Fraud costs half a billion dollars a year, new study says

Toronto, ON (Oct. 17, 2001) – The property and casualty insurance industry paid an estimated $500 million last year for personal injury insurance claims that contained some form of fraud, according to a study released today by the Canadian Coalition Against Insurance Fraud (CCAIF). Canadians submit a personal injury claim when they have been injured in their automobiles or their homes.

The study, Premeditated and Opportunistic Fraud in Personal Injury Claims, is the first of its kind and is based on a review of more than 4,000 closed claims that resulted in payment in the Atlantic provinces, Ontario, Manitoba, Saskatchewan and Alberta. The study was prepared for the CCAIF by a team of researchers with the Gerald Schwartz School of Business and Information Systems at St. Francis Xavier University in Antigonish, Nova Scotia.

“We know that the number of personal injury claims has been rising in Canada even though the number of serious automobile collisions has been falling,” says Nancy Tibbo, Director of the Canadian Coalition Against Insurance Fraud. “We commissioned the study because although we suspected that fraud may be playing a part in these rising costs, we didn’t have the data available to tell us how widespread the problem is and how much of a role fraud actually plays.”

According to the study, at least 26 per cent of all personal injury claims in Canada contain elements of fraud. Opportunistic fraud – exaggerating the extent of an otherwise legitimate injury for financial gain – represents the most frequent type of personal injury fraud committed. Premeditated fraud (e.g. the staged accident or deliberately caused accident), that is committed by a person who knowingly defrauds his or her insurance company, was found to be less prevalent. The study also found that both opportunistic and premeditated fraud is more widespread in major cities and metropolitan areas than in small towns and rural areas.

Fourteen companies, public and private (representing almost 60 per cent of the Canadian property and casualty insurance market) contributed to the study that examined randomly selected files from their records. In total, 4,066 closed-with-payment insurance claims were examined.

Other study results showed that the cost of fraudulent personal injury claims are highest in Ontario and lowest in Alberta. “In Alberta, between seven and 12 per cent of personal injury claims paid out by insurance companies are fraudulent, whereas in Ontario, the rate rises to between 21 and 31 per cent,” says Barry Wright, one of the researchers for the study, as well as Assistant Professor, Department of Business Administration at St. Francis Xavier University in Antigonish, Nova Scotia. The study cites that these differences are due to the lower ceiling for benefits available in Alberta compared to those of other provinces.

“Increasingly, automobile accidents are becoming more expensive for the insurance industry,” says Tibbo. “Because we now know that fraud is prevalent in the system, we can use this information to work towards reducing the insurance industry’s costs by helping to reduce the number of fraudulent claims. The results of this study also provide us with a solid foundation for the anti-fraud activities we have planned for the coming year. It’s important for Canadians to remember that when somebody makes a false or exaggerated claim, ultimately, all consumers bear the cost.” A copy of the highlights of the report is available by calling the CCAIF at 416-362-4550 or by downloading a copy from the CCAIF website at (click on ‘Insurance Fraud’).

The Canadian Coalition Against Insurance Fraud was created in 1994 to develop solutions to curb property and casualty insurance fraud through a variety of initiatives including public awareness campaigns, strengthened detection and investigative strategies, improved business practices, and legislative and regulatory changes. Members include private insurance companies, consumer advocacy groups and public auto insurers.

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