Whether it’s online or through the traditional means, insurance fraud continues to be an underlying factor for high premiums on the market in today’s insurance industry.
Based on a 2012 KPMG report, the industry estimates auto insurance fraud in Ontario costs insurance companies $1.6 billion a year. And in an Aviva Canada study, they estimate auto insurance fraud costs the industry $2 billion per year Canada-wide.
One major challenge is application fraud, where fraudsters create accounts using someone else’s personal information, fake details or a mix of the two. For example, they may alter or falsify application information to reduce their premiums or open insurance policies for fictitious beneficiaries in the case of a life insurance application.
Attempted online fraud of this type was up 516% among US based fraud detection company Iovation’s customers from 2015 to 2018.
Iovation has also identified several other types of fraud challenges, such as:
- Ghost broking: Fraudsters purchase insurance with false details or create false documents that look like they are from a legitimate insurance carrier. They then resell the policy to an unsuspecting victim, who is not covered if an event occurs. CTV News recently did a story about the problem of ‘ghost brokers’.
- Fraudulent claims: A claimant makes up or exaggerates a claim. Online, third-party claims fraud is when a person falsely claims to be a broker submitting a fictitious or exaggerated insurance claim on behalf of a client.
- Bad debt: Insurers provide coverage for a period of time for which they do not receive payment, which might happen when the lack of payment is due to a bad cheque, stolen credit card, etc. Bad debt is a particularly major issue for auto insurance carriers, typically making up 1-2% of all personal auto premiums written.
- Account takeover: This is a form of fraud more common with life insurance policies. It occurs when someone not insured on a policy accesses it to either obtain sensitive information or dishonestly route an upcoming claims payment to themselves.
- Contact centres: Fraudsters may gather data about policyholders by mining social media or the dark web. Subsequently, they combine high-pressure tactics with spoofing technology to socially engineer and take over policyholders’ accounts, or apply for new policies.
If you have any questions about insurance fraud or any other insurance related matters you can contact one of our seasoned professionals at Pacific Insurance Brokers Inc. at 416-494-1268.