Big $$$ costs for auto Insurance Fraud

July, 2012 – How much does auto insurance fraud cost Ontario? While the exact figure is difficult to ascertain, Ontario’s Auto Insurance Anti-Fraud Task Force is seeking to tackle the issue and bring the costs down.

The Task Force, created after the provincial government’s 2011 budget, released a status report that provides updates and recommendations for the next steps in handling fraud in Ontario.

To attempt to put a dollar value on the cost of fraud in the province, the Task Force engaged KPMG to study the issue and then invited Ernst & Young to review the report. The KPMG concluded that “there is insufficient information to provide a precise and statistically based estimate of auto insurance fraud in Ontario.” The study did, however, provide a wide range for the scope of fraud. It estimated that the cost could range from 9 to 18 percent of annual claims costs, which in 2010 would have amounted to between $769 million and $1.56 billion. KPMG calculated the impact of this estimate of fraud on the average auto insurance premium in the province to be between $116-236 in 2010.

In its review of the report, Ernst & Young indicated that KPMG’s report may significantly underestimate the extent of overall auto insurance fraud in Ontario because it does not specifically address premeditated fraud, which, as Ernst & Young noted, could range between $130 to $260 million per year.

“Combining this estimate of premeditated fraud with KPMG’s understated estimate of organized fraud, creates a value of organized and premeditated auto insurance fraud in Ontario of between $305 to $535 million per year (which itself should also be viewed as an underestimate),” says the Task Force’s report.

The Task Force’s status update identifies a number of recommendations that can aid in reducing fraud in the Ontario auto insurance system, namely:

  • Oversight of health clinics’ auto insurance business practices
  • Regulating the towing industry
  • Expanding investigative authority for the Financial Services Commission of Ontario (FSCO)
  • Mandatory disclosure by insurance companies about how they select and supervise their preferred service providers � including independent medical examinations; and
  • Developing a consumer engagement and education strategy.

The task force’s work builds on a series of recent changes the government has made to help address auto insurance fraud, including:

  • Implementing a package of auto insurance reforms in September 2010
  • Starting a pilot project using the Health Claims for Auto Insurance database to detect potential fraudulent activity
  • Introducing new rules to ensure that health care treatments are provided as invoiced
  • Issuing a guideline to prevent insurers from being invoiced for medical devices at a significantly higher than market rate; and
  • Requiring CEOs of auto insurers in Ontario to annually attest that their accident benefit cost controls are effective and that claimants are being treated fairly.

The Task Force will seek stakeholder feedback on its proposed recommendations before submitting a final report this fall.

The Insurance Bureau of Canada (IBC) congratulated the Ontario government and the Task Force on their work to crack down on fraud.

“These are important steps and we thank the government and other stakeholders who are working so hard to fight fraud,” said Ralph Palumbo, Vice President, Ontario, with IBC in a statement. “We all have a role to play in fighting the problem of fraud, raising awareness and lowering tolerance.”

The Task Force’s status update can be read in full online.