Study 2: Types of Fraud - Summary (Part 1) Flashcards
1
Q
What is policy fraud
A
- A category of fraudulent acts by a person or an entity, or both, to obtain or change an insurance policy
- Can be carried out by a consumer seeking insurance, an applicant for insurance, an insured, or someone who represents or impersonates an applicant or insured
2
Q
Two different circumstances that constitute policy fraud
A
- An applicant for insurance or an insured knowingly misrepresents, or omits to disclose, information that impacts the rating of a risk.
- An applicant for insurance or an insured knowingly submits a falsely created or altered document, or false information contained therein, to support or confirm false rating information.
3
Q
Policy fraud occurs when false information results in either of these three conditions
A
- Issuance of a policy that would otherwise not be issued
- A reduction in insurance premium that would be charged if the rating information were true
- Addition or removal of a policy condition
4
Q
The materiality test
A
If the rating information impact is such that any of the Three Conditions applies, the impact is deemed to be material to the risk.
5
Q
Altered documents
A
- The submission of a falsely created or altered document to confirm false rating information is presumed to be sufficient proof of policy fraud intent.
- Onus of proof shifts to the person who presented the document to prove they didn’t know it was false
6
Q
Typically two motives for committing policy fraud
A
- Reducing the amount of insurance premium (price) required to purchase an insurance policy (this motive is commonly referred to as rate evasion)
- Accessing insurance where the applicant is a high risk and is having difficulty obtaining insurance, regardless of the price
7
Q
Falsified claim fraud
A
- Determined after thorough investigation into the validity of an insurance claim
- Present greatest legal risk to insurers - legal consequences for insurers who make a premature determination of fraud, as well as negative publicity
8
Q
Two different circumstances constitute falsified claim fraud
A
1. Fraud arising from a fictitious claim
- loss never occurred
- loss occurred at a location other than the reported location
- loss occurred at a different date or time than reported
- loss was deliberately caused to profit or gain advantage
- cause of loss is different than reported
2. Fraud arising from an exaggerated claim
- claimant knows that the extent of damage or injury claimed exceeds the actual extent of damage or injury; or
- one or more insurable benefits are knowingly misrepresented by the claimant.
9
Q
Motives for falsified claim fraud
A
- Pure financial profit (ex. money through a settlement, replacing possessions with newer models)
- Accommodation for deductibles (ex. inflate a claim to justify paying for a deductible)
- Elimination of financial burden or commitment (ex. destroy a car to avoid paying the loan for it)
- Source of income or alternative to employment
- Coverage for a previous uninsured loss
- Rationalization for past or future costs of insurance
- Opportunity to gain possession of property that they would otherwise not purchase
- Therapeutic remedy after feeling victimized
10
Q
Indemnity Management Versus Falsified Claim Fraud
A
- Claims departments must manage indemnity payments: ensure clients receive exactly what they are entitled to
- Anything less is unfair to claimant, anything more impacts insurer’s capacity
- Abnormal or uncommon circumstances related to the loss, or the client’s attitude or actions during pursuit of payment, can contribute to interpretation of a motive to gain financially
- However, these actions are just indicators, and not elements of fraud
11
Q
Examples of insurer suppliers
A
- Law firms
- Health-care clinics
- Language translators
- Accountants
- Collision reporting and repair
- Tow trucks
- Vehicle rental
- Salvage
- Storage
12
Q
The following acts constitute supplier fraud, when a supplier…
A
- alters or causes additional damage to property that is the subject of an insurance claim;
- submits an invoice to, or receives payment from, an insurer for goods or services not provided;
- misrepresents an estimate, quotation, or other document intended to support or rationalize the provision of goods or services;
- submits a false or altered document, record, photograph, or video to support or rationalize the provision of goods or services;
- misrepresents accreditation or licensing, or uses false accreditation or licensing, while providing goods or services;
- counsels a claimant to misrepresent the cause of a loss, or extent of damage or injury, that is the subject of an insurance claim; or
- removes a claimant’s property or is in possession of property taken from a claimant without the claimant’s consent during an insurance claim.
13
Q
Motives for supplier fraud
A
- Costliest of insurance fraud categories (high frequency of occurrences, volume of available funds, absence of historical attention, lack of regulatory strategies)
- Little to no risk for a supplier to test ability to profit from fraud (ex. add the cost of a fictional item, add an extra hour of labour) - worst case is that the legitimate portion of the invoice still gets paid
- In most jurisdictions, insurers can’t void a payment to a supplier who has been caught committing fraud
14
Q
Common characteristics of supplier fraud
A
- Supplier collusion with claimants
- Supplier-initiated corruption (bribes to insurance employees or adjusters)
- Cross-supplier collusion and corruption (one supplier will refer a claimant to another in exchange for a kickback)
- Appeal to criminals
- Regulatory constraint to prohibit suppliers
15
Q
Intermediary fraud
A
A fraudulent act by a person or entity while involved in
- advertising insurance for sale
- offering insurance for sale
- selling insurance
- servicing insurance policies in force
