Study 1-9: Narrative practice questions

Question 1

What can happen when insurance fraud is left unmanaged?

Answer 1

• Fraudulent acts may increase in frequency
• Fraudulent acts may become more severe
• More participants will be involved in fraudulent acts, including a greater proportion of participants with a criminal history
• Collusion in fraudulent acts and corruption will increase across participants and stakeholders, including insurer employees
• Manipulation and deception of insurance consumers will increase
• Corruption and coercion incidents will increase
• A higher incidence of fraudulent acts will be accompanied by intimidation and violence

Question 2

What are the key fraud prevention strategies?

Answer 2

• Identification verification
• Negative thinking
• Intelligence
• Avoidance and severance
• Supplier prohibition
• Fraud history record
• Education

Question 3

What are the key elements of fraud?

Answer 3

• Person or entity
• Deceit or falsehood
• Misrepresentation
• Material information or material facts
• Profit or gaining an unfair advantage
• Post-investigation conclusion

Question 4

How is fraud against insurer defined?

Answer 4

• Creating a false document, intended to be issued by an insurer
• Altering a document issued by an insurer for profit
• Creating a false document, cheque, or instrument redeemable as payment and purported to be issued by an insurer
• Altering a document, cheque, or instrument redeemable as payment issued by an insurer
• Cashing or redeeming a false or altered document, cheque, or instrument redeemable as payment, issued or purported to be issued by an insurer
• Distributing insurer information or data to a person or entity without the insurer’s knowledge or consent
• Using or deploying software or other electronic means to disable operation of, or access to, a computer system or application containing an insurer’s data until a demand for a sum of money is paid in exchange for regaining control or access

Question 5

What are some possible elements of coercion?

Answer 5

Coercion occurs when someone is

• forced to do something;
• led to believe or accept as true or valid what is false or invalid;
• requested to sign or acknowledge a misleading or incomplete document;
• discouraged or restrained from disclosing information;
• disadvantaged by disability or a language barrier, due to misrepresentation, false impression, trickery, threats, or blackmail;
• made timid, fearful, or frightened due to aggressive or threatening behaviour; or
• the recipient of an utterance or threat of bodily harm or death.

Question 6

How does corruption appear in the insurance industry?

Answer 6

• Corruption represents a loss or deterioration of integrity of its participants.
• Participants are motivated by greed and an expectation or hope of return.
• Corruption also means the act of soliciting, offering, promising, giving, or receiving unearned favour, money, or any item of value in the course of business as a means to induce or influence a person’s judgment or conduct; a decision or outcome; business activity or revenue; or an unlawful act.
• Corrupt acts are directly linked to insurance fraud on two fronts: The return often represents opportunity for future fraudulent acts (for example, a lawyer receives cash from an injury treatment clinic that frequently submits exaggerated invoices to insurers). The deterioration of integrity is the result of an existing environment of prolonged, ineffective fraud management (for example, an insurer discovers two of its adjusters have been receiving gift cards from a construction contractor every time a claimant is referred to the contractor).

Question 7

What are the pros and cons of civil proceedings as an enforcement option?

Answer 7

Pros

• The timing and scope of proceedings are controllable. There are no dependencies on external bodies as to when or how action will be taken.
• Costs of investigation can be added to the claim by the insurance business or organization initiating the proceeding.
• Resolution of a civil action can include agreement on a court order with specified conditions. Contraventions of court-ordered conditions are always enforceable in the future, which can be an excellent fraud prevention tool.

Cons

• Upfront legal costs (internal or external) are incurred to see civil proceedings through to the desired conclusion.
• There can be circumstances where it is not practical to recover damages or costs if the defendant cannot pay.
• There is significant risk of industry reputational harm to situations where civil proceedings initiated by an insurer are withdrawn or no longer pursued because of mounting legal costs. This can quickly result in the reversal of the intended effect at the outset of proceedings because knowledge of the withdrawal empowers the defendant (or others who are likeminded) to continue their behaviour.

Question 8

If an insurance business or organization must initiate an enforcement complaint, what are the principles that guide the decision?

Answer 8

• Personal safety
• Threat of deliberate loss
• Prosecution of a concluded case with deterrent value
• Public interest in reporting unenforceable complaint cases
• Additional evidence to bring a case to conclusion

Question 9

Describe how professional regulatory bodies are created and how they function in the insurance industry.

Answer 9

If a profession is authorized by the government to self-regulate, legislation sets out a framework and delegates legal authority to that profession to create its own regulatory body to protect the public interest by setting and enforcing accreditation and practice standards.

The regulatory bodies then

• develop and enforce conduct rules to protect the public by ensuring that services from members of the profession are provided ethically;
• provide a mechanism for the public, including insurers, to complain about the practices and conduct of a member of the profession;
• provide a process to investigate and, if necessary, discipline any member of a profession who fails to meet professional standards of practice; and
• create rules to remove a member from the profession.

Question 10

What are the privacy principles for insurance fraud management?

Answer 10

• An insurance fraud management program should document baseline principles and practices relating to privacy (including the collection, use, and disclosure of information) and investigative practices.
• All privacy laws must be obeyed.
• When used during an investigation, surveillance should only be considered in cases determined to be potential fraud, not fraud risk.
• Information that identifies a person or entity should not be retained or stored in any case file, data repository, or technology used for the purpose of future fraud management in circumstances where that information was used in a case of fraud risk that was never analyzed or investigated (or analyzed but not determined to be potential fraud).
• An Internet Protocol (IP) address constitutes personal information. It can identify a host on a specific network or subnet, and thus be vulnerable to attack by hackers.

Question 11

Describe legal privilege along with its two types. How is legal privilege used in the insurance industry?

Answer 11

Claiming legal privilege in a legal dispute is a way to resist disclosure of information that could weaken a case or prove advantageous to the opposing party. An insurer conducting an investigation will sometimes rely on legal privilege to protect the disclosure of information obtained during an investigation into potential fraud.

There are two types of legal privilege:

• Solicitor–client privilege (the protection of confidential communication between a lawyer and a client)
• Litigation privilege (the protection a lawyer has in collecting privileged information to prepare a case for or during litigation)

During claims handling, common insurer practices to protect disclosure of an investigation of a claim using litigation privilege include

• retaining a lawyer;
• ensuring all investigative activity is organized by the lawyer;
• addressing or copying investigative and expert reports to the lawyer;
• labelling all communications, documents, and reports as “privileged and confidential”; and
• having the lawyer manage and retain the relevant portion of the claim file rather than the insurer.

Question 12

How are the categories of policy fraud and falsified claim fraud vulnerable to bad faith? Provide some examples.

Answer 12

The categories of policy fraud and falsified claim fraud are vulnerable to bad faith because the allegations (and management of them) involve both parties to an insurance contract that are owed utmost good faith. Examples of bad faith in the context of insurance fraud include the following:

• Unsubstantiated conclusions of fraud
• Actions that are consistent with a premature determination of fraudulent behaviour
• Cancelling or voiding a policy due to suspicion
• Denying a claim based on misrepresented information
• Using a computer-generated fraud score to decide the negative outcome of a claim. It should be noted that most fraud scores are not visible to the adjuster. Most claims software do not share a fraud score unless it hits a threshold. When it does, only then can the adjuster view it.
• Making a fraud determination based on an incomplete investigation
• Coercing an insured during an investigation
• Offering a claim settlement amount substantially less than the claim is worth based on an element of unproven fraud or suspicion
• Lack of fairness or unjustifiable delays in conducting a fraud investigation

Question 13

What information may require further investigation during the insurance application process?

Answer 13

An intermediary may require more details from the potential client if he or she

• Does not live or work nearby
• Lives in an area not consistent with income or occupation
• Has lived at his or her home for less than six months
• Requires high limits of coverage that are not consistent with income or lifestyle
• Works in an automobile-related business
• Has a record of claims and/or convictions
• Has had payment issues with a previous insurer
• Is evasive about details pertaining to employment or the subject of insurance

Question 14

What financial red flags may an intermediary spot during the application process?

Answer 14

Intermediaries may consider it a red flag if the potential client

• is in debt;
• has a prior bankruptcy;
• is self-employed or unemployed; or
• is unable to verify his or her business or location.

Other red flags are if the client’s business shows

• decreasing sales, or
• a trend of decreasing profits.

Question 15

In terms of behaving ethically, what are intermediaries’ duties to clients?

Answer 15

In dealing with clients, intermediaries must

• provide the coverage best suited to the clients’ needs;
• not be swayed by remunerative gain;
• not take advantage of clients’ lack of knowledge or inexperience;
• not speak ill or put in a negative light any industry partner, associate, or competition;
• hold information in strict confidence; and
• competently perform services undertaken, which requires them to be well educated and indicates the need for continuing education.

Question 16

What questions could an adjuster ask to ensure a restoration company is not defrauding the insurer?

Answer 16

• Did the contractor underprice the job at the estimate stage, perhaps to secure the job?
• Was there a change in the scope of damage?
• Was there damage that was not initially seen?
• Should the hidden damage have been anticipated?
• Did some items not respond to cleaning or repairs, resulting in the need for replacements?

Question 17

What is commercial fraud, why do commercial properties pose a greater risk than homeowner properties, and in what two ways is commercial fraud most often accomplished?

Answer 17

• Commercial fraud is a term used to describe a wide range of actions involving criminal activity or dishonesty against a business or company.
• It consists primarily of theft (inside and outside) and can also include elements of automobile and property fraud.
• Commercial establishments pose a greater fraud risk than homeowner properties because they tend to be larger and involve more people and are thus exposed to more risk.
• Two ways commercial fraud is accomplished: (1) Cargo theft involves stealing trucks and transport trailers full of goods. (2) Employee theft occurs when employees steal or misuse an employer’s resources without consent.

Question 18

What are the three most common types of fraud relating to property policy claims? Describe and give some examples of the two most common types.

Answer 18

Falsified claim fraud (inflated claims)

• Inflating a claim occurs when someone knowingly submits a claim on his or her homeowners or tenants policy for more than the actual value of the loss or damage.
• Insureds lie about details pertaining to the claim, such as date, location, and cause.
• Some insureds damage property or stage a break-in and then file a claim.
• During the claims process, insureds may fabricate evidence like repair bills, receipts, and appraisals.

Supplier fraud (restoration fraud)

• This occurs when contractors and restoration companies overbill for their work on a damaged property, assuming the insurer will pay the full amount without question.
• Contractors may be supporting (and possibly colluding with) service partners of the insurer or they may be hired by the insured to be paid with the claim’s settlement.

Arson used to be the most common type of fraudulent property claim but it has been on the decline in recent years

Question 19

In a case where a product is defective, what must the plaintiff show if the finding is based on fraud?

Answer 19

• The defendant made certain assertions about the product.
• The assertions were not true.
• The defendant knew the assertions were not, or were unlikely to be, true.
• The defendant made the assertions to get the plaintiff to buy the product.
• The plaintiff was justified in relying on the defendant’s assertions.
• The plaintiff was damaged in some way because of the defendant’s false assertions.

Question 20

What are indicators of fraud for facilities that store vehicles and repair them after a collision?

Answer 20

• Excessive storage rates—Storage facilities will charge a high storage fee for vehicles sitting in their compound (above the bylaw’s set rate).
• Holding vehicles hostage (not releasing vehicles)—Storage compounds will hold vehicles until the insured goes to the facility to sign paperwork. They may also refuse to release vehicles based on a fraudulent work order or paperwork signed by the insured at the scene of the accident.
• Deliberate delays—This is a tactic used to create more storage days and increase the monetary value for the release of the insured’s vehicle; for example, not answering phone calls, moving vehicles to other storage compounds they are affiliated with.
• Excessive damage—A body shop provides an estimate for more than the repairs are worth.
• Manufactured damages—A body shop purposely creates damage either to increase the repair bill or increase the threshold to write off the vehicle.
• Fictitious damages—An insured or body shop (or both) manipulate damages to add to the insurance claim; for example, the participants in a staged collision bill the insurer to repair damage to the vehicle that were not caused in the collision.

Question 21

What are the three main tiers of accident benefits coverage, and what do they not include?

Answer 21

• Minor injury
• Non-minor injury, which covers medical rehabilitation and attendant care (this coverage allows for someone to be paid to take care of the injured party)
• Catastrophic injury, which provides compensation for medical rehabilitation
• These are just the medical limits and do not include (1) coverage for income replacement if the injured party is off work due to the accident; or (2) attendant care, if the injured party needs someone to take care of him or her due to the severity of the injury.
• These benefits require the claim to show a substantiated medical loss proven by a medical professional.

Question 22

What are the four types of claim investigations? Define and give examples of each.

Answer 22

Individual

• Involves one party, typically the insured, an unlisted driver, or a passenger in the vehicle
• Investigations vary in terms of claims (for example, motor vehicle loss, property loss, injury), risk (for example, unlisted driver, non-disclosure, misrepresentation), and internal resource (for example, intermediary, appraiser)

Collusion

• An agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading, or defrauding others of their legal rights
• It can be used to accomplish objectives that are forbidden by law, such as gaining an unfair market advantage.
• Collusion can also be an agreement among firms or individuals to divide a market, set prices, limit production, or limit opportunities. It may involve unions, kickbacks, wage fixing, or misrepresenting the independence of the relationship between the colluding parties.

Network

• A group of interconnected individuals or suppliers
• A good example of a network investigation involves examining a towing company. The towing company is linked to a body shop, which is affiliated with a rental car company. The rental car company is linked to a health-care clinic, which is linked to a paralegal. This network provides all parties the opportunity to profit strategically from a motor vehicle accident.

Concealed

• Kept secret or hidden for a disclosed reason to ensure it proceeds with the highest level of discretion
• A concealed investigation may involve an insurer’s employee. It could also be an internal investigation where only the investigator and individuals involved understand what the investigation is about. Any party involved in the investigation may be asked to sign a nondisclosure agreement (NDA).

Question 23

How are social media platforms used to find details for a claim, and how must insurers properly use any information they discover during an investigation?

Answer 23

• Social media is widely used among friends and family where people willingly choose to broadcast details of their lives.
• Social media platforms can be used to obtain basic information such as locating or identifying an insured, witness, or claimant.
• They can also be used to verify or refute information that is obtained throughout the life of a claim or to provide additional insights into patterns of behaviour, which may provide avenues for further investigation.
• Information released online does not disappear once a post or photo is deleted—it is stored indefinitely.
• It is important to verify a company’s policy regarding the use of a social media profile. One must ensure that company guidelines are adhered to regarding the use of social media in a claim investigation. It is not recommended to use a personal profile to conduct searches.
• The information gathered by the investigator must be publicly available through social media.
• Those attempting to communicate with the insured, witness, or claimant through social media must accurately identify themselves and their role. They should not impersonate another individual or be dishonest about their identity to gather information.
• Any information gathered from social media must be preserved by taking a screenshot or creating a PDF that includes a time and date stamp. This step is crucial in case the information (for example, a photo or post) is later removed or becomes no longer publicly available. Once the findings are documented, they should be included in the investigative file, as this is producible in court.

Question 24

What are the two approaches to claim investigations, how are they handled, and what final steps do they share?

Answer 24

Stationary investigation

• This method does not require travel or movement outside of the office to gather information.
• Desk adjusters are responsible for reviewing and analyzing claim and policy details to determine the type and scope of investigation required.
• They use loss control tools and gather essential information from all possible resources to recommend further investigation or close non-suspicious tasks.
• Investigations are conducted using Internet technology and web resources to gather information. Information is also collected through external sources through the appropriate PIPEDA or privacy channels.

Field investigation

• Travelling to meet with insureds, witnesses, and/or claimants to obtain a recorded or a signed statement;
• visiting businesses to gather information or obtain surveillance footage;
• conducting scene examinations; and
• gathering key field evidence relating to the concerns that have been identified.
• Field investigations also include a stationary-level component to conduct various searches relating to the individuals involved, such as social media searches.

Common to both approaches

• Both approaches require that investigations are documented in a detailed and thorough manner to ensure that all information is captured.
• The information collected is reviewed and analyzed to determine if there is enough evidence to decide how to proceed or if further investigation is required.
• Once an investigation is complete, a detailed report is provided that outlines the findings of the investigation and the recommendations going forward regarding the reported claim, which is provided to the stakeholders.

Question 25

How can an intermediary prevent insurance fraud?

Answer 25

• Effectively pre-screen and qualify potential applicants
• Conduct accurate claims-history searches
• Ensure clients understand the risk
• Prevent fraud arising from intermediary operations
• Adhere to the code of conduct and code of ethics

Question 26

What codes of conduct are underwriters required to adhere to?

Answer 26

• Maintain high standards of integrity, dignity, and fairness in the conduct of business
• Ensure all professional dealings are performed in a prompt, efficient, and effective manner
• Provide high standards of service, exercise due diligence, and use professional judgment
• Avoid conflicts of interest and make adequate disclosure of such interests
• Be responsible for the acts or omissions of employees and intermediaries with respect to the conduct of business

Question 27

What are the rights and responsibilities of policyholders?

Answer 27

• Right to be informed
• Right to timely and transparent claims handling
• Right to complaint resolution
• Right to privacy
• Responsibility to understand their needs
• Responsibility to provide accurate information
• Responsibility to update their information
• Responsibility to report accurate facts