What is insurance fraud and how to identify it

Insurance fraud might seem like someone else’s problem, but it affects us all. Your premiums cost more than they should because insurance fraud exists. It doesn’t matter if it’s home insurance or auto insurance, fraudsters will find a way to make a quick buck at your expense. And unfortunately, the costs are significant. It’s estimated insurance fraud costs Canadians more than $1 billion a year in extra insurance premiums.¹But what can you do about insurance fraud?

Fighting fraud starts with you. Learn how to protect yourself against fraud (we’ll help you!) because when you do, you help keep insurance costs fair for everyone.
If you see or suspect fraud, report it.
Trust your gut. If someone encourages you to pay cash on the spot (or demands it), or wants you to lie when filing your claim, just say no and go with what’s right.

Knowledge is power when fighting insurance fraud. We’ll share a few examples so you can spot the red flags of a potential insurance scam. But first, what is fraud in insurance?

What is insurance fraud?

Insurance fraud is when someone lies, deceives or tricks others to get money or benefits they shouldn’t from an insurance policy. The fraud target can be the insurance company, the policyholder or both. And, it should go without saying, insurance fraud is illegal.

What are the different types of insurance fraud?

Where there is a will, there is a way, and when it comes to insurance fraud there are many ways! Even so, insurance fraud is generally sorted into two broad groups²:

Premeditated insurance fraud. This is planned and often involves a network of people who are in on it. They work together to bill for services that they never provided. Or (and this is important!) – they work together to trick you into thinking you have coverage, when you really don’t.

Opportunistic insurance fraud. This type of fraud happens when someone seizes the chance to exaggerate or inflate an otherwise legitimate claim.

In both cases, fraudsters catch unsuspecting people when they’re most vulnerable. They often act like they are helping you but they’re not. One of the best ways to understand is to give you some examples.

Claims fraud

Claims fraud takes place when an insurance policy is already active. Fraudsters cause real or fake accidents, damages or injuries, and use shady service providers to cash in on insurance payouts. They may plan out their actions ahead of time or take advantage of current insurance claims that are already on the go. For example, claims fraud might look like:

Pre-existing damage added to the list of repairs needed as if it happened at the same time as the new damage being reported.
Extra damage caused to increase the cost of the repairs or services billed (usually medical in nature) that are unnecessary or never provided.

Seller fraud

Seller fraud takes place when purchasing a policy. Here, fraudsters might try to trick you with heavily discounted prices but all they give you is invalid or forged documents. You may not have any coverage when you need it most. Under this type of fraud, top scams include “ghost brokers” and “fake brokers:”

Ghost brokers take money for insurance upfront, provide false proof of insurance and then disappear. Simply put, they “ghost” the customer. Sometimes the policy documents are forgeries. Other times the fraudster will set up an actual policy, give the documents to the customer and then cancel the policy without the customer’s knowledge.
Fraudulent brokers may actually do some legitimate business and will help you get a policy in your name to secure an insurance slip. However, the policy will include incorrect information. For example, the policy may not list high-risk drivers (who otherwise should be on the policy) or state the wrong address to obtain a more favourable price. Many fake brokers also charge a “broker fee.” This is a red flag, too. A real broker makes money from the insurance companies, and in most provinces, they’d never charge you directly for their services.

Did you know? Insurance agents and brokers must be provincially licensed in order to do business. You can check with your provincial insurance regulator to ensure you’re working with a licensed professional. When in doubt, check them out.

What can I do to avoid insurance fraud?

Learning about insurance fraud is the first step to avoiding it. It’s also important to know that in Canada, insurance is highly regulated by the government. From pricing and coverage requirements to licensing for insurance agents and brokers, there should be no nasty surprises. And remember to be cautious. If a deal looks too good to be true, it probably is.

There are other proactive steps you can take to avoid insurance fraud too, like:

Make sure your details are entered correctly if someone helps you get insurance quotes.
Review all documents from your insurer to ensure everything is correct. Double check that your name, address and other details are right.
Take the time to read your insurance policy. It might not be a page turner, but this will help to make sure you understand what you’re covered for and how coverage applies during a loss.
If you’re in a collision, see only mechanics, medical and legal professionals you know and trust, or credible vendors. Never take referrals offered by strangers.
Take pictures and lots of them. Pictures come in handy if an insurance fraud investigation is needed.
Never sign blank insurance claims forms.
Review the insurance claim once it’s completely filled out to ensure the information is correct.

Tip: If you’re injured, keep detailed records of your treatments. Take note of dates, locations, treatment providers, diagnoses, services and any medicine, supplies or equipment you received. Compare your records against the statements you receive from your insurance company.

What do I do if I suspect insurance fraud?

If you suspect suspicious activity, report it because combatting fraud is a team effort. Plus, by reporting fraud you’ll be helping to stop repeat offenders and this can lead to reduced insurance premiums for everyone. An insurance fraud investigation only happens when someone speaks up.

So, how do you report insurance fraud? A survey commissioned by FSRA (Ontario’s insurance regulator) suggests that while Ontario drivers are worried about being an auto insurance fraud victim (40%), only one in five would know how and where to report it.³ Let’s change that.

Begin with your insurer and move onto other agencies as necessary, like:

Équité Association , a not-for-profit organization that works with the insurance industry to reduce and prevent insurance fraud.
Crime Stoppers , a network of non-profit organizations that lets people anonymously share information about a crime or potential crime with police.
Canadian Anti-Fraud Centre , a national police service that collects information on fraud across Canada and helps with enforcement and prevention.

How can I manage my insurance while avoiding fraud?

We’ll say it again – avoiding insurance fraud is a team effort. And, when you insure your home and car with Sonnet, you can trust us. Our agents are here to help you every step of the way. From getting quotes and buying your policy to helping you navigate an insurance claim; Sonnet insurance agents are just a call or click away to help you with your insurance needs and steer clear of insurance fraud.

Start saving on your insurance.

Vigilance is key in fighting insurance fraud - IBC provides tips for consumers this Fraud Prevention Month

Premeditated vs. Opportunistic Insurance Fraud

Majority of Ontarians Believe Auto Insurance Fraud is Prevalent in the Province