The following is the Executive Summary of Deloitte’s “Jurisdictional scan of regulatory practices to combat auto insurance fraud.”
2 Executive summary
- The Task Force was appointed by the Ministry in July 2011, with two key objectives:
- Determine the nature and scope of auto insurance fraud in Ontario
- Make recommendations on three focus areas:
- Prevention, detection, investigation and enforcement
- Regulatory practices in the auto insurance system
- Consumer engagement and education
- For the Task Force to meet all of its objectives, including making recommendations regarding regulatory practices, the Ministry, in consultation with the Task Force, has developed a research agenda. The research agenda includes the need to identify effective approaches to regulatory practices in other jurisdictions.
- This report presents the research results of the second focus area: a jurisdictional scan of regulatory practices to combat auto insurance fraud. The research results of a jurisdictional scans that pertain to the first and third focus areas are presented in separate reports.
2.2 Scope of Review
2.2.1 Jurisdictions approved by the Task Force
- This report summarizes the results of a search of publicly available information on specific features of regulatory practices to combat auto insurance fraud across six jurisdictions: the Province of Alberta (Alberta), the Province of British Columbia (British Columbia), the State of Florida (Florida), the State of Massachusetts (Massachusetts), the State of New York (New York) and the United Kingdom (U.K.). These jurisdictions were selected for their potential to generate insights that may be applicable to Ontario based on the expected relevance, comparability and availability of information.
2.2.2 Four questions asked by the Task Force
- Industry regulation
- What are best practices for anti-fraud regulation of industries (other than insurance) that may significantly impact fraud in auto insurance, particularly across health clinics, towing companies and motor repair shops?
- Facilitation of investigation
- Which regulatory practices most effectively facilitate investigations of fraud relative to the rules enabling insurers to detect and deny a fraudulent claim, referral fee transactions between auto insurance participants and mechanisms for sharing information?
- Incentives within systems
- Which regulatory practices most effectively incentivize within systems to prevent auto insurance fraud? The rules allowing insurers to offer incentives to consumers and dispute resolution systems, tools and processes are of specific interest.
- Other regulatory practices
- Which other regulatory practices are effective in combatting fraud by preventing claimant solicitation and recruitment by participants in the auto insurance system?
2.3 Effectiveness of strategies and approaches
- On conducting the jurisdictional scan of regulatory practices to combat auto insurance fraud, various strategies and approaches were found. However, there is limited or minimal information and statistics that would allow a reader to correlate how a specific approach or strategy actually impacts the cost of auto insurance fraud and abuse. As such, further research would be needed to complete this analysis.
- Professional judgment has been exercised to identify the online sources to search. Electronic key word searches were based on the four questions in scope and the availability of public data and information authored by third parties.
2.4 Key findings – Industry Regulation
2.4.1 Health clinics
- New York and Florida have created legislation to regulate healthcare providers dealing with injuries from auto accidents.
- New York requires healthcare clinics to provide a managed care plan and fees associated with treatments. Clinics deriving the majority of their revenue from treating injuries sustained in automobile accidents must be registered.
- Florida has introduced an outright ban on an abuse-prone class of treatment, acupuncture, which will no longer be eligible for personal injury benefits. One county in Florida enacted county-level laws requiring stringent checks on persons providing health services for personal injury claims. These local laws include a requirement for physical presence and provisions for physical inspections by the regulator.
- Alberta prescribes a process for effective diagnosis and treatment to limit the possibility of abuse.
- Massachusetts and Alberta require health clinics to maintain their accreditation status to serve patients.
2.4.2 Towing companies
- Florida, New York, Massachusetts and British Columbia, have enacted regulations specific to towing companies and regulate towing and storage rates.
- Specific regulations for towing in Alberta were not identified beyond driver and vehicle licensing.
- New York regulations only allow licensed towing companies called by law enforcement to tow vehicles from an accident. They prohibit towing companies from making any solicitation or offering a reward (e.g. monetary incentive) at the scene of an accident.
- Florida prohibits unauthorized tow truck operators from arriving at the scene of an accident before the arrival of an authorized tower. Additionally, Florida restricts the rates that towing companies can charge to amounts established by contract or by county.
- Massachusetts restricts the rates a towing company can charge when such towing has been ordered by law enforcement or other public authority. Towing companies must be licensed.
- The Insurance Corporation of British Columbia (ICBC) regulates the rates paid for towing and storage. British Columbia has certain cities that have enacted by-laws prohibiting solicitation at an accident site and in other instances prohibiting an operator from recommending a specific destination for a towed vehicle.
- In the U.K., insurers can limit costs to a "reasonable amount". Market mechanisms allow U.K. insurers to provide incentives to accident victims to use preferred towing companies. For example, a U.K. insurer may arrange for a towing company and take care of the towing costs while providing a free-of-cost rental car for the insured's convenience versus the alternative where consumers have to arrange for towing, pay out cash and risk not meeting the "reasonable amount" criteria for reimbursement.
2.4.3 Motor repair shops
- Alberta restricts motor repair shops from making repairs of more than CAD$2000 on automobiles involved in auto accidents without reporting the accident to the law enforcement.
- Florida requires motor shops be registered to be qualified to offer such repair services.
- New York requires motor shops to provide a detailed invoice of the services performed. In addition, New York restricts insurers from anti-competitive practices whereas insurers in the U.K. offer market incentives to customers (similar to ICBC's incentives). They recommend approved repair shops in an attempt to reduce costs and guarantee convenient and timely repairs.
- Massachusetts mandates that repair shops receive payments of deductibles from insured's where the amount is paid in full or part by an insurer.
- In British Columbia, ICBC sets the maximum rates for repair services and recommends customers use accredited repair shops. It incentivizes customers by guaranteeing convenient and timely repairs. In British Columbia, it is mandatory for a customer to report claims to the law enforcement for property damage above CAD$1000.
- In the U.K., an industry funded automotive safety and research center conducts research, delivers training and provides accreditation services for motor repair shops.
2.5 Key findings – Facilitation of investigations
2.5.1 Timelines for claim settlement
- In three jurisdictions, rules or statutes enable insurance companies to combat fraudulent activities.
- New York recently proposed to modify its laws to extend the time for insurance companies to investigate suspicious claims from 30 to 90 days.
- The U.K. reduced timelines by establishing a protocol for settlement of low value personal injury claims with standardized claims forms, fixes legal fees which reduces the settlement time and cost of legal proceedings. A recent increase in the monetary maximum of a claim eligible for fast track means that the vast volume of claims can be settled quickly through this system. Fast track claims involve stringent time limits for insurers and legal representatives in establishing any liability, standardized claim forms and fixed legal costs.1
2.5.2 Investigative agencies
- New York, Florida and Massachusetts established insurance fraud bureaus to investigate insurance fraud through enacted legislation. The New York and Florida insurance fraud bureaus are divisions of the state insurance regulator. In Massachusetts, the Insurance Fraud Bureau is a separate entity funded by insurance companies.
- The U.K. established an insurance fraud bureau as a private, not-for profit organization funded by the insurance industry, focused on detecting and preventing organized and cross-industry insurance fraud.
2.5.3 Insurance referral fees
- Referral fee transactions provide the opportunity to solicit accident victims, which presents challenges to investigators in terms of their legality as well as the inherent difficulty of investigating suspicions of fraud.
- In the U.K., systematic abuse of the referral fee system by auto insurance system participants has been the focus of attention as significantly inflating the cost to consumers.
- New York, Massachusetts and the U.K., already have active or proposed regulations to prevent referral fees between insurance industry participants.
- Florida established a code for participants advertising their services or sending unsolicited written communications.
- The U.K. has a claims management regulator that regulates otherwise unregulated referral or solicitation services.
2.5.4 Information sharing
- Although there are restrictions on sharing private information, Florida, Massachusetts and New York insurers have mandatory reporting requirements to their respective state fraud insurance bureaus regarding suspicious claims. These are guided by explicit rules and civil immunity to enable insurers to share information on suspicious claims.
- In Florida and Massachusetts, statutes explicitly empower insurance investigators to share information pertaining to insurance fraud with other parties sharing responsibilities of insurance fraud investigation.
- Massachusetts requires all insurers to report all claims to a central database which is used to combat premeditated and organized fraud by local community task forces. The database is also available for querying by member companies.
- Alberta has agreements with the provincial Transportation Department, law enforcement authorities, and the Insurance Bureau of Canada (IBC) allowing information sharing related to auto insurance.
- The ICBC in British Columbia as the monopoly provider of mandatory coverage has in-house access to insurance and driver information therefore mandatory reporting is not applicable. The ICBC investigates suspicious claims through an in-house special investigation unit.
- The U.K. does not require mandatory reporting of suspicions auto insurance claims. Two factors that may explain this strategy are privacy concerns and the less enforcement-driven and more collaborative cultural focus of anti-fraud efforts in the country, both by the Insurance Fraud Bureau and at the national fraud strategy level.
2.6 Key findings – Incentives within systems
- Regulatory practices allow insurers to offer incentives to consumers who agree to exclusive use of insurer-approved clinics. A range of tools and processes governing auto insurance products affecting decisions made by insurers and fraudulent claimants are in place. Furthermore, across the six jurisdictions, varying forms of dispute resolution systems and invoicing and payment protocols have been established.
- The jurisdictions have varied practices in allowing insurers to offer referral fees to customers and other participants.
- In the U.K., referral activity by insurers is prevalent in the insurance system. However, while the practice has not been outright prohibited, it is discouraged. Consequently, there is a recommendation for insurance companies to be open and forthcoming in disclosing such referral arrangements.
- New York has proposed regulations to criminalize "runners" as a means to prevent referral fees. A "runner" is defined as a person, who knowingly, for profit, seeks to procure clients, patients or customers on behalf of an attorney or health care provider for the purpose of falsely or fraudulently obtaining benefits under a contract of insurance or asserting a claim against an insurer or insured for the services provided by such attorney or health care provider.2,3
- In Florida and Massachusetts, state regulations governing fair treatment of customers require that customers clearly be made aware of their rights in choosing an insurance provider.
- In Alberta, the focus is on ensuring that services, such as motor repairs and health providers, offered by preferred and non-preferred vendors are comparable.
2.6.1 Dispute Resolution services
- New York has a mandatory bill for arbitration in the case of disagreement regarding auto insurance claims.
- Alberta has a tiered complaints and dispute resolution system. The system provides for a complaint process to be followed by insurers, a non-binding mediation process, and in case of premiums coverage disputes, a binding arbitration.
- British Columbia has an arbitration process for motor vehicle damage only. In addition, British Columbia provides specific mediation processes to address disputes that get to the point of being filed in the Supreme Court.
- In Massachusetts, a party cannot be compelled to arbitration unless it has been agreed to in writing.
- In Florida, binding arbitration in the 1990s was struck down by the courts. Consideration of pre-suit dispute resolution options has been the subject of legislative reviews.
- The U.K. has introduced a "fast track" low value personal injury claims process to provide for quick and efficient dispute resolution. Following the initial success of this process, the U.K. has expanded the "low value" limits to allow most personal injury claims to be routed through this process. The U.K. also has a legislative provision to create regulations for dispute resolution systems and a financial ombudsman service to facilitate dispute resolution.
2.7 Key findings – Other regulatory practices
- New York continues to be active in recent legislative efforts including creating legislation to prevent claimant solicitation in the form of an Anti-Runner law.
- The U.K. is in the process of instituting a ban on referrals between insurance system participants.
- According to an impact assessment prepared by the Ministry of Justice, the concern highlighted is that "…referral fees in personal injury cases contribute to the high costs and volumes of personal injury litigation. The Government considers that the activity of paying intermediaries such as claims management companies to buy access to claimants is in principle not in the public interest. The actions undertaken by claims management companies to identify potential claimants and encourage them to claim can also be objectionable. They may encourage excessive litigation for low value claims and fuel a compensation culture or perception of one. Legislation would be needed to ban referral fees."4
- The U.K. also has a claims management regulator responsible for regulating businesses providing claims management or related services not otherwise regulated. These include soliciting, advertising, advising or representing potential or actual claimants or using fee-based referral services.
- Massachusetts has provisions in place to prevent legal and medical professionals from soliciting auto accident insurance victims.
- Florida also has anti-runner provisions and has a reward scheme that pays the person providing tips leading to the arrest and conviction of persons committing insurance fraud.