business
Company
- U/W, claims aware of red flags
- Training made available
- Process to report suspicion to SIU
- Set goals to be on alert for fraud
Other
- All staff aware and trained for red flags
- Update info on new red flags from analysis
How might brokers, companies and other utilize reward?
Broker
- Ensure that insureds are aware of claims free discount
- Rewarding system throughout broker staff for being on alert and following red flag processes
Company
- Claims free discounts for insureds
- Rewarding u/w and claims
- Code of conduct to ensure suspicion is reported
Other
- Lower percent of fraud; everyone wins
How might brokers, companies and other utilize training?
Broker
- Education key to fighting fraud
- Ensure staff knows the red flags
Company
- SIU train different depts
- Can communicate their experience with previous fraud happening and how it could have been avoided
Other
- Fraud certification specialists could offer training courses
How might brokers, companies and other utilize information verifying?
Broker
- Ensure info is correct at all times
Company
- U/W, claims, adjusters ensure accuracy at all times
- Convey accurate info to SIU as needed
Other
- Ensure complete accuracy when analyzing claims for fraud and analysis
How might brokers, companies and other utilize data banks?
Broker AND Company
- Ensure all privacy rules are adhered to when entering info
Other
- Work on improved technology to better detect fraud
How might brokers, companies and other utilize evaluating service providers and experts?
Broker
N/A
Company
- Building contractors, auto mechanics, lawyers, doctors, rehab clinics, etc
- Ensure labour charges are in order
- Ensure rehab clinics are accredited and check regularly on claims for irregularities and report to SIU
Other
- Work on improved analysis to be able to detect fraud
How might brokers, companies and other utilize analyzing the scope and cost of repairs/treatments?
Broker
N/A
Company
- Constantly analyze the claims coming in to catch irregularities in rehab costs, etc to SIU
Other
- General analysis in insurance industry to obtain the overall info for the companies
How might brokers, companies and other utilize security systems and practices?
Broker
- Security within the brokerage
- Employee code of conduct so no breach of info allowing fraudsters to get in
Company
- Discounts for vehicles and house security
- The better the security, the better the discount
Other
- Those associations working with the insurance industry work on research to improve security on homes, cars and identity
How might brokers, companies and other utilize penalties for fraud?
Company
- Insurers can take civil action against fraudsters to recover
- Each case must be considered individually and consumers now favour stiffer penalties against those committing fraud and driving up premiums
How does the realist approach insurance fraud?
- Low tolerance
- Realize it occurs
- Do not advocate strong punishment
- Some behaviour can be justified
How does the conformist approach insurance fraud?
- Tolerant of insurance fraud because many people do it
- Advocates for moderate forms of punishment
How does the moralist approach insurance fraud?
- Least tolerance for insurance fraud
- Willing to punish severely / there is no excuse
How does the critic approach insurance fraud?
- Very high tolerance for fraud
- Insurance companies have it coming
- Little to no punishment
What are some initiatives and organizations against insurance fraud?
- Insurance Bureau of Canada (IBC)
- IBC Investigative Services Division (ISD)
- Canadian Automobile Theft Bureau (CATB)
- Insurance Institute of Canada (IIC)
- Association of Certified Fraud Examiners (ACFE)
- Canadian Association of Fire Investigators (CAFI)
- International Association of Auto Theft Investigators (IAATI)
What role does IBC play in insurance fraud?
Insurance Bureau of Canada
- 80 year history of investigative services for home, car and business insurers
What role does ISD play in insurance fraud?
IBC Investigative Services Division
(formerly ICPB - Insurance Crime Prevention Bureau)
Insurance crime investigation and information services to detect and prevent insurance crime
Data bank is maintained to help insurers
What role does CATB play in insurance fraud?
Canadian Automobile Theft Bureau
Detects vehicle fraud
Data banks for loss information and VIN validation
What role does IIC play in insurance fraud?
Insurance Institute of Canada
Training and education programs
What role does ACFE play in insurance fraud?
Association of Certified Fraud Examiners
International organizations w/ more than 70,000 members in 25 countries
Education and certifications
What role does CAFI play in insurance fraud?
Canadian Association of Fire Investigators
Membership includes police, fire, legal, engineers and insurance personnel
Promotes teamwork
What role does IAATI play in insurance fraud?
International Association of Auto Theft Investigators
Improves communication and coordination among auto theft investigators
Training and resources in technical developments, trends, intelligence information and investigative assistance
What is an SIU?
Special Investigation Unit
What are the benefits of an in-house SIU?
- Dedicated to a single insurer w/ links to other insurers and law enforcement
- Permits workloads to be more easily controlled
- Continuous access to internal expertise and insurance related experience
- Operates in the context of its company’s philosophy
- Adds a special layer of expertise in criminal law and evidence
What are the main roles of an SIU?
- Provide company w/ timely and accurate investigations
- Necessary investigative expertise to create consistency
- Assist in training of claims personnel
- Assist in training of u/w personnel
- Proper reporting procedures are in place
- Establish and maintain working relationships w/ resources (law enforcement, brokers, insurance industry, government, etc.)
- Provide fraud intelligence, develop tools and procedures
What are the 5 main responsibilities the SIU has in the insurance industry?
1) Education
2) Protect assets
3) Emphasize enforcement and prosecution
4) Internal or external focus
5) Liasing
